Chapter 11 Retirement

2 kinds of Qualified plan

1. defined benefit 2. defined contribution plan

Types of retirement plans

1. Qualified plan 2. Nonqualified plan

Traditional IRA

an individual retirement arrangement, contributions to which may or may not be deductible depending on the taxpayer's AGI and whether or not he is covered under an employer-sponsored retirement plan. Earnings within a traditional IRA grow tax-deferred. Distributions from a traditional IRA are taxable, except to the extent they represent nondeductible contributions.

401(K) Plan

Deferred compensation plan name is from IRC 401(k) which governs their existence. .Contributions to a 401(k) plan and earnings are tax deferred to the employee (income tax is not charged on the amount of the contribution at the time it is made). .Distributions from the plan are taxed as ordinary income to the recipient when received.

Roth IRA

a type of individual retirement arrangement in which contributions are not tax deductible, earnings grow tax deferred. qualified withdrawals are tax free.

Defined Contribution plan

= also called a deferred compensation plan a retirement plan where the employee and/or employer make pre-tax contrition in to a retirement account where the contributions and earning grow tax-free until the money is withdrawn. an employee benefit plan that provides a separate account for each person covered and pays benefits based on account earnings. Example: 401(k) plan and profit-sharing plans

Distribution

Money or property taxpayer receives from a retirement plan, such as IRA or an employer-maintained retirement plan

Pension

payment made periodically for a specified period from an employer -maintained plan to workers who have met the stated requirements. Its primary purpose is to provide retirement income calculated by formula based on no of years worked ages and the taxpayer's history of earnings with employer.

403(b) plan = tax-sheltered annuity plan

tax advantaged retirement savings plan for public education, some non-profit, and cooperative hospital service employees. contributions and earnings are tax deferred. Deferred compensation plan available to employees of public educational institutions and non-profit organisations. 교육재단에서 일하는 사람을 위한 retirement plan

example 11.9 Lorna Mandiola(39), single taxpayer. . not an active participant in an employer maintained retirement plan . taxable income $54,689, tax $9,463 . federal tax withheld $9,369 . owes $94 tax on 4/14 opens traditional IRA and contributed $4,000 what's her tax liability?

.gets $4,000 IRA deduction, taxable income $50,689, tax is $8,463 receives refund of $906 and she saved $4,000 for her retirement!!

contribution

1)gift to a qualified charitable organization, generally deductible on Schedule A 2) Monye placed in a retirement fund, such as an individual retirement arrangement or an employer-maintained retirement plan

MAGI for traditional IRA

AGI( without IRA deduction) + Student loan interest Tuition deduction Excludible employer-provided option benefits form form 8839 line 20 Excludible US savings bond interest from 8815 line 14 Domestic production activity deduction form 1040 line 35 Certain excludible foreign and u.s. possession income .

457 Plan

Deferred compensation plan available to employees of government entities and certain tax-exempt non-governmental entities. 정부관련 기관에서 일하는 사람을 위한 retirement plan contributions and earnings are tax deferred. not qualified plans but primary features are same to qualified plans.

Annuity

a fixed sum payable to a person at specified intervals for a specific period of time or for life. Payments represents a partial return of capital and a return on the capital investment series of payment s under a contract, made at regular intervals over a period of more than one year. taxpayer can buy the annuity contract alone or with the help of their employer. Annuity are purchased from life insurance companies. Employer and/or employee makes payments to fund the pension or annuity.

Can child get social security benefit?

Your unmarried children who are under 18 (up to age 19 if attending elementary or secondary school full time) can be eligible to receive Social Security benefits when you die. And your child can get benefits at any age if they were disabled before age 22 and remain disabled. Besides your natural children, your stepchildren, grandchildren, step grandchildren or adopted children may receive benefits under certain circumstances.

Rollover

a qualified transfer of funds from one tax-favoured account to another, usually of the same type. a rollover must take place within 60 days of receiving the fund

Defined Benefit plan

a retirement plan where the employee receives a predetermined formula-based benefit at retirement. an employee benefit plan that provides a determinable benefits not based on employer profits.. Example: pension plan, annuity