Retirement Plans

Question 1

Individual Retirement Accounts (IRA)

Answer 1

Must have earned income

Non working spouse can make contributions based upon earned income of spouse (spousal IRA)

Question 2

Ira contribution limits

Answer 2

Up to 100% of earned income

Subject to annual maximums

Extra contributions- age 50 or older (catch up provision)

Question 3

IRA contributions maybe deducted from taxable income if

Answer 3

Individual or spouse is not covered by an employer-sponsored retirement plan

Adjusted gross income (agi) is under a certain limit

Question 4

Types of products Ira funds are and are not allowed to be invested into

Answer 4

Not (life insurance, collectibles, hard assets)

Are (flexible premium annuities, bank accounts, brokerage accounts, mutual funds)

Question 5

Premature IRA withdrawal

Answer 5

If before 59.5 a penalty tax and income tax applied

There are ways penalty can be waived (down payment of first home, college education, health insurance if unemployed)

Question 6

IRA Rollover

Answer 6

Money is withdrawn and sent to owner

• Owner has 60 days after receipt to put money in IRA
• If money is coming from an employer sponsored plan (20% held and sent to IRS)
• limited to one rollover every 12 months

Question 7

IRA transfer

Answer 7

Money sent directly from one plan to another

• No limit on number of transfers
• No money withheld and sent to IRS

Question 8

IRA Required Minimum Distributions

Answer 8

Must start taking withdrawals at age 72

First minimum withdrawal can be delayed til April 1 of the year following the owner turns 72

50% penalty on taxes owed if minimum distributions not taken

Annual minimum withdrawals are based upon the owners life expectancy

Question 9

Taxation of IRA Withdrawals

Answer 9

Fully taxed if all money in the IRA has not already been taxed

Nondeductible contributions are distributed tax free

Question 10

Distributions from an IRA upon death

Answer 10

Transfer to spouse is not taxable

The entire value of the IRA is includable in the deceased owner’s estate for estate tax purposes

Question 11

Roth IRA

Answer 11

Contributions not tax deductible

Contribution limits same as traditional IRA

Withdrawals tax free

• account open for 5 years
• not before age 59.5

Question 12

Employer sponsored qualified plan tax advantages

Answer 12

Employer contributions are tax deductible to business

Employee contributions are tax deductible to employee

Neither employer nor employee contributions are taxable as current income to employees

All (except Roth 401(k) feature) earnings grow tax deferred

Question 13

Tax rules for distributions from employer sponsored qualified plans

Answer 13

Withdrawals taken before age 59.5 are considered premature, unless there is an exception, a 10% penalty tax applies in addition to any ordinary income tax

Required minimum distributions must begin the year the individual turns 72, first payment maybe delayed til April 1 of following year

Question 14

Employee Retirement Income Security Act of 1974 established following requirements for retirement plans

Answer 14

Participation (plans must benefit all regular employees)

Non-discrimination (can no provide more benefits to higher paid employees)

Vesting (determines when an employee owns the money in a retirement plan, employee are always 100% vested in their own contributions, employees become vested in employer contributions after 6 years)

Reporting and disclosure (must receive an annual report and notice of any significant changes)

Fiduciary duty (must be managed in best interest of participants)

Question 15

Pension plan

Answer 15

Defined benefit
- retirement benefit specified in the plan

Defined contribution

• retirement benefit NOT specified
• contribution is specified

Question 16

Profit sharing plan

Answer 16

Contributions made by employer (not required depending on profit of company)

Maximum contribution is 25% if total employee payroll

Question 17

Keogh (HR-10)

Answer 17

Designed for self employed individuals and sole proprietorships

Question 18

401(k)

Answer 18

Employee may make contributions- salary (elective) deferral

Employers may match contributions up to a specified percentage

Question 19

403(b)

Answer 19

Like a 401(k) but for school employees and employees of non profit organizations

Question 20

Simplified Employee Pension Plan

Answer 20

Employer makes contribution on employees behalf

Higher contribution limits than traditional IRA

Employees must be 100% vested

Question 21

Savings Incentive Match Plans for Employees (SIMPLE)

Answer 21

Employers with 100 employees or less

Employees can contribute

100% immediate vesting for employer contributions

All employees earning $5000 or more per year must be allowed to participate

25% early withdrawal penalty for first two years of participation

Question 22

Employee Retirement Income Security Act

Answer 22

Protects employee and beneficiaries

Applies to qualified pensions and also group insurance

ERISA requires that certain information be made available to plan participants, beneficiaries, and the department of labor

Question 23

Non qualified plans

Answer 23

Not regulated by ERISA

Can discriminate in favor of higher paid employees

Contributions usually not tax deductible