Ch. 9 Flashcards
401(k) plans
retirement savings plan sponsored by an employer. It lets workers save and invest a piece of their paycheck before taxes are taken out. Taxes are not paid until the money is withdrawn from the account
Defined benefit plans
pension plans under which a specific benefit formula determines benefits
Defined contribution plans
tax-qualified retirement plan in which annual contributions are determined by a formula set forth in the plan. Benefits paid to a participant vary with the amount of contributions made on the participant’s behalf and the length of service under the plan
Employee Retirement Income Security Act of 1974
ERISA (The Employee Retirement Income Security Act of 1974) is a federal law that sets minimum standards for most voluntarily established pension and health plans in private industry to provide protection for individuals in these plans
Keogh plans
are designed to fund the retirement of self-employed individuals. The name is derived from the Keogh Act (HR-10) author, under which contributions to such plans are given favorable tax treatment
Nonqualified withdrawal
If a withdrawal is taken without meeting the above criteria and the amount of the withdrawal exceeds the total amount contributed, it is a nonqualified withdrawal. The earnings from the contributions become taxable
Profit-sharing Plans
any plans whereby a portion of a company’s profits is set aside for distribution to employees who qualify under the plan
Qualified plan
a retirement or employee compensation plan established and maintained by an employer that meets specific guidelines spelled out by the IRS and consequently receives favorable tax treatment
Qualified withdrawals
provide the tax-free distribution of earnings from a Roth IRA. To be a qualified withdrawal, the funds must have been held in the account for a minimum of five years; and if the withdrawal occurs for one of the following reasons, no portion of the withdrawal is subject to tax; permanent disability; made by a beneficiary after the owner’s death; or used to buy, build or rebuild your first home ( $10,000 maximum )
Rollovers
individual retirement account established with funds transferred from another IRA or qualified retirement plan that the owner had terminated
Roth IRA
an individual retirement account allowing a person to set aside after-tax income up to a specified amount each year. Both earnings on the account and withdrawals after age 59 1/2 are tax-free
Savings Incentive Match Plan for Employees (SIMPLE)
a qualified employer retirement plan that allows small employers to set up tax-favored retirement savings plans for their employees
Simplified Employee Pension (SEP)
type of qualified retirement plan under which the employer contributes to an individual retirement account set up and maintained by the employee
Traditional IRA
individual qualified retirement account through which eligible individuals accumulate tax-deferred income up to a certain amount each year, depending on the person’s tax bracket
Employee Retirement Income Security Act of 1974 (ERISA)
a federal law that establishes minimum standards for most voluntarily established retirement and health plans in private industry. It aims to protect employees by ensuring that plan funds are managed responsibly and that participants receive the benefits promised by their employers
