Chapter 11

Money purchase plan (3)

1. Who contributes: employer and/or employee contributions. 2. The employees retirement benefit is uncertain. The value in the account retirement is what the employee has 3. The contribution by the employer is a no and fix amount regardless of how well or poorly the company does in a given year

Rules that we are ERISA and imposes on a qualified retirement plans includes: (5)

1. disclosure 2. standards 3. accountability 4. remedies 5. guarantees

Coverdell - education savings account: Benefits going to be used to pay

qualified higher indication expenses as well as qualified elementary and secondary education expenses (public and private)

If the student decides not to pursue an education, The account holder/owner may

request a refund and the refund will be subject to the plan policy on refunds && the earnings will be subject to federal income tax and a 10% federal penalty

Coverdell - education savings account: Contributions are not deductible but (2)

withdrawals to pay the cost of a beneficiary's education expenses are tax-free. Contributions must be made in cash

what age should Roth IRA holder starts distribution

is not required to begin distribution by a specific age

Coverdell - education savings account

an account created as an incentive to help parents and students safer education expenses

ERISA contains fiduciary provisions to

protect plans from mismanagement and misuse

Permissible rollovers - Rollover to Roth IRA

is permitted. However, income tax would have to be paid on the distribution of assets before it was placed into the ROTH account

Withdrawals from a 529 plan can only be made by the

"owner" of the account, not by the beneficiary of the account

Investors making contribution to 529 plan generally use the annual gift tax exclusion of (3)

$15,000 or can aggregate the gift tax exclusion to contribute to $75,000 ( $15,000 X5) in one year to kickstart the program. If the aggregate gift tax is used, no further gift tax gifts are allowed for five years. Married couples may contribute up to $150,000 for each beneficiary as long as no further gifts are made to that beneficiary for the next five years

Coverdell - education savings account - The total contributions for a individual beneficiary of this type of account cannot be more than

$2000 in any year, no matter how many accounts have been established for the beneficiary

the Traditional IRA - deduction active participants for a defined contribution plan

an individual is considered an active participants is contributions or forfeitures are allocated to the individual's account for the plan year that ends with or within that tax year

the Traditional IRA - deduction an individuals as well as their UNEMPLOYED SOUSE ARE PERMITTED TO MAKE NON-DEDUCTIBLE IRA

(up to contribution limits) to the extent that they ineligible to make deductible IRA contributions due to restrictions (active in employer's plan, AGI limitations)

Profit sharing plan (1,2,(4))

- A plan by which the company shares its profits with its employees. This plan is designed to give employees incentive to be productive. a. The determination to contribute as well as the size of any annual contribution is made by the employer b. The contribution is depended on company profits c. All funds in the plan our tax sheltered d. NOTE: deductible allowances may not be carried forward to the next tax plan a year.

Non-permissible rollover (2)

- A rollover from a ROTH individual retirement account to a qualified plan is NOT permitted Important point: prior to 2008, a direct rollover from a qualified plan to a Roth IRA Was an NOT permitted. However, this is now a permitted rollover. Beware of potential old questions referring to this role

The simplified employee pension (SEP/SEP individual retirement account) (4) 1. type of retirement plan that is used by 2. The advantages of SEP include the 3. The business owner and any eligible employees create their 4. Once the contributions are deposited, they

- a type of retirement plan used by small business owners to provide retirement benefits for themselves and their employees. - The advantages of SEP include the low cost of administration and the tax-deductible nature of contributions. - The business owner and any eligible employees create their own individual retirement account to which the employer that deposits SEP contributions. - Once the contributions are deposited, they become the property of the individual retirement account and are therefore generally subject to the same rules as a traditional individual retirement account.

