Retirement Plans Flashcards
Definition:
What is considered Earned Income
6 Parts
Retirement Plans
- Salary
- Wages
- Tips
- Bonuses
- Commissions
- Self-Employment Income
Definition:
What is considered Passive Income
5 Parts
Retirement Plans
- Rental Income
- Interest Income
- Dividends Income
- Pensions Payments
- Annuities Payements
Definition:
Spousal (IRA) Contribution
Retirement Plans: IRAs and Roth IRAs
A non-working spouse can make contributions to their own IRA based on the earned income of their working spouse
What are the 2025 IRA Contribution Limits?
(Standard and Catch-up)
Retirement Plans: IRAs and Roth IRAs
Applies to IRA’s and Roth’s
- Standard Contribution: $7,000
(or 100% of Income, if less than $7,000) - Catch-up Provision: $1,000
When are IRA Contributions Tax-Deductible?
2 Parts
Retirement Plans: IRAs and Roth IRAs
The Individual/Spouse is not covered by an employer-sponsored retirement plan
or
The households Adjusted Gross Income (AGI) is under a certain amount
Which Investment Products are not allowed within an IRA?
5 Parts
Retirement Plans: IRAs and Roth IRAs
- Life Insurance
- Artwork
- Antiques
- Stamps or Coins Collections
- Gold or Silver Bullion
(US Minted Coins are allowed)
Taxable or Non-Taxable:
IRA Distributions
Deductible vs. Non-Deductible
Retirement Plans
Deductible Contributions/Earnings
* Entire amount is Taxable
Non-Deductible Contributions/Earning
* Contributions - Tax Free
* Accrued Earnings - Taxable
How is a Roth IRA different from an IRA?
2 Parts
Retirement Plans: IRAs and Roth IRAs
Contributions never tax-deductible
Withdrawals are tax free if:
* Account open for 5+ years
* The owner is older than 59 1/2
Common Examples for an IRA’s
Early Withdrawal Penalty to be waived
7 Parts
Retirement Plans: IRAs and Roth IRAs
- Some Medical Expenses
- Health Insurance Premiums (while unemployed)
- Some College Expenses
- Down Payment (First Home - $10,000 max.)
- Divorce Decree (ex-spouse or dependent child)
- Birth/Adoption Expenses ($5,000 max.)
- Correcting an Excess Contribution
What is the Penalty for not taking an RMD?
Retirement Plans: IRAs and Roth IRAs
25% of the amount not taken
What are the Primary Tax Advantages for Employer-Sponsored Plans?
4 Parts
Retirement Plans: Employer Sponsored
- Employer contributions are tax-deductible to the business
- Employee contributions are tax-deductible to the employee
- Neither type of Contributions is taxable as current income to employees
- All earnings grow tax-deferred (except in a Roth 401k)
Requirements for Employer-Sponsored Plans
(ERISA Guidelines)
5 Parts
Retirement Plans: Employer Sponsored
- Participation - Must benefit all regular employees
- Vesting - Determines when employees own the money in their plan
- Discrimination - Cannot discriminate based on Employment, Age, Gender, Race, etc.
- Reporting & Disclosures - Each participant must receive a Summary Plan Description
- Fiduciary - Anyone with control must manage it in the best interest of its participants
Definition:
ERISA
4 Parts
Retirement Plans: Employer Sponsored
Employee Retirement Income Security Act
- Protects the interests of Participants (and their beneficiaries)
- Primarily covers Qualified Pension Plans
(some sections apply to Group Insurance Plans) - Requires that specific information is available to Participants, Beneficiaries, and the Department of Labor
What are the 2 Types of Pension Plans?
Retirement Plans: Employer Sponsored
- Defined Benefit
- Defined Contribution
What are the Differences?:
Defined Benefit vs. Defined Contribution
Retirement Plans: Employer Sponsored
Defined Benefit
* Retirement Benefit is specified
Defined Contribution
* Retirement Benefit is not specified
* Annual Contribution is specified
Definition:
Defined Benefit
3 Parts
Retirement Plans: Employer Sponsored
- Employers are required to make contributions every year
- Designed to provide a specific benefit to an employee upon retirement
(Actual amount of payout will depend on how long they worked and their salary) - Plans typically allow for a lump-sum payout or monthly “annuity” payment
Definition:
Defined Contribution
3 Parts
Retirement Plans: Employer Sponsored
- Employers are required to make contributions every year
- Specifies how much money the employee/employer can contribute each year
- Does not specify what an employee will receive at retirement
Definition:
Profit Sharing Plans
5 Parts
Retirement Plans: Employer Sponsored
- A type of Defined Contribution plan
- Employer Contributions only
- Contributions are not required every year
- Contribution amounts are based on company profits
- Max. Contribution is 25% of the company’s payroll (for all employees)
Definition:
Keogh Plans
2 Parts
Retirement Plans: Employer Sponsored
(a.k.a. “HR-10 Plans”)
- Can be Defined Benefit or Defined Contribution
- Used by Self-Employed Individuals and Non-Incorporated Businesses
(Sole Proprietorships and Partnerships)
Key Points:
401(k) Plans
3 Parts
Retirement Plans: Employer Sponsored
- Employee Contributions - Salary Deferral (optional)
- Employer Contributions - Match up to a specified percentage
- Annual Contribution limits are much higher than for IRA’s
Key Points:
403(b) Plans
Retirement Plans: Employer Sponsored
(a.k.a. “Tax-Sheltered Accounts”)
For employees of non-profit organizations:
* Public School Systems
* Churches
* Hospitals
Operate the same as a 401(k)
What are the 2025 Employer Plan Contribution Limits?
401(k) & 403(b)
3 Parts
Retirement Plans: Employer Sponsored
- Standard Contribution: $23,500
- Catch-up Provision: $7,500 (Age 50-59 / Age 64+)
- “Super” Catch-up: $11,250 (Age 60-63)
Definition:
Simplified Employee Pension Plans
(SEP)
4 Parts
Retirement Plans: Employer Sponsored
- Employer makes contribution on employee’s behalf
- Contributions cannot exceed 25% of the employee’s compensation (up to a max. amount)
- Higher contribution limits than IRA’s
- Immediately Vested
Definition:
Savings Incentive Match Plans for Employees
(SIMPLE)
4 Parts
Retirement Plans: Employer Sponsored
- For Employers with 100 employees (or less)
- Employees are allowed to contribute
- Employer Contributions are Immediately Vested
- All employees earning $5,000+/year must be allowed to participate
