Retirement and Education Savings Accts

Question 1

ERISA

Answer 1

Created standards for private sector employee pension plans. Determines qualified status - both employer and employee contributions are tax deductable. Open to all who are 21+ and have 1 year of full time service (1,000hrs)

Question 2

401(k)

Answer 2

For any type of co. Max contribution: 2013: $17,500

Employers MAY but not need match.

Question 3

403(b) Plans Tax Sheltered Annuity

Answer 3

For public school employees and non-profit orgs. Contribution excluded from current income. All income and gains are tax-deferred. Payouts entirely taxd as oridnary income.

Question 4

457 Plans Tax Sheltered Annuity

Answer 4

For employees of state and local governments. Contribution excluded from current income. All income and gains are tax-deferred. Payouts entirely taxd as oridnary income.

Question 5

Keogh (HR-10) and SEP Plans

Answer 5

For self-employed. Based on self-employment income. Employers MUST contribute an equal percentage for employees. Max contribution is 20% of income not to exceed 50k.

Keogh plans allow employees to make non-deductible contributions, SEPS don’t.

Keogh plans may follow vesting schedule, SEPs require immediate vesting.

Question 6

Traditional IRA

Answer 6

100% of earned income up to max of $5,500. Spousal option: extra $5,500. Age 50 or older: extra $1,000.

Dif vs. Roth:
May be a deductible contribution.
Required minimum distribution (RMD) by Apr 1 following the owner reaches 70.5 (50% penalty for failure to take distribution)
Withdrawals subject to tax

Question 7

Roth

Answer 7

100% of earned income up to max of $5,500. Spousal option: extra $5,500. Age 50 or older: extra $1,000.

Dif vs. IRA
Contribution is NEVER deductible. 
Higher income individuals may not contribute.
No withdrawal requirement
Withdrawals are tax free.

Question 8

Traditional and Roth IRA Early withdrawal penalty

Answer 8

Before age 59.5 and 10% of taxable amount. Except in case of death, disability, qualified edu expenses, or qualified first-time homebuyer distributions ($10,000 lifetime)

Question 9

Traditional and Roth IRA Rollover

Answer 9

Owner receives proceeds. Once per year (rolling 12 months) Must be completed within 60 days.
Has penalty.

Question 10

Traditional and Roth IRA Transfer

Answer 10

Trustee-to-Trustee Transfer
Owner does not have access to the funds
May be more than one per year
NO penalty

Question 11

Coverdell Education Savings Account

Answer 11

Education IRA, but self-directed investments.
Max contribution: $2,000 per child up to 18.
Conts are non-deductible but earnings are tax free if used for edu expenses.
Funds must be used for child’s 30th bday or transferred to another relatives Edu IRA
Can be used for ANY level of education
(think coverdell = coverall levels of edu)

Question 12

529 Plan (Muni Fund Security)

Answer 12

State sponsored college savings plan. One child per acct, investments can’t be self directed. Contribution up to $14k (annual gift limit) can be made without tax
Individuals may contribute up to $70k at once and apply amt to next 5 yrs
Subject to MSRB
If withdrawal isn’t used for edu expenses, earnings are subject to ordinary income taxes plus 10% penalty.
If not used for child’s edu, funds can be transferred to relative w/o penalty.