Ch. 3 wealth building/college

Question 1

401 k

Answer 1

retirement plans that companies offer where money grows tax-deferred

Question 2

403 b

Answer 2

retirement plan just like 401 k except offered by non-profit organizations

Question 3

457 Plan

Answer 3

non-qualified, deferred retirement plan for tax-exempt government agencies

Question 4

529 Plan

Answer 4

tax-deferred college savings plan, usually sponsored by the state

Question 5

custodian

Answer 5

one responsible for an in account in someone else’s name

Question 6

Direct Transfer

Answer 6

movement of tax-deferred retirement plan money from one plan to another

Question 7

ESA

Answer 7

after-tax college fund that that grows tax-free, eligibility is determined by parent’s income

Question 8

IRA

Answer 8

tax-deferred arrangement for people with earned incomes; not taxed until money is withdrawn

Question 9

Pre-Paid Tuition

Answer 9

paying for college ahead of time by accumulating units of tuition

Question 10

Rollover

Answer 10

movement of funds from a tax-deferred retirement plan to another

Question 11

Roth IRA

Answer 11

retirement account funded with after-tax dollars & it grows tax-free

Question 12

SEPP

Answer 12

pension plan where employee & employer contribute to individual retirement account

Question 13

tax-favored dollars

Answer 13

money working for you tax-deferred/tax-free in a retirement plan

Question 14

UGMA

Answer 14

legislation that provides a tax-effective way of transferring property to a minor without trusts/guardian restrictions

Question 15

UTMA

Answer 15

similar to UGMA but extends to include real estate, paintings, royalties, & patents

Question 16

What type of retirement plan could a self-employed person use?

Answer 16

SEPP

Question 17

What should you do with your retirement accounts when you leave a company?

Answer 17

direct transfer

Question 18

What are advantages of a Roth IRA?

Answer 18

everyone with earned income is eligible, an after-tax IRA that grows tax-free, more choices, higher bracket of retirement, tons of flexibility, no taxes when cashed out

Question 19

What is baby step 4 and why do you have to have an emergency fund fully funded before this step?

Answer 19

15% in retirement plans; its a fallback

Question 20

List some ways to avoid student loan debt without a college fund?

Answer 20

job, scholarship, money market mutual funds

Question 21

Explain the Rule of 72.

Answer 21

a way to calculate the length of time it would take to double a sum of money. divide 72 by the interest rate

Question 22

What does IRA stand for?

Answer 22

Individual Retirement Arrangement

Question 23

What does SEPP stand for?

Answer 23

Simplified Employee Pension Plan

Question 24

As of 2008. what is the maximum annual contribution to a Roth IRA?

Answer 24

$5,000

Question 25

IRA is not a type of investment at a bank. What is it?

Answer 25

The tax treatment on an investment

Question 26

What are the conditions in which you can withdrawal 100% of your Roth IRA (after 5 years)

Answer 26

1. over 59 1/2 years old
2. death or disability
3. first time home purchase (bad idea)

Question 27

What is SEPP perfect for?

Answer 27

self-employed, small companies

Question 28

Why shouldn’t big companies use SEPP?

Answer 28

For every employee that has been there for the last 3 out of 5 years, the same percentage of their pay must go into a retirement plan

Question 29

Do not use a ___________ (GIC)

Answer 29

Guaranteed Investment Contract

Question 30

You should roll to a Roth only if:

Answer 30

1. you will have $70,000 by age 65
2. can afford to pay taxes separately
3. understand all taxes will become due on the rollover amount

Question 31

Should you ever borrow on your retirement plan?

Answer 31

NEVER

Question 32

What are the steps of baby step 4?

Answer 32

1. fund 401 k to the match
2. fund Roth IRAs
3. continue to fund 401 k
   At the point 15% of income is hit, stop.

Question 33

What does ESA mean?

Answer 33

Educational Savings Accounts

Question 34

What is the maximum contribution annually per child?

Answer 34

$2,000

Question 35

What does UTMA stand for?

Answer 35

Uniform Transfer to Minors Act

Question 36

What does UGMA stand for?

Answer 36

Uniform Gift to Minors Act

Question 37

What are the 3 nevers of College Savings?

Answer 37

1. never save using insurance
2. never save using savings bonds
3. never save using pre-paid tuition

Question 38

What should you do instead of an ESA if you need the money in less than 5 years?

Answer 38

money market mutual fund