Investment Companies - Retirement / Education / Health Savings Plans Flashcards
Employer established plans are regulated under ERISA, standing for
- Employee Retirment Income Security Act
Plans that comply with ERISA are:
- profit sharing plans
- defined contribution
- defined benefit
- tax-deferred annuity plans (403(b))
- payroll deduction savings plans
ERISA covers only _____ plans
private plans
All ERISA plans are _______ qualified
tax qualified, meaning that contributions are deductible against the contributor’s taxable income
Max contribution is ______ for a single person, or if you are over 50 you can contribute the max plus ______
$5,500, or if over 50 can contribute $5,500 plus $1,000
If the person making the contribution is not covered by another qualified pension plan, the contributions are _____ tax deductible in full
ALWAYS
If a person is covered under another qualified plan and meets income thresholds, then contributions are _____ tax deductible
NOT
- for single is $61,000 to $71,000
- for joint is $98,000 to $118,000
A person can contribute until age _____
70.5
If contributions are made in excess of allowed amount, a _____ annual penalty is assessed as long as the amount remains in the account.
6% annual tax penalty
Investments that are not allowed for IRAs are:
- insurance policy “cash” values
- term insurance
- art
- collectibles
Withdrawals cannot be made without penalty until age _____
59.5 (unless a person dies or becomes disabled)
Exceptions to the early withdrawal rule are:
- if you die or become disabled
- qualifying education expenses
- first $10,000 towards first home purchase expenses
Distributions from an IRA must commence by ______ of the year following the year of reaching age ______
April 1st of the year following the year of reaching age 70.5
RMDs must be taken by ______ of each year
Dec 31st
Roth IRAs are _____ subject to the requirement to make an RMD at age 70.5
NOT
Rollovers are aloowed into an IRA without a dollar limit for _____ after the distribution is made
60 days
_____ withholding tax is withheld on premature distributions
20%
If a person wishes to transfer IRA assets from one trustee to another, transfers must be effected ______ between trustees
directly
an ______ number of transfers can happen each year
unlimited
Options when a beneficiary inherits an IRA:
- IRA roll over (only for spouses)
- transfer into a Beneficiary Distribution Account (“Inherited IRA”) –> distributions commence immediately on either a 5 year timeline or expected life expectancy basis
- cash out the account
- can “disclaim” the IRA and give it to someone else
Keogh (HR 10) Plans are used for ______ individuals
self-employed
Annual contributions to a Keogh plan cannot exceed ____ of “after Keogh deduction” earnings, with a cap of ______ for the annual contribution in 2016
cannot exceed 25% of after keogh deduction earnings and cannot exceed $53,000 for the annual contribution
The effective max contribution rate based on self-employed earnings before keogh deduction is _____ based on $265,000 income
20%
Full-time (1,000 hours or more per year) employees who have completed one year’s service must be included at the same ______ _____ rate as the employer
legal contribution rate - ie the employer must make a contribution in the employees name at the same rate they are contributing for themselves
Earnings in a Keogh plan build up ______
tax-deferred
Distributions from a Keogh plan cannot begin before ____ and must be taken once the age of ____ is reached
59.5 and 70.5
Distributions are _____ taxable from a Keogh plan
100%
Keogh plans allow cash-value of life insurance as an investment. T/F
True. Unlike IRAs
ERISA rules include:
- non-discrimination test (all employees treated equally)
- employees must earn their benefit over a reasonable time frame (“vesting”)
- fiduciary responsibility (plan trustee must manage the assets in the best interest of all the participants)
- permitted investments (prudent man rules, no whole life insurance
Two basic categories of pension plans under ERISA:
- defined contribution
- defined benefit
Profit-sharing plans are considered a type of _______ plan under ERISA
defined contribution
