Chapter 9 Review (Life): Retirement Plans Flashcards
______ ______ are retirement plans that meet federal requirements and receive favorable tax treatment. ______ ______ provide tax benefits and must be approved by the IRS. The plans must be permanent, in writing, communicated to employees, defined contributions or benefits, and cannot favor highly paid employees, executives, or stockholders. The primary types of ______ ______ includes defined benefit and defined contribution plans.
Qualified Plans
If more than 60% of a qualified retirement plan’s assets are in key employee accounts, the plan is considered ___ _____.
top heavy
To comply with ERISA minimum participation standards, qualified retirement plans must allow the enrollment of all employees over ___ __ with one year experience.
Age 21
Qualified Plan feature:
Employer’s contributions are ___ ____ as a business expense.
tax deductable
Qualified Plan Feature
Employee contributions are made with:
pretax dollars - contributions are not taxed until withdrawn.
Qualified Plan Feature
Interest earned on contributions is tax-deferred until:
Withdrawn upon retirement.
Qualified Plan Feature
The annual addition to an employee’s account in a qualified retirement plan
cannot exceed the maximum limits set by the Internal Revenue Service
Non-qualified Plans
__ ___ need to be approved by the IRS
do not.
Non-qualified Plans
___ descriminate in favor of certain employees.
Can
Non-qualified Plans
Contributions are
not tax-deductable.
Non-qualified Plans
Interest earned on contributions is tax-deferred until
withdrawn upon retirement.
Distributions are mandatory by _____ ___ of the year following age _____, and failure to take the required withdrawal results in a ___ excise tax on those funds.
April 1st,
70 1/2,
50%
Withdrawals by the employee made prior to age _____ are assessed an additional ___ penalty tax.
59 1/2
10%
Funds may be withdrawn prior to the employee reaching age 59 1/2 without the 10% penalty tax: if
the employee dies or becomes disabled; if a loan is taken on the plan’s proceeds; if the withdrawal is the result of a divorce proceeding; if the withdrawal is made to a qualified rollover plan; or if the employee elects to receive annual level payments for the remainder of his life.
_____ ________ plans pay a specified benefit amount upon the employee’s retirement. When the term pension is used, it normally is referring to a _____ _____ plan. The benefit is based on the employee’s length of service and/or earnings. _____ _____ plans are mostly funded by individual and group deferred annuities.
Defined Benefit
_____ _____ plans do not specify the exact benefit amount until distribution begins. Two main types of plans are _____ _____ and _____ plans. The maximum contribution is the lesser of the employee’s earnings or $49,000 per year.
Defined contribution
profit-sharing
pension
A type of retirement plan that sets aside a portion of the firm’s net income for distributions to employees who qualify under the plan. Plans must provide participants with the formula the employer uses for contributions. The contributions may vary year to year, and contributions and interest are tax-deferred until withdrawal.
Profit-Sharing Plans
Employers contribute to a plan based on the employee’s compensation and years of service, not company profitability or performance.
Pension Plans
Allow employers to contribute a fixed annual amount, apportioned to each participant, with benefits based on funds in the account upon retirement. _____ _____ plans have a _____ _____ amount.
Target benefit
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.
Stock Bonus Plans
_____ plans allow employers to make tax-deferred contributions to the participant, either by placing a cash bonus into the employee’s account on a pre-tax basis or the individual taking a reduced salary with the reduction placed pre-tax in the account. The account’s funds are taxable upon withdrawal.
Cash or Deferred Arrangement (401(k) Plans)
_____ _____ are a special class of retirement plans available to employees of certain charitable, educational, or religious organizations.
Tax-Sheltered Annuity (403(b) Plans)
_____ are basically an arrangement where an employee (including a self-employed individual) establishes and maintains an IRA to which the employer contributes. Employer contributions are not included in the employee’s gross income. A primary difference between a _____ and an IRA is the much larger amount that can be contributed to an employee’s _____ plan is the lesser of 25% of the employee’s annual compensation.
Simplified Employee Plans (SEPs)
_____ plans are available to small businesses (including tax exempt and government entities) that employ no more than 100 employees who received at least $5,000 in compensation from the employer during the previous year. An employer can choose to make nonelective contributions of 2% of compensation on behalf of each eligible employee. To establish a _____ plan, the employer must not have a qualified plan in place.
Savings Incentive Match Plan for Employees (SIMPLE)
