Qualified Plans
Pretax Contribution
Contribution made before federal and/or state taxes are deducted from earnings.
Under SIMPLE plans, participating employees may defer up to a specified amount each year, and the employer then makes a matching contribution up to an amount equal to what percent of the employee's annual wages?
3
Safe Harbor 401(k): To satisfy the time requirements an employee must be notified at least __ prior (And not no more than __ before) the beginning of each plan year.
30 days and 90 days
Self-employed Plans (HR-10 or Keogh Plans): When a participant enters retirement, distribution of funds must occur no earlier than:
59 1/2 and no later than 70 1/2.
Gross Income
A person's income before taxes or other deductions
Traditional IRA: A married couple could contribute:
A specified amount that is double the individual amount, even if only one person had earned income. Each spouse is required to maintain a separate account not exceeding the individual limit.
A Traditional Individual Retirement Account (IRA):
Allows individuals to make tax deductible contributions until the age 70 1/2. Plan participants are allowed to contribute up to a specified dollar limit each year, or 100% of their salary if less than the maximum allowable amount.
Under the 401(k) bonus or thrift plan, the employer will contribute..
An UNDETERMINED percentage of each dollar contributed by the employee.
An employer-sponsored qualified retirement plan is:
Approved by the IRS, which then gives both the employer and employee benefits such as deductible contributions and tax-deferred growth.
In Traditional IRA's, withdrawals may begin..
At age 59 1/2, but no later than age 70 1/2.
To be covered under a Keogh retirement plan, the person must..
Be self-employed or a partnet working part time or full time who owns at least 10% of the business.
In contract with a traditional IRA, Roth contributions can continue..
Beyon age 70 1/2 and distributions do no have to begin at age 70 1/2. Roth IRA's grow TAX FREE as long as the account is open for at least FIVE years.
A tax-sheltered annuity is a special tax-favored retirement plan available to:
Certain GROUPS of employees only.
Self-employed Plans (HR-10 or Keogh Plans): Contributions
Contribution limits are the lesser of an established dollar limited or 100% of their total earned income. The contribution is TAX DEDUCTIBLE, and it accumulated tax deferred until withdrawal.
Nonqualified Plans:
Contributions NOT currently TAX DEDUCTIBLE; Plan DOES NOT NEED IRS APPRIVAL; Plan CAN DISCRIMINATE; Earnings grow TAX DEFERRED; EXCESS over cost basis is TAXED.
Pensions plans are either:
Defined benefit or Defined contributions
Qualified plans have the following characteristics:
Designed for the exclusive benefit of the employees and their beneficiaries; Are formally written and communicated to the employees; Use a benefit or contribution formula that does not discriminate in favor of the prohibted group-officers, stockholders, or highly paid employees; Are not geared exclusibely to the prohibted group; Are PERMANENT; Are approved by the IRS; and Have a vesting requirement.
Anybody with __ can contribute to either plan (Traditional IRA's or Roth IRA's)
Earned Income
Tax Considerations: If the general requirements for qualified plans are met, the following tax advantages apply:
Employer contributions are tax deductible to the employer, and are not taxed as income to the employee; The earnings in the plan accumulate tax deferred; and Lump-sum distributions to employees are eligible for favorable tax treatment.
Profit Sharing Plans: If the plan does not provide a definite formula for figuring the profits to be shared..
Employer contributions must be systematic and substantial.
In a SEP, an employee..
Establishes and maintains an individual retirement account to which the EMPLOYER contributes.
HR-10 and Keogh Plans make it possible..
For self-employed persons to be covered under an IRS qualified retirement plan. These plans allow the self-employed individuals to fund their retirement program with PRE-TAX dollars as if under a corporate retirement or pension plan.
Nonqualified plans require NO:
Government approval and are used as a means for an employer to discriminate in favor of a valuable employee with regard to employee benefits.
Two attorneys operate their practice as a partnership. They want to start a program through their practice that will provide retirement benefits for themselves and three employees. They would likely choose:
HR-10 (Keogh Plan)
To establish a SIMPLE plan, the employer must NOT:
Have a qualified plan already in place.
