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Investment Companies > Retirement Plans > Flashcards

Retirement Plans Flashcards

1
Q

What is ERISA?

A

This is the compliance body that employer established plans are regulated under. Applies to:

  • Deferred comp
  • Profit sharing
  • Defined benefit/contribution
  • Tax deferred Annuity (403b)
  • Payroll deduction savings
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2
Q

Who can apply for a traditional IRA?

A

Any employed person

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3
Q

What is the max contribution to an IRA?

A

$5,500 for singles, double for MFJ’s. For taxpayers 50 years and older, $1,000 “catch-ups” can be applied

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4
Q

When is a contribution to an IRA tax-deductible?

A

It always is UNLESS the individual is covered by another pension plan; in this case, the deductible amount is phased out as income level increases

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5
Q

What is the penalty tax for contributions in excess of max limit?

A

6% penalty tax

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6
Q

What is a Roth IRA?

A

Non-deductible contributions are put into the plan. If kept in account for 5 years and at retirement age, any distributions are then tax-free.

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7
Q

How long can you contribute to a Roth IRA?

A

As long as you have earned income. (You can contribute past 70.5 years of age)

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8
Q

Who cannot contribute to a Roth?

A

High earning individuals making over $133,000

High earning MFJ’s making $196,000

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9
Q

What is the latest date a contribution can be made to an IRA for the current year?

A

April 15th of the following year

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10
Q

What investments are not allowed in an IRA?

A

Art, term insurance, collectibles, and cash values of insurance policies

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11
Q

What is the minimum withdrawal age for IRA’s?

A

59.5 years

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12
Q

What is the penalty for early withdrawal on IRA’s?

A

Normal income tax is imposed, plus a 10% penalty tax

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13
Q

What are the exemptions to the 10% penalty rule for pre-mature withdrawals on IRA’s?

A
  • Person dies/becomes disabled
  • First time home purchase up to $10,000
  • Qualified educational expenses
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14
Q

What is the penalty for not withdrawing RMD’s after age 70.5 on a traditional IRA?

A

50%!

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15
Q

Who does the Joint and Last survivor table apply to?

A

Customer whose sole beneficiary is a SPOUSE who is more than 10 years YOUNGER than account holder

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16
Q

Who does the Uniform Lifetime table apply to?

A

Customer whose SPOUSE is NOT the sole beneficiary and is less than 10 years younger than account holder

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17
Q

Who does the Single Life Expectancy table apply to?

A

Use by a sole beneficiary, giving the largest RMD

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18
Q

What are the IRA Rollover time limitations?

A

Must be completed within 60 days and limited to 1 rollover per year

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19
Q

What is the penalty for taking a premature distribution from a qualified retirement plan?

A

20% withholding of which are used as a credit against tax liability

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20
Q

What is an IRA transfer?

A

Transferring an IRA but must be effected directly between trustees ONLY. Unlimited amounts of transfers are allowed!

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21
Q

What happens when an IRA owner dies?

A

The beneficiary usually must take the proceeds oer the longer of 5 years or beneficiary’s life.

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22
Q

What are the 4 options available to an IRA Beneficiary?

A
  1. IRA Rollover (spouse only)
  2. Transfer IRA into Beneficiary distribution
  3. Cash out the IRA
  4. Disclaim the IRA
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23
Q

What happens in an IRA beneficiary rollover?

A

Spouse rolls IRA into an existing or new IRA. No tax is due, and contributions can still be made until 70.5 years of age

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24
Q

What happens when the IRA is transferred into a beneficiary distribution (inherited IRA)?

A

Both deceased and beneficiary names remain on the account, distributions commence immediately and must occur to deplete the account over 5 years or the beneficiary’s life.

If the IRA is left to MULTIPLE beneficiaries, then the life expectancy of the OLDEST is used

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25
Q

What happens when a beneficiary cashes out an IRA?

A

Beneficiary gets all the money immediately and pays tax on the entire thing

26
Q

What is a Keogh plan?

A

This is for SELF-employed persons only. Maximum contribution is 25% of after Keogh deductions with a cap of $54,000

27
Q

When is a 25% contribution required for full time employees of 1 year who work 1,000+ hours per year?

A

If the employer earns over $270,000 and contributes the maximum value to the plan

28
Q

What penalties are associated with Keogh plans?

A

The same penalties apply as IRA’s

29
Q

What are ERISA requirements?

A
  • Non discriminatory
  • Vesting
  • Fiduciary responsibility
  • Permitted investments
30
Q

What is vesting?

