Retirement Plans

Question 1

qualified retirement plan

Answer 1

retirement plans that meet federal requirements and receive favorable tax treatments; MUST be approved by the IRS

Question 2

enrollment of a qualified retirement plan must allow enrollment of…

Answer 2

all employees 21 and over with 1 year of experience

Question 3

qualified plans CANNOT favor

Answer 3

key persons/people who make alot of money

Question 4

a plan is considered “top heavy” if…

Answer 4

60% of qualified retirement plan’s assets are key employees

Question 5

characteristics of nonqualified retirement plans include (4):

Answer 5

1. do not need IRS approval
2. can discriminate against employees (financially)
3. contributions are not tax deductible
4. interest earned is tax deferred until withdrawal

Question 6

characteristics of qualified plan (4):

Answer 6

1. employer’s contributions are tax deductible
2. employee contributions are made pre-tax
3. interest earned is tax deferred until withdrawal
4. employer’s annual addition to employee cannot exceed max limit set by IRS

Question 7

withdrawals are treated as

Answer 7

taxable income

Question 8

withdrawals prior to 59 1/2 years old are

Answer 8

penalized with 10%

Question 9

failure to withdrawal after April 1st the following year after turning 70 1/2 result in

Answer 9

50% excise tax

Question 10

ERISA (employee retirement income security act) protects

Answer 10

the rights of workers covered under employer sponsored plans

Question 11

2 types of employer-sponsored plans:

Answer 11

defined benefit plan and defined contribution plan

Question 12

defined benefit plan

Answer 12

pays a specified amount upon the employee’s retirement, typically referred to as pension

Question 13

defined contribution plan

Answer 13

do not specify exact amount until distribution. 2 MAIN types, although there are 4 total: profit sharing and pension

Question 14

profit sharing defined contribution plan

Answer 14

sets aside a portion of the firm’s net income for distributions for employee who qualify under the plan

Question 15

pension plans

Answer 15

employer’s contributions based on employee’s years of service

Question 16

money purchase plans

Answer 16

employer contributes fixed annual amount, proportionate to each participant and based on funds in the account

Question 17

stock bond bonus

Answer 17

same as profit sharing, only benefits are distributed in the form of company stock

Question 18

SEP (simplified employee plans)

Answer 18

qualified plans for small employers; each employee has individual IRA and employer contributes, and can tax deduct up to 25% of said contributions

Question 19

SIMPLE (savings incentive match plan for employees)

Answer 19

available to business with less than 100 employers, employers make tax-deductible contributions equal to 2% of employee’s compensation OR matches employee’s contribution by 3%

Question 20

early withdrawal from SIMPLE plan are subject to ___ penalty

Answer 20

25%

Question 21

Keogh plans

Answer 21

for the self-employed; tax deductible and interest/dividends are tax deferred

Question 22

IRA

Answer 22

established by indv to save for retirement

Question 23

traditional IRA

Answer 23

individual contributes limited money per year that is tax deferred until withdrawal

Question 24

contributions of traditional IRA are ____annually; withdrawals before 59.5 years are subject to ___ tax penalty.

Answer 24

indexed; 10%

Question 25

roth IRA

Answer 25

withdrawals are not taxed; not for individuals with high income

Question 26

taxation of benefits: contributions are ___taxed upon withdrawal; however tax deferred interest is ____ ____ upon withdrawal

Answer 26

not; taxable income

Question 27

rollovers

Answer 27

transfer of funds from 1 IRA to another

-taxed at 20% unless transferred to another IRA WITHIN 60 DAYS