ch 10

traiditonal IRA withdrawals

-must begin to recieve payment no later than april 1st of the year after they turn 70.5 -a minimum amount must be withdrawn every year->failure to do so results in 50% excise tax to the amount that should have been withdrawn

what is the maxiumum number of employees earning at least 5k that an employer can have in order to start a SIMPLE retirement plan

100

rollover must be made directly from one ira to another ira or it will be subjec to a...

20% withholding

a plan is concered TOP HEAVY when ...

60% or more of the plan assets are attribuatable to key employees as of the last day of the prior plan year.

according to ERISA reulgations, a summary plan description mut be provided to a new plan memeber within ____days of the memebers eligibility date

90 days

rollover conributions to ira

EX; left one employer for another and recieved complete distribution from previous employers plan ex: invested funds in one ira and then want to rollover to another ira for a higher rate of return. -distribution recieved from an employer-sponsored retirement plan is eligable for a tax free rollover if it is reinvested within 60 days of distribution and if the plan participant does not actually take physical recepit of the distribution

taking from an ira before age 59.5 will result in

a 10% penalty excpetions: if the owner becomes disabled if faced with certain amount of medical expenses if faced with higher education expeses to cover first time home purchase (up to 10k) to pay for health insurance premiums while unemployed if an ira owner is a firefighter, policeman or EMT with a pention/retirement plan and retires after age 50, they are exempt from the penatly tax

employer contributions to qualified retirement plans are considered..

a deductible business expense. -> therefore lowers buiness income taxes

conduit ira

a holding tank for funds that origonally came from a qualifed plan and are on their way to another qaulified plan -no tax necesarry unless funds distributed directly to the individual

koegh plans (HR-10s)

a qualified retirement plan designed for unincorprated business (self employed) that allows the business owner or partner to participate as an employee. -may be set up as defined contribution or defined benefit plans -max contribution of 57K

Tim is retired ans has recently separated from his wife. he receives benefits from a qualified retirement plan through his former employer. the plans strustee has decided to split these benefit payments between tim and his estranged wife. this decision is likely in violation of which IRS rule?

alienation of benefits -involves the assignment of a pension or retirement plan participants benefits to another perosn. it is permitted only under exceptional circumstances per IRS rules, such as certain participant loans and certain deomestic relations orders. with no domestic relation order, this turstee is likely in violation of this rule.

SIMPLE plans

allow eligible employers to set up tax favored retirement savings plans for their employees without having to adress many of the usual qualification requirements -availbale to small businesses with less than 100 employees who recieved at least $5k in compensation in the previous year. -must not have another plan in place -all contributions are nonforeitable and the employee is immediatly fully vested

catch up contributions

allows apriticpants in SARSEP and SIMPLE plans who are at least 50 years old to make additional contributions.

IRC section 457 Deferred Compensation Plans

allows participants in plans to defer compensation without current taxation as long as certain conditions are met

deduction of IRA contributions

amount contributed to IRA is deducted from their income if not covered by employer sponsored plan, may contribute anual limit to a traditional IRA and deduct from their current income the full contribution.

which of the following situations would allow funds to be deposited into a rollover IRA

an employee quits her job and receives 50K from her qualified plan

a description of qualified plans insurnace contract may be found in wich ERISA reporting form

annual return/report (form 5500)

traditional individual retirement annuity (IRA) distributions must start by

april 1st of the year following their 70.5th bday

defined contribution plans

are private pension plans in which the size of the benefit depends on how much money is contributed to the plan 3 types: 1. profit sharing plans 2. stock bonus plans 3. money purchase plans

the IRS has a minimum coverage rule regarding qualified retirement plans. this rule states that each qualified plan is required to

benefit a braod spectrum of employees

an employee welfare plan exempt from ERISA regulations would be

church plans

employee stock ownership plans

employee-owner programs that provide a company's workforce with an ownership interest in the company. -shares are allocated to employees and may be held in an ESOP trust until the employee retires/leaves the company

cash or deferred arrangements (401K plans)

employees can elect to take a reduction in their current salaries by deferring amounts inot a retirement plan. -"salary deferral option" bc employees cannot be forced to participate, can either take the money as cash or defer it into the plan -max annual limit is $19,500

profit sharing defined contribution plan

established by an employer and allow employees to participate in the profits of the company. -they set aside a portion of the firms net income for distribution to employees who qualify under the plan. -IRS states that to qualify for favoriable tax treamtment, the plan must be maintained with "recurring and stbstantial" contributions. although profits not necessarily the same every year, obvioulsy. -withdrawlas of funds from the plan may be subject to 10% tax penalty in addition to income taxes if withdrawals are made before age 59.5

defined benefit plans

establishes a definite future benefit, pre determined by a specific formula. -usually benefits are tied to the years of service, amount of compensation, or both. ex: benefit = to 2% of highest 5 years of earnings multiplied by number of years worked there. OR defined by %100 a month for life. to qualify for federal tax purposes, must meet the following requirements: -plan must provide for definitely determinable benefits, either by formula or actuarial computation -must provide for systematic payment of benefits to employees over a period of years (usually for life) after retirement. - must detail benefits and how paid -maximum annual benefit an employee recieves in on eyear is limied to amount set by tax law

an officer for a coproation takes out numerous unsecured loans from the companys qualified retiremnt plan. which of these rules is the plan in violation of

exclusive benefit rule the assets held in a companys qualifed retirement plan must be maintained for the exclusive benefit of the employees and their beneficiaries.