A

Employees must earn benefits. Benefits “vest” over 5 years at 20% per year

31
Q

What is the ERISA fiduciary responsibility?

A

plan trustee must manage assets of plan in best interest of all participants

32
Q

What is a defined contribution plan?

A

Contributions are based on a predetermined FORMULA

33
Q

What is the max contribution to a defined contribution plan?

A

25% of income up to $54,000 a year

34
Q

What is a money purchase plan?

A

defined contrib. plan based on a % of salary. The long the employee stays in the plan, the higher the benefit

35
Q

What is a defined benefit plan?

A

Contributions made to fund given benefit at RETIREMENT. Employees who are older have a greater benefit that younger employees

36
Q

What is a profit sharing plan?

A

Allows the company to share profits with employees. If there are no profits, no contributions are made. All earnings tax deferred

37
Q

What is a deferred compensation plan?

A

Portions of income are deferred until retirement or death. Non-qualified plan, so needs no IRS or ERISA approval. Usually for executives - though the executive has no ownership rights until retirement

38
Q

What happens to an executives deferred comp. plan if the executive resigns or is fired, or if the company goes bankrupt?

A

The exec. will not receive the deferred compensation

39
Q

What is a payroll deduction savings?

A

401k is an example. Employers match employee contributions, build up tax is deferred, but is 100% taxable upon distribution

40
Q

What is the max annual contribution to Payroll deduction savings plans?

A

$18,000

41
Q

What is an SEP IRA?

A

Simplified employee pension. This is usually used by small businesses. Employer makes contribution on employee’s behalf, but cannot exceed 25%/$54,000. Note that the employer must contribute the same % to each employee, and that the contribution is FLEXIBLE each year

42
Q

What is a SIMPLE IRA?

A

Savings incentive math plan (SIMPLE):

  • Only available to companies with a MAX of 100 employees
  • Less costly to administer than 401k
  • Max contribution is $12,000
43
Q

What are the mandatory employer matching rules for a SIMPLE IRA?

A

1 of 2 options:

  1. Two percent match based on salary of all employees regardless of employee making contribution
  2. Three percent of salary of only those employees that made salary reduction contributions
44
Q

What is a TDA? (403b Plan)

A

TDA = Tax Deferred Annuities

One example is TIAA CREF (teacher retirement fund)

45
Q

Who qualifies for a 403b plan?

A

Majority of non-profits (schools, hospitals, etc.) Normally annuities are non-tax qualified, but these are allowed to be qualified.

46
Q

What percentage of 403b plan distributions are taxable?

A

100%

47
Q

What is the maximum annual contribution to a 403b plan?

A

25% of income up to a max of $18,000

48
Q

What is a section 457 plan?

A

Deferred compensation for gov’t employees of states, counties, and cities. (non-qualified)

49
Q

What are Life Cycle Funds?

A

Funds that shift the customer’s investments to mutual funds based on person’s time horizon

50
Q

What is a Coverdell education savings account?

A

Established only for paying qualified education (can be HS, JR HS, college, etc.) for a CHILD under the age of 18. Once the child is over 18, no contributions can be made, and the funds expire for the beneficiary at age 30. Note that there are also income phase-outs for Coverdell ESA’s

51
Q

Who can open a Coverdell account?

A

Anyone can open an ESA for a child

52
Q

What is the max not tax-deductible contribution to a Coverdell account?

A

$2,000 across all Coverdell accounts

53
Q

How are withdrawals on coverdell accounts taxed?

A

They are NOT TAXED if they are used for qualified education expenses

54
Q

Are Coverdell savings transferrable?

A

Yes, they can be transferred to a FAMILY member for their education expenses.

55
Q

What is a Section 529 Plan?

A

Tax deferred higher education plan. These can be opened by any resident of the state (and sometimes non-residents)

56
Q

Who sets the min and max contributions for 529’s?

A

The state.

57
Q

What education types do 529 plans cover?

A

College only!

58
Q

Are there phase out income amounts for 520 plans?

A

NO

59
Q

Gifts of over what amount per year are subject to a gift tax?

A

$14,000

60
Q

What is the exception to the $14,000 gift tax rule related to 529 plans?

A

A one time contribution of up to 5x the annual exclusion; $70,000 for singles and $140,000 for MFJ’s. This is pro-rated over a 5 year period without incurring gift tax

61
Q

What is an HSA?

A

Health savings account. These are tax deductible and are established by employers as part of health insurance plans. Only plans with a HIGH deductible can set up an HSA. Distributions to cover medical expenses are tax free

62
Q

What is the max amount for an HSA?

A

Individual - $3,400

Family - $6,750

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