Chapter 9 Flashcards
How are contributions made to a Roth IRA handled for tax purposes?
Not tax deductible
Who were Keogh plans designed to provide pension benefits for?
The self-employed
Within how many days must a Traditional IRA be rolled over to another IRA in order to avoid tax consequences?
60 days
A Roth IRA owner must be at least what age in order to make tax-free withdrawals?
59 1/2 and owned account for a minimum of 5 years
Rob has a benefit at work which enables him to defer his current receipt of income and have it paid at a later date, when he will probably be in a lower tax bracket. Which benefit fits this description?
Deferred compensation option
When a qualified plan starts making payments to its recipient, which portion of the distributions is taxable?
Gains
What is the purpose of the Employee Retirement Income Security Act of 1974?
To protect the rights of workers covered under and employer-sponsored plan.
Dana is an employee who deposits a percentage of her income into her individual annuity. Her company also contributes a percentage into a separate company pension plan. What kind of annuity is this considered?
Qualified retirement annuity
Which retirement plan does not qualify for federal income tax deductions?
Roth IRA
Within how many days must a rollover be completed in order to avoid being taxed as current income?
60 days
What are the federal requirements of a qualified plan?
- Must benefit a broad cross-section of employees
- Vesting schedule must be defined
- Employer establishes the plan
What would disqualify a company’s retirement plan from receiving favorable tax treatment?
It is temporary
What are the 3 types of defined contribution plans?
1) Profit-sharing plan
2) Stock bonus plan
3) Money purchase plan
What is a pension?
A benefit plan that establishes a definite future benefit, tied to years of service and/or compensation.
What is the purpose of a 401(k) plan?
Employees elect to take a salary reduction by deferring amounts into a retirement plan.
Who is eligible for a 403(b) plan?
Nonprofit groups, education groups, religious groups, etc.
What is the Self Employed Individuals Retirement Act of 1962?
An act that treats small business owners and self-employed individuals as employees so they can participate in a qualified plan.
Who is qualified to participate in a Keogh Plan (HR-10s)?
Small business owners, self-employed individuals as long as the employees are included.
What is a SEP?
A simplified employee plan for small businesses or self-employed where an employee has an individual retirement account to which the employer contributes.
What is the purpose of a SIMPLE Plan?
To allow eligible employers to set up a tax-favored retirement savings plan for their employees.
What is a Traditional IRA?
An individual retirement plan set up by the person so they can save money for retirement and receive a current tax break.
What is a Roth IRA
A product of 1997 Tax Relief Act where no income tax deductions can be taken from contributions made but the earnings on those contributions are tax-free when withdrawn.
When is a withdrawal from a Roth IRA considered as qualified?
Funds have been held in account for 5 years and owner has reached 59 1/2, has died, become disabled, or is buying first home.