The savings incentive match plan for employees (simple) (5) 1. retirement plan that provides 2. Like the SEP, the SIMPLE plan allows employers to 3. However, the SIMPLE also allows 4. This plan is similar to 5. In order to set up a SIMPLE plan, an employer may

- another retirement plan that provides a simplified way for small employers and their employees to contribute to retirement. - Like the SEP, the SIMPLE plan allows employers to a tax deductions for contributions they make to the SIMPLE individual retirement account plan. - However, the SIMPLE also allows eligible employees to make elective salary deferrals of their pre tax compensation study plan. - This plan is similar to a 401(k) type plan but offers simpler and less costly administration. - In order to set up a SIMPLE plan, an employer may not concurrently have another retirement plan

529 plans are generally set up by states. Investors can invest in plan from any state but should first consider

plan offered in their home states since many plan offer specials State tax benefits to residence of their own states

the Traditional IRA - The distribution: (3) 1. may begin 2. are mandatory 3. there's no tax penalty for (2)

- may begin at age 59 ½ - Are mandatory by age 72 Withdrawals are taxed as ordinary income however there's no tax penalty for withdrawals up to $5000 for an adoption or birth of a child. Ordinary income tax would have to be paid ● First time homebuyers will not be subject to the 10% additional tax on up to $10,000 of distributions to buy, build, or rebuild a first home.

the Traditional IRA - The distribution: Are mandatory by age 72 (2)

. Required minimum distributions must begin no later than April 1 following the calendar year and which the owner reaches age 72. Late distributions are subject to a 50% penalty tax on the insufficient distributions. ● For example if based on life expectancy a person should be taking $10,000 a year and only takes $6000, this is the insufficient distribution of $4000 would be subject to a 50% penalt

Types of Defined Contribution Plans (3)

1. 401k plan 2. ROTH 401K plan 3. Profit sharing plan

the Traditional IRA - contributions (2)

1. CONTRIBUTION MAY BE MADE ANNUALLY UP TO 100% OF EARNED INCOME NOT TO EXCEED SPECIFIED LIMITS. All contributions to Traditional and Roth IRA ARE AGGREGATED and cannot exceed the limits 2. individuals who will be at least 50 years of age during the tax year may contribute an additional "catch-up" amount to an IRA

individuals may hold almost any investment in their IRA. however there are some explicitly named prohibited items (3) 1. Contributions MAY BE INVESTED IN (3) 2. contributions MAY NOT BE INVESTED IN: (2) 3. because IRA earnings are tax deferred or tax exempt, there is no benefit to

1. Contributions MAY BE INVESTED IN - stock, bonds, mutual funds, ad other securities - certain U.S GOVERNMENT or STATE ISSUED gold, silver, platinum, and palladium coins and bullion - REAL ESTATE 2. contributions MAY NOT BE INVESTED IN: - COLLECTIBLE ITEMS such as antiques, paintings, rugs, diamonds, and stamps - LIFE INSURANCE 3. inadvisable investments - because IRA earnings are tax deferred or tax exempt, there is no benefit to investing in tax-exempt securities such as MUNICIPAL BONDS AND MUNICIPAL BOND FUNDS

there are two categories of qualified plans

1. Define Benefit Plans 2. Defined contribution plans

the Traditional IRA - deduction active participants include (2)

1. FOR A DEFINED BENEFIT PLAN 2. for a defined contribution plan

Coverdell - education savings account: contributions are phased out for taxpayers with an adjusted gross income of: (2)

1. For singles between $95,000 and hundred and $110,000 2. For married couples joint filers between $190,000 and $220,000

403b plan / tax sheltered annuity arrangement (TSA) - Distributions: (3)

1. May begin at age 59 1/2. 2. Are mandatory by age 72 3. Distribution to plan holders are taxable as ordinary income would it cost basis of zero

529 education savings plan or qualified tuition programs - there are two available plans under this program:

1. Prepaid tuition plan 2. Education savings plan (529 plan)

Coverdell - education savings account: distribution (2)

1. The after-tax contribution portion of a distribution is tax-free 2. The "earnings" portion of a distribution not a use for education are subject to ordinary income taxation plus a 10% penalty tax

Disclosure

plans must regularly provide participants with important information about the plan feature and funding

In Roth individual retirement accounts, "qualify distribution" (1, 2(5))

1. five year holding 2. Must meet one of the following criteria: ■ Is made after the individual retirement account owner has reached age 59 1/2 ■ Is made as a result of the death or disability of the individual retirement account owner ■ Is used for "qualified first time homebuyer expenses" ■ Is used for educational expenses ■ Is used for medical insurance premiums

in a 529 plan, An account holder/owner can change beneficiaries (students benefiting from the plan) at any time as long as the new beneficiary is a (1, 2 (14))

1. qualified member of the original beneficiary family. 2. Qualified family members include brothers, sisters, stepbrothers, stepsisters, son, daughter, stepchildren, niece, nephew, aunts, uncles, in-laws, spouses, and first cousins.

