Chapter 9 Retirement Flashcards
2 Categories of Retirement Plans
- Qualified
2. Non Qualified
Qualified
meet govt requirements and receive tax benefits
Non-Qualified
Do not meet govt requirements and and do not receive tax benefits
In order for retirement plans to be approved by IRS for favorable tax treatment, they must fulfill basic requirement categories of:
- Participation
- Coverage
- Vesting
- Funding
- Contributions
ERISA
Employee Retirement Income Security Act of 1974
protects employees from possible loopholes in plans
allows them to receive contributions for retirement
Defined Contribution Plans
addresses funds that are literally deposited into employee account.
tax qualified, contributions determined by a formula
Profit Sharing Plans
allows employee to participate in companies profits through a formula maintained by employer.
employee does not have to make yearly contributions
but should so it can qualify for favorable tax treatment
Stock Bonus Plan Benefits
delivered as company stock instead of profits
Money Purchase Plans
depend on fixed contributions.
Defined Benefit Plans
pension plans to provide future benefits that are tied to employees years of service, amount of compensation or both.
lesser of 100% of last 3 years salary or $210,000
401K
take money as usual in paycheck or defer a specific amount. employer typically matches. amounts deferred not included in gross income, not taxable until distribution
maximum annual defer amount - $18,000
$24,000 for those 50 or older
403B
Tax sheltered annuity plan for non profits
Section 457 Plans
Deferred compensation plan for employees of state/local govts. amounts deferred not included in gross income until received or made available.
allowable deferment: 33 1/3% or $18,000
Keogh Plan
qualified plan, allows unincorporated business owners to participate in plan as employees.
for self employed, contributions have special tax treatment
Who can open Traditional IRA
anyone under age 70 1/2
Traditional IRA
Individual retirement account. eligible people accumulate tax deferred income up to a certain amount each year, depending on tax bracket.
contributions not taxable as income
can contribute $5500 a year
50+ years old can contribute an extra $1,000
withdrawals must start April 1st of year in which person turns 70 1/2
minimum amount must be withdrawn each year
Roth IRA
Taxed as income before contribution is made. at time of payout it is tax free.
no age limits
withdraws are qualified or non qualified
distributions are not mandatory and can be inherited
in non qualified withdrawal earnings are subject to tax
Rollover IRA
IRA whose funds have been distributed and reinvested in another IRA within 60 days of distribution
Simplified Employee Pension Plan
SEP
qualified plan in which employer contributes to an individual retirement account set up by employee
Spousal IRA’s
an account that people eligible to set up IRA’s for themselves can set up jointly with non working spouse
Vesting
Right of employees to retain all or part of annuities purchased by employers contributions on their behalf or in some plans to receive cash payments or equivalent value on termination of employment after certain conditions have been met.
