Retirement Basics

Question 1

Plan

Answer 1

A government approved and regulated system for saving money for use during retirement

Question 2

Employer (ER)

Answer 2

The one who sets up and owns the retirement plan, otherwise known as the “plan sponsor”.

Question 3

Employee (EE)

Answer 3

The individual who works for the employer & can enroll in the retirement plan. Also known as “participants”

Question 4

Plan Administrator (PA) (Employer)

Answer 4

Designated person (who works for employer) who assumed fiduciary responsibility for a retirement plan & ensure all IRS regulations and plan rules are followed. Works with account manger.

Question 5

What is an Account Manager (AM) (Transamerica)

Answer 5

Plan level contact that works for Transamerica for day to day inquiries. They work with the Plan Administrator.

Question 6

Contribution

Answer 6

Money added to a retirement plan

Question 7

Vesting Schedule

Answer 7

An incentive program set up by an employer which, when it is fully “vested”, gives the employee full ownership of certain assets – usually retirement funds or stock options. It is an employer’s way of giving employees a reason to stay with the company.

Question 8

Compounding

Answer 8

The result of reinvesting interest or gains, rather than paying it out, so that the interest or gains in the next period is then earned on the principle sum plus previously accumulated interest or gains.

Question 9

Distributions

Answer 9

The removal or withdrawal of money from a retirement account

Question 10

Summary Plan Description (SPD)

Answer 10

Summary of the plan document that is required to be provided to participants about rules of the plan.

Question 11

IRS

Answer 11

Internal Revenue Service. One of the two governing bodies who regulate retirement plans.

Question 12

DOL

Answer 12

Department of Labor. One of the two governing bodies who regulate retirement plans.

Question 13

E.R.I.S.A

Answer 13

Employee Retirement Income Security Act. Established in 1974, legislation that has led to the creation of tax qualified plans.

Question 14

What does Title I of ERISA cover?

Answer 14

Basic eligibility, vesting, and disclosures. The most important title regarding the day-to-day business of administering retirement plans.

Question 15

What are the three primary tax advantages of an employer sponsored plan?

Answer 15

Participants can contribute pre-tax income, earnings from investments grow tax free as long as funds remain in the account, when money is withdrawn at retirement, the money is taxed but the bracket will be much lower since you’re no longer working.

Question 16

Defined Contribution Plan (DC)

Answer 16

Plan where responsibility is on the employee. They must contribute to the plan, manage the risks, and ensure they have enough for retirement.

Question 17

VAT

Answer 17

Voluntary After-tax contributions- earnings are always taxable when withdrawn

Question 18

Gains

Answer 18

Earnings from a plan

Question 19

RAT

Answer 19

Roth After Tax contributions- Earnings can be withdrawn tax free if participant follows the Roth withdrawal rules. (If rules are not followed, participants pays taxes on the gains at time of withdrawal)

Question 20

What are the two after tax contributions options?

Answer 20

RAT (Roth) and VAT (Voluntary)

Question 21

What is a Defined Benefits plan (DB)

Answer 21

Commonly referred to as “pension plans.” Employer funded-employer takes all the risk

Question 22

What are the two main types of DB Plans?

Answer 22

Traditional and Cash Balance

Question 23

Which type of retirement plans are protected from creditors?

Answer 23

All of them

Question 24

What are the main tax advantages of a DC plan?

Answer 24

Contributions come from pretax funds which lower taxable income, earnings grow untaxed, withdrawals at retirement are taxed at a lower rate

Question 25

Who funds a DC plan?

Answer 25

Employer only, employee only, or both employer and employee

Question 26

What is a Money Purchase Plans

Answer 26

Fully funded by the employer, required to make defined annual contributions based on a formula written into the plan document and SPD.

Question 27

Profit Sharing Plans

Answer 27

Funded through employer contributions, contributions are based on company profits

Question 28

403(b)

Answer 28

Plan exclusively offered by public schools and 501(c)(3) tax -exempt organizations.

Question 29

501(c)(3) organization

Answer 29

An organization that is non profit and allowed tax deductions for donations. Examples include nonprofit charities or hospitals

Question 30

Traditional 401(k)

Answer 30

A type of profit-sharing plan available to all non-government companies. Allow participants to contribute pre-tax money to an employer sponsored plan.

Question 31

NQDC

Answer 31

Non Qualified Deferred Compensation.

Question 32

G 457(b)

Answer 32

NQDC Plan only available to state and local government employers.

Question 33

What are IRAs and Roth IRAs

Answer 33

Individual Retirement Account. Owned by the individual with no employer involvement.

Question 34

ESOP

Answer 34

Employee Stock Ownership Plan. A plan investing primarily in the stock of the employer. Funded by contributing cash to buy company stock or contributing company shares directly.

Question 35

415

Answer 35

"All Source" contribution limit. Overall limit on contributions from all sources, both employer and employee

Question 36

402(g)

Answer 36

Contribution limit that only applies to funds individually contributed by employees. AKA elective deferral limit or salary reduction. Separate from 415 since it is only employee money, but counts towards the 415 limit.

Question 37

Catch-up limit

Answer 37

Contribution limit applied to catch-up contributions. IRS allows additional contributions above and beyond normal limits if over the age of 50.

Question 38

What is the IRA and Roth IRA contribution limit?

Answer 38

6.5K limit combined per person limit