Qualified Plans
Vesting
the right of a participant in a retirement plan to retain part or all of the benefits
In what scenario will a 10% tax penalty on distributions be made?
when distributions are made on a policy before age 59 1/2 Exceptions to the early distribution rule: disability, divorce, or a qualified rollover among others
rollover
withdrawl of money from one qualified plan and placing it into another plan
What are the general requirements of a qualified plan (established by the IRS)
1. the plan must be commmunicated to all employees 2. the plan must be for the exclusive benefits of the employees and their beneficiaries 3. the plan must be permanent, written and legally binding
Early withdrawls (prior to age 59 1/2) are subject to a _____penalty
10% penalty
What type of IRS qualified retirement program is for the self-employed
Keogh
The advantage of qualified plans to employers is
tax deductible contributions
Describe the tax advantage of a qualified retirement plan?
the earnings in the plan accumulate tax deferred
Defined benefit plans are NOT tied to the employing company's profit, however the employer is obligated to do what?
the employer is obligated to provide a certain, specified retirement benefit to an employee. The benefit is based upon a percent of salary multiplied by the number of years of service
How are contributions to a tax-sheltered annuity treated with regards to taxation?
They are not included as income for the employee, but are taxable upon distribution (funds contributed are excluded from the employee's current taxable income, but are taxable upon withdrawl)
Gross Income
a person's income before taxes or other deductions
If a company has a Simplified Employee Pension plan, what type of plan is it?
a qualified plan for a small business
nonprofit organization
an organization that uses its surplus to fulfill its purpose instead of distributing the surplus to its owners or members
How many hours must someone work per year to qualify for a Keogh Plan?
at least 1,000 hours
A tax sheltered annuity is a special tax favored retirement plan available to
certain groups of employees only (non profit, educational, religious, public education)
Pretax contribution
contribution made before federal and/or state taxes are deducted from earnings
An SEP is a benefit plan designed to provide what?
designed to be provided by a small employer for the benefit of the employees
For a retirement plan to be qualified, it must be designed for whose benefit?
employees
Who is eligibile for a 403 (b) plan for their retirement?
employees of public education (local, state, or federal) as well as employees of charitable organizations
Under a defined benefit retirement plan, who determines what benefits a retired employee will receieve?
employer
if a retirement plan or annuity is "qualified" this means
it is approved by the IRS (employer and employee benefits in deductibility of contributions and tax deferral of growth)
A 35 year old spouse of the insured collects early distributions from her husband's retirement plan as a result of a divorce settlement. What penalties, if any will she have to pay?
no penalties
Earned income
salary, wages, or commissions; but not income from investments, unemployment benefits, and similar sources of income
SIMPLE Plans are best suited for
small businessess that employ not more than 100 employees receiving at least $5,000 in compensation from the employer during the previous year
Qualified plans have
tax advantages
Tax qualified annuities must be approved by the IRS and allow for __________ _____________ employer contributions
tax deductible -all withdrawls are taxed and earnings grow tax deferred
