Unit 11: Retirement Plans Flashcards
This type of retirement plan is an agreement between a company and an employee in which the employee agrees to defer receipt of current income in favor of payout at retirement
Nonqualified deferred compensation plan
This type of retirement plan allows employees to authorize their employer to deduct a specified amount for retirement savings from their paycheck
Nonqualified Payroll deduction plan
This type of retirement plan was created to encourage people to save for retirement in addition to any other retirement plans.
Individual retirement accounts (IRAs)
________ Income is income from work, such as wages, salaries, bonuses, commissions, trips and so forth. Income from investments is not considered earned this type of income.
Earned income
If the contribution limited is exceeded, a _____% excess contribution penalty applies to the amount over the allowable portion.
6% excess contribution penalty
This occurs when the account assets are sent directly from one custodian to another, and the account owner never takes possession of the funds.
Transfer
A qualified employer sponsored plans that allow before-tax contributions to a savings account to be used for medical expenses.
Health Savings Accounts
This type of IRA allows after-tax contributions up to a maximum annual allowable limit.
Roth IRAs
Qualified individual retirement plans that offer self-employed persons and small businesses easy-to-administer pension plans.
Simplified employee pension plans (SEPs)
Qualified plans intended for self-employed persons and owner-employees of unincorporated businesses or professional practices. A person may make contributions until age 70.
Keogh (HR-10) Plans
This type of plan promises a specific benefit at retirement determined by a formula involving retirement age, years of service, and compensation.
Defined Benefit Plan
A legal obligation to pay retirement benefits to future retirees.
Pension Liability
When adequate reserves have not been set aside to meet this future obligation
Unfunded Pension Liability
A popular form of defined contribution plan. Do not require a fixed contribution formula and allow contributions to be skipped during years of low profits.
Profit-sharing Plans
A type of defined contribution plan that allows an employee to elect to contribute a percentage of salary up to a maximum dollar limit to a retirement account.
401(k) Plans (aka Thrift Plans)
________ are considered salary reduction plans
401(k) Plans
For individuals age ______ or older, a catch-up contribution is allowed in an amount as determined by the IRA tax code.
50
FDIC insurance on retirement accounts held at banks is $___________
$250,000
List of investments appropriate for IRAs:
1) Stocks
2) Bonds
3) Mutual Funds
4) UITs
5) Government securities
6) U.S. Government-issued gold and silver coins
7) Annuities
Can a student be a participant in an educational institution’s TSA?
No, because the plan is only available to employees.
All corporate retirement plan administrators have ______ responsibility. Risk must be the first consideration in investment of plan assets. Short sales, uncovered options, and margin account transactions are not suitable within corporate retirement plans.
fiduciary responsibility
Which of the following securities is the least suitable recommendation for a qualified plan? A. Blue-chip common stock B. Investment-grade municipal bond C. Treasury bill D. A rated corporate bond
Answer: B – Investment-grade municipal bond
Two types of nonqualified retirement plans:
1) Deferred compensation plans
2) Payroll deduction plans