Retirement Planning - Lesson 1: Intro to qualified plans

Question 1

Profit Sharing Plans

Answer 1

Profit Sharing Plans
Stock Bonus Plans
Employee Stock ownership plans
401K plans
thrift plans
new comparability plans
age-based profit sharing plans

Question 2

defined benefit pension plans

Answer 2

defined benefit pension plans

cash balance pension plans

Question 3

defined contribution pension plans

Answer 3

money purchase pension plans

target benefit pension plans

Question 4

ERISA

Answer 4

Formed in 1974 to provide protection for an employee’s retirement assets, both from creditors and plan sponsors

Question 5

Qualified plan: advantages to the employer

Answer 5

employer contributions are currently tax deductible

employer contributions to the plan are not subject to payroll taxes

Question 6

Qualified plan: advantages to the employee

Answer 6

availability of pretax contributions for employees

tax deferral of earnings on contributions

Erisa Protection

lump-sum distribution options (ten-year averaging* (*people born before 1936), NUA, pre-1974 capital gain treatment)

Question 7

Disadvantages of qualified plans

Answer 7

limited contribution amounts

contribution cannot be made after money is received

plans usually have limited investment options

no or limited access to money while an active employee

distributions usually taxed as ordinary income (basis=$0)

early withdrawal penalties may apply

mandatory distributions at age 72

only ownership permitted is by the account holder

cannot assign or pledge as collateral

cannot gift to charity before age 70 1/2 without income tax consequences (charitable gifts form IRAs post age 70 1/2 and pre age 72 will not count towards RMDs for those turning 70 1/2 after December 31, 2019)

any year a deductible contribution is made to an IRA and a charitable distribution is made from an IRA, the allowable charitable deduction will be reduced by deductible contributions made after age 70 1/2

limited enrollment periods

considered to be an income in respect of a decedent asset, subjecting distributions to both income and estate taxes with no step up in basis

costs of operating the plan

Question 8

Secure Act Changes to eligibility

Answer 8

long term part time employees need three consecutive years beginning after 1/1/2021