Retirement Plans

Question 1

Qualified plans

Answer 1

-meet federal requirements and receive favorable tax treatment

Question 2

• Employer’s contributions are tax-deductible as a business expense.
• Employee contributions are made with pretax dollars – contributions are not taxed until
withdrawn.
• Interest earned on contributions is tax-deferred until withdrawn upon retirement
• The annual addition to an employee’s account in a qualified retirement plan cannot exceed the maximum
limits set by the Internal Revenue Service

Answer 2

features of Qualified Plans

Question 3

Nonqualified Plans

Answer 3

• Do not need to be approved by the IRS
• Can discriminate in favor of certain employees
• Contributions are not tax-deductible
• Interest earned on contributions is tax-deferred until withdrawn upon retirement

Question 4

Withdrawals by the employee are treated as _______ ________?

Answer 4

taxable income

Question 5

10% penalty tax

Answer 5

When Withdrawals by the employee made

prior to age 59 ½.

Question 6

_______________ are mandatory by April

1st of the year following age 70½,

Answer 6

Distributions

Question 7

failure to take the required withdrawal results in a ___% ______ ___ on those funds.

Answer 7

50% excise

tax

Question 8

Funds may be withdrawn prior to the employee reaching age 59 ½ without the 10% penalty tax if………………………..

Answer 8

• employee dies or becomes disabled
• a loan on the plan’s proceeds
• result of a divorce proceeding
• made to a qualified rollover plan
• employee elects to receive annual level payments for the remainder of his life

Question 9

to protect the rights of workers covered under an employer sponsored
plan.

Answer 9

The Employee Retirement Income Security

Act of 1974 (ERISA)

Question 10

Defined benefit plan

employer sponsored

Answer 10

-pay a specified benefit amount upon the employee’s retirement

Question 11

do not specify the exact benefit amount until distribution begin

Answer 11

Defined Contribution Plans

employer sponsored

Question 12

Profit-Sharing Plans

Answer 12

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

Question 13

Employers contribute to a plan based on the employee’s compensation and years of service, not company profitability or performance.

Answer 13

Pension Plans

Question 14

Money Purchase Plans

Answer 14

• employers to contribute a fixed annual amount
• apportioned to each participant,
• benefits based on funds in the account upon retirement

Question 15

These plans are similar to a profit-sharing plan, except that contributions by the employer do not depend on profits, and benefits are distributed in the form of company stock.

Answer 15

Stock Bonus Plans

Question 16

Cash or Deferred Arrangement (401(k) Plans)

Answer 16

401(k) plans allow employers to make tax-deferred contributions to the participant

Question 17

a special class of retirement plans available to employees of certain charitable, educational, or religious organizations.

Answer 17

Tax-Sheltered Annuity (403(b) Plans)

Question 18

• an employee (including a self-employed individual) establishes and maintains an IRA to which the employer contributes
• much larger amount that can be contributed than IRA

Answer 18

Simplified Employee Plans (SEPs)

Question 19

Savings Incentive Match Plan for Employees (SIMPLE)

Answer 19

-small businesses that employ no more than 100 employees who received at least $5,000 in compensation from the employer during the previous year
-employer must
not have a qualified plan in place.
-2% employer contributions

Question 20

• for self-employed persons, such as doctors, farmers, lawyers, or other soleproprietors
• Defined contribution=max contribution of $49,000|yr
• defined benefit=max benefits $195,000/ yr

Answer 20

Keogh Plans

Question 21

IRA

Answer 21

are established by an individual who has earned income to save for retirement

Question 22

-allow for an individual to contribute a limited amount of money per year, and the
interest earned is tax-deferred until withdrawal.
-Withdrawals made prior to age 59 ½ are assessed an additional 10% penalty tax.
-must begin to receive payment
from their accounts no later than April 1 in the year following the attainment of age 70 ½

Answer 22

Traditional IRAs

Question 23

Roth IRAs

Answer 23

• designed so that withdrawals are received income tax-free
• subject to the same limits as traditional IRAs, but are not tax-deductible
• interest not taxable as long as the withdrawal is a qualified distribution

Question 24

_________ are a transfer of funds from one IRA or qualified plan to another

Answer 24

Rollovers

Question 25

Rollovers are subjected to __% ______________ ___ if eligible rollover funds are received personally by a
participant in a qualified plan, unless the funds are deposited into a new IRA or qualified plan within __ ____ of
distribution.

Answer 25

20% withholding tax

60 days

Question 26

Rollover contributions to an individual retirement annuity (IRA) are ________ by dollar amount

Answer 26

unlimited

Question 27

-This law sets forth standards for funding, participating, vesting, disclosure, and tax treatment of retirement plans.

-This Act improves the pension system and encourages employees to increase contributions to their
employer-sponsored retirement plans

_requiring additional premiums for underfunded plans

-allowing employers to
automatically enroll employees in defined compensation plans

Answer 27

FEDERAL PENSION ACT OF 2006

Question 28

1035 EXCHANGES

Answer 28

• The exchange of a life insurance policy for an annuity
• An annuity exchanged for another annuity contract
• A life insurance policy exchanged for another life policy
The exchange of an annuity for a life insurance policy is NOT permitted