Chapter 9- retirement plan

Question 1

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- Taxes are not paid until the money is withdrawn from the account.

Answer 1

401(k) Plan

Question 2

a retirement plan for certain employees of public schools, employees of specific tax-exempt organizations, and certain ministers.

Answer 2

403(b) Plan

Question 3

pension plans under which a specific benefit formula determines benefits

Answer 3

Defined benefit plans

Question 4

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.

Answer 4

Defined contribution plans

Question 5

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.

Answer 5

Employee Retirement Income Security Act of 1974

Question 6

designed to fund the retirement of self-employed individuals
- under which contributions to such plans are given favorable tax treatment.

Answer 6

Keogh Plans (HR-10)

Question 7

If a withdrawal is taken without meeting the above criteria and the amount of the withdrawal exceeds the total amount contributed
- The earnings from the contributions become taxable.

Answer 7

nonqualified withdrawal

Question 8

any plans whereby a portion of a company’s profits is set aside for distribution to employees who qualify under the plan

Answer 8

Profit-sharing plans

Question 9

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

Answer 9

qualified plan

Question 10

provide the tax-free distribution of earnings from a Roth IRA.
-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)

Answer 10

Qualified Withdrawals

Question 11

an individual retirement account established with funds transferred from another IRA or qualified retirement plan that the owner had terminated.

Answer 11

Rollovers

Question 12

Roth IRA

Answer 12

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.

Question 13

a qualified employer retirement plan that allows small employers to set up tax-favored retirement savings plans for their employees

Answer 13

Savings Incentive Match Plan for Employees (SIMPLE)

Question 14

a type of qualified retirement plan under which the employer contributes to an individual retirement account set up and maintained by the employee

Answer 14

Simplified Employee Pension (SEP)

Question 15

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.

Answer 15

Traditional IRA

Question 16

Employers contribute to a plan based on the employee’s compensation and years of service, not company profitability or performance.

Answer 16

pension plans

Question 17

Allow employers to contribute a fixed annual amount, apportioned to each participant, with benefits based on funds in the account upon retirement. Target benefit plans have a target benefit amount

Answer 17

money purchase plans

Question 18

These plans are similar to a profit-sharing plan, except that contributions by the employer do not depend on profits, and benefits are distributed in the form of company stock.

Answer 18

stock bonus plans

Question 19

this law sets forth standards for funding, participating, vesting, disclosure, and tax treatment of retirement plans
- this act encourages employees to increase contributions to their employer-sponsored retirement plans

Answer 19

Federal Pension Act of 2006

Question 20

to avoid penalties traditional IRA owners must begin to receive payment from their accounts no later than April 1 in the year following the attainment of age 70 1/2

Answer 20

additional 10% penalty tax

Question 21

the exchange of an annuity for a life insurance policy is ___

Answer 21

not permitted without taxation

Question 22

1035 exchanges:
types of insurance policy exchanges that can be made without current taxation: (3)

Answer 22

• the exchange of a life insurance policy for an annuity
• an annuity exchanged for another annuity contract
• a life insurance policy exchanged for another life policy