wha is another name for a Keogh plan

hr 10 plan

keogh plans

hr-10 for self employed persons such as doctos, farmers, laweers or other sole priopretiors contributions are tax deductable and interest are tax deffered

IRA funding

ideal funding for IRA is a flexible remium fixed deferred annuity. bank time deposite open account bank certificates of deposite insured credit union account mutiual fund shares face amount certificates real estate investment trusts ceratin us gold and silver coins

pension protection act

improves the pension system and increases opportunities to fund retirement plans

XYZ Corp has implemented a qualified retirement plan. this plan may NOT discriminate

in favor of highly compensated employees

a 55 year old recently received a 30k distribution from a previous employers 401k plan, minus 6k for income tax withholding. which federal taxes apply if non of the funds were rolled over?

income taxes plus a 10% penatly tax on 30k all withdrawals from a qualified returement plan are taxable as income. any withdrawals made before age 59.5 are subjust to an additional tax penalty of 10% of the amount withrawn.

traditional IRA

individual retirement account -individuals can save money for retirement and receive a current tax break regarldess of other retirement plans. -not taxed until taken out at retirement (so that they can grow larger while in the account) -taken from income, resulting in lower income status

a trustee-to-trustee transfer of rollover funds in a qualified plan allows a participant to avoid

mandatory intcome tax withholding on the amount transfered. there are no federal tax witholding involved in a transfer from one qualified plan to another rollovers however involve a 20% withholding fee.

roth RIA

no income tax deductions can be taken for contributions made to roth ira, but the earnings on those are tax free when withdrawn. make with after-tax dollars -if taken out before age 59.5 withdrawal is considered prematurea nd earnings will be 10% penalty -dont require mandatory distributions ->can remain in account even after death to be passed onto heirs

whe funds are transfered directly from one IRA to another IRA, what percentage of tax is withheld

none, no tax witheld on ira transfers when directly involves two IRAs

tax sheltered annuitites (403b Plans)

only available to certain groups of employees -> nonprofits, religous, public school systmems -funds are contributed by the employer or employee through payroll deductions

money purchase plans

provide for fixed contributions with future benefits to be determined. 3 requirements: 1. contributions and earnings must be allocatd to participants in accordance with a definite formula 2. distributions can be made only in accordance with amounts credited to participants 3. plans assets must be valued at least once a year, with participants accounts being adjusted accordingly

two categories of retirement plans

qualified and non qualified plans qualified plans are those that meet federal requirements and receive favorable tax treatment

salary reduction SEP plans (SARSEPs)

reserved for small employers (25 or less employees) established before 1997. -incorporate a deferral/salary reduction where the employee can elect to have an employer contributions directed into the SEP or paid out as taxable cash compensation.

the IRS minimum coverage rules..

says a qualified retirement plan must benefit a broad cross-section of employees. --prevents discrimination against non "elite" employees -irs provides coverage tests to determine if discriminatory

stock bonus plan

similar to profit sharing only that contributions are distributed in the form of company stock.

simplified employee pension (SEPs)

specified for small businesses to overcome costs, compliance, and administrative hurtdles of qualified defined contribution or defined benefit plan's administrative burdens and costs ->arrangements where an employee (including those self employed) established an individual retirement account to which the employer contributes -difference between SEP and IRA is the amount that can be constirbuted is much larger in an SEP per year.

exclusive benefit rule

states that assets held in a companys qualified retirement plan must be maintained for the exclusive benefit of the employees and their benefiiciaries.

which of these is a ture statment regarding survivor benefits under a qualified retirement plan

survivior benefits can only be waived with the written consent of a married employees spouse

alienation of benefits

the assigment of a pension or retirement plan to another person. -permitted only under exceptional circumstanses per IRS rules.

vesting schedules

the employees have right to their retirement fund even if the emoployment ends before retirement. -the employee always has 100% vested interest in benefits that accrue from the employees own contributions

funding standards

thre mut be real contributions on the part of the employer, the employee or both. -funds must be held by a third party and invested. -minimum funding requirements are set to ensure that an employers annual contributions are sufficient to cover costs of benefits

The purpose of the Employee retirement income security act of 1974

to protect the rights of workers covered under an employer-sponsored plan -generally, employees who have reached age 21 and one year of employement service must be allowed to enroll in a qualified plan -or, if the plan provides 100% vesting upon participation, they must be required to work there for 2 years. -church, gov't, and collectively bargained plans are specifically exempt from ERISA regulations

section 529 plans

vehicle for prodivding for ihgher education expenses prepaid tuition plans: allows contributers to prepay college tuition and other fees for a seignated beneficiary college saving plans: allows contirbutors to invest after tax dollars in profesionally managed accounts

survivor benefits under a qualifed retirement plan can be waived only with..

written consent of a married worker's spouse

is there a manxium amount that can be added to a qualifieed retiremnent plan per year

yes it is set by the IRS