Chapter 6 (Federal Tax Considerations for Life Insurance) Flashcards
What are some examples of qualified plans?
IRA, 401(k), HR-10 (Keogh), SEP, SIMPLE
What is required to qualify an individual to contribute to a traditional IRA?
Earned income
What are the consequences of withdrawing funds from a traditional IRA prior to the age of 59 1/2?
10% penalty
An employer is sponsoring a qualified retirement plan for its employees where the employer contributes money whenever the business has profit. What is this type of plan called?
Profit-sharing plan
What are the income tax benefits of a qualified plan?
Employer contributions are tax deductible and are not taxed as income to the employee. The earnings accumulate tax deferred.
In what form of payment must the contributions to a traditional IRA be made?
In cash
What is the penalty for excessive contributions to a traditional IRA?
6%
What type of plan is a 401(k)?
Qualified profit-sharing plan
In qualified plans, are employer contributions taxed as income to the employees?
No, employer contributions are not taxed as income to the employees.
What qualified plan is suitable for the self-employed?
HR-10 or Keogh
Who qualifies for tax-sheltered annuities, or 403(b) plans?
Employees of nonprofit organizations under Section 501(c)(3) and employees of public school systems
If a retirement plan is qualified, what does that mean?
The plan has favorable tax treatment.
SIMPLE plans are available to groups of how many employees?
No more than 100
What is the primary purpose of a 401(k) plan?
Provide retirement income
For a retirement plan to be qualified, it must be designed for whose benefit?
Employees
