9 - Retirement Plans

Who is normally considered to be the owner of a 403(b) tax-sheltered annuity?

Employee.

In a qualified retirement plan, the yearly contributions to an employee's account?

Are restricted to maximum levels set by the IRS. (Annual limits to an employee's qualified retirement plan are based on maximum limits set by the IRS.)

An individual participant personally received eligible rollover funds from a profit-sharing plan. What is the income tax withholding requirements for this transaction?

20% is withheld for income taxes. (A plan sponsor must withhold 20% of the distribution in federal taxes on a rollover. Once the rollover takes place to a new custodian, the remainder of the distribution is made.)

Premature IRA distributions are assessed a penalty tax of?

10%. (Premature distributions from an IRA are subject to a 10% penalty tax.)

An IRA owner can start making withdrawals and NOT be subjected to a tax penalty beginning at what age?

59 1/2 ( Traditional Individual Retirement Account (IRA) withdrawals are normally subject to a tax penalty if they are made before the owner reaches age 59 1/2.)

How are Roth IRA distributions normally taxed?

Distributions are received tax-free. (Qualified distributions are received income tax-free in a Roth IRA)

Tom has a qualified retirement plan with his employer that is currently considered to be 80% "vested". How can this be interpreted?

If Tom's employment is terminated, 20% of the funds would be forfeited. (In this situation, 80% "vested" means that 20% of the funds could be forfeited if Tom's employment is terminated.)

At the age of 45, an individual withdraws $50,000 from his Qualified Profit-Sharing Plan and then deposits this amount into a personal savings account. This action would result in?

Income tax and a 10% penalty assessed upon funds withdrawn from the Qualified Plan. ( The IRS says that withdrawals of funds from a profit sharing plan may be subject to a 10% tax penalty in addition to income taxes if they are made before the age of 59 1/2. This same early withdrawal penalty applies to funds taken out of 401k plans and traditional individual retirement accounts.)

Which plan is intended to be used by a sole proprietor and the employees of that business?

Keogh Plan. (A Keogh Plan may be used by a sole proprietor only if the employees of the business are included.)

When funds are shifted straight from one IRA to another IRA, what percentage of the tax is withheld?

None. (There is no tax withheld on an IRA transfer.)