Chapter 9: Flashcards
401(k) Plans:
The 401(k) Plan is a 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 Taxes are not paid until the money is withdrawn from the account.
403(b) Plans:
The 403(b) Plan is a retirement plan for certain employees of public schools, employees of specific tax-exempt organizations, and certain ministers.
Defined Benefit Plans:
Defined benefit plans are pension plans under which a specific benefit formula determines benefits.
Defined Contribution Plans
: Defined contribution plans are a 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:
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:
Profit-sharing plans are 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 qualified plan is 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:
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:
Rollovers are an individual retirement account established with funds transferred from another IRA or qualified retirement plan that the owner had terminated.
Roth IRA:
Roth IRA is 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:
Savings Incentive Match Plan for Employees (SIMPLE) is a qualified employer retirement plan that allows small employers to set up tax-favored retirement savings plans for their employees.
Simplified Employee Pension:
Simplified Employee Pension (SEP) is a type of qualified retirement plan under which the employer contributes to an individual retirement account set up and maintained by the employee.
Traditional IRA:
Traditional IRA is an 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.