Self-employed Plans (HR-10 or Keogh Plans): Upon a participant's death, payouts can be available..
Immediately
Roth IRA
Is a form of an individual retirement account funded with AFTER-TAX contributions. An individual can contribute 100% of earned income up to an IRS-specified maximum, as with traditional IRA's(The dollar amounts change every year)
403(b) Tax-sheltered Annuities (TSAs)
Is a qualified plan available to employees or certain NONPROFIT organizations under Section 501(c)(3) of the Internal Revenue Code, and to employees of public school systems.
If a retirement plan or annuity is "qualified", this means:
It is approved by the IRS
A safe harbor 401(k) plan is similar to a traditional 401(k) plan except:
It provides employer matching contribution that are fully vested. These contributions may be granted to either employees who defer, or on behalf of all elligible employees. Elective deferrals do not have an impact on these contributions. Unlike a traditional 401(k) plan, a safe harbor plan is not subject to annual nondiscrimination tests.
Which of the following is an IRS qualified retirement program for the self-employed?
Keogh
Traditional IRA: Individuals who are age 50 or older are entitled to:
Make additional catch-up contributions.
Single(k), or Single-Participant(k), is a 401(k) plan available to:
Owner-only business or sole proprietorships or partnerships.
Which of the following are established by the employer to provide specific benefits to eligible employees at retirement?
Pension plans
Safe Harbor 401(k): Employers must include proper information regarding content and timing requirements. These requirements include:
Proper notice before each plan year; The safe harbor method used; How employees make elections; and Information covering any other plans involved.
A 401(k) plan may be arranged as:
Pure salary reduction plan; Bonus plan; or Thrift Plan
Profit Sharing Plans are:
Qualified plans where a portion of the company's profit is contributed to the plan and shared with employees.
Under a 401(k) plan, the participants may choose to do one of the following:
Receive taxable cash compensation; or Have the money contributed into the 401(k), in cash or deferred arrangement plans (CODA)
An individual has been contributing to a retirement account after taxed are taken out of his paycheck. His financial advisor told him that he will be allowed to make contributions after age 70 1/2. The account owner does not have to pay taxes on the growth of his account. What type of retirement account is it?
Roth IRA
Earned Income
Salary, wages, or commissions; but not income from investmetns, unemployment benefits, and similar
An IRA purchased by a small employer to cover employees is known as:
Simplified Employee Pensions (SEPs)
These plans give owner-only businesses the advantages of a traditional 401(k), such as higher contribution limits and the ability to borrow from the plan, at an affordable price.
Single(k) or Single-Participant(k)
A SIMPLE Plan is available to:
Small businesses that employ no more than 100 employees who receive at least $5,000 in compensation from the employer during the previous year.
Employer contributions made to a qualified plan are:
Subject to vesting requirements
A 401(k) Qualified Retirement Plan allows employees to:
Take a reduction in their current salaries by deferring amounts into a retirement plan. The company can also match the employee's contribution, whether it is dollar for dollar or on a percentage basis.
403(b) Tax-sheltered Annuities (TSAs): Contributions can be made by:
The employer or by the employee through salary reduction and are excluded from the employee's current income. As with any other qualified plan, 403(b) limits employee contributions to a maximum amount that changes annually, adjusted for inflation. The same catch-up provisions also apply.
Pension plans are establish by:
The employer to provide specific benefits to eligible employees at retirement.
The primary difference between a SEP and an IRA is:
The much larger amount that can be contributed each year to a SEP.
Vesting
The right of a participant in a retirement plan to retain part or all of the benefits.
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.
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.
Contributions to a single(k) plan are made the same way as to a:
Traditional 401(k)-the lesser of 100% of compensation or an IRS-specified dollar amount.
The two most common qualified individual retirement plans are:
Traditional IRA's and Roth IRA's.
Rollover
Withdrawal of the money from on qualified plan and placing it into another plan.
Employers offering safe harbor 401(k) plans must provide employees with:
Written notice of their rights and obligations under the plan, and include the proper information regarding content and timing requirements.