HANDLING OF INHERITED IRAs - if the owner of an IRA dies and the designated beneficiary is: (5)

1. surviving spouse 2. a non-spouse 3. a trust 4. "stretching" an IRA 5. a charity will not pay income tax on an inherited IRA, since a charity pays no income tax on gift it receives

Coverdell - education savings account: Contributions may be made until the beneficiary reaches age (4)

18 unless a beneficiary is a special-needs beneficiary. Assets in the account must be distributed or transferred before the designated beneficiary reaches age 30. If it is not distributed within 30 days of age 30 the account will be assessed a 10% penalty. The account can be transferred to another family member to avoid the penalty before the time limit is reached.

Guarantees

A payment of certain defined benefits is guaranteed through the Pension Benefit Guaranty Corporation

ABLE Program

A program established under section 529A of the internal revenue code to permit a state, or an agency of a state, to establish a maintain a tax advantage saving program to help support individuals with disabilities in maintaining health, independence, and quality of life

Permissible rollovers - 403B rollovers

A rollover involving a transfer to order from a 403B account is allowed by law but employers managing such plans are not required to accept such rollovers so this option may not always be available

Education savings plan (529 plan) - Qualified expenses include

Accredit post secondary educational institutions such as college, university, vocational school, or trade school as well as education expenses for grade pre-K through high school. The secure act of 2019 permits withdrawals up to $10,000 to pay off student loans

compensation that qualifies for an IRA contribution includes (1,2c)

EARNED INCOME AND ALIMONY but does NOT include: 1. pensions 2. annuities 3. other deferred compensation

The savings incentive match plan for employees (simple) - Matching or non-elective contributions by the employers (2)

Employers may choose to make 1) matching contributions based on the elective contributions made by the employees of up to 3% of compensation, or 2) non-elective contributions of a straight 2% of compensation to each eligible employee

In Roth individual retirement accounts, "qualify distribution" which includes contributions and earnings are tax-free when withdrawn. To be qualified, the distribution will satisfy the following two requirements

Five-year holding. - The distribution may not be made before the end of the fifth year after which the individual made their initial contributions to the Roth IRA ○ AND Must meet one of the following criteria:

the Traditional IRA - The distribution: may begin at age 59 ½

Funds withdrawn at age 59 1/2 are subject to a 10% penalty tax except for death, disability, medical expenses, first time home purchases, higher education costs, and medical insurance premiums.

Prepaid tuition plan are available at

private schools provided the institutions has qualified for such a plan

Investment policy statement (3) 1. Is a written statement that provides 2. ERISA interpretations have 3. Therefore, a fiduciary may be found to

Is a written statement that provides plan FIDUCIARIES who are responsible for investments with guidelines concerning investments and management decisions. ERISA interpretations have deemed (consider) the creation and maintenance of such a policy to be consistent with the FIDUCIARY obligations required for qualified plans . Therefore, a fiduciary may be found to have breached their duties if they do not maintain an investment policy statement.

Qualified plans versus IRA (4) 1. It is important to note that while IRA were created by ERISA they are 2. When establishing a tax advantage retirement plan, private employers may 3. The choice usually comes down to 4. Qualified plans generally have

It is important to note that while IRA were created by ERISA they are not defined as a "qualified plan" but are a different type of arrangement subject to specific rules which do not apply to qualified plans When establishing a tax advantage retirement plan, private employers may choose either a qualified or IRA-based plan. The choice usually comes down to the difference in contribution limits and the level of effort involved in administering the plan. Qualified plans generally have higher contribution limits but require more complex administration than IRA plan

the Traditional IRA - deduction individuals who ARE ACTIVE in a retirement plan at work (2)

MAY BE ABLE TO DEDUCT A CONTRIBUTION TO AN IRA depending upon income limitations based on tax filing status (individual or joint) and your adjusted gross income (AGI)

Rollover - Time limitation

Roll over must generally be completed within 60 days of withdrawals of assets from an account in order to avoid tax liability. Any portion of a withdrawal that is not rolled over within 60 days will be taxed as ordinary income and may be subject to a 10% penalty

Prepaid tuition plan

allows anyone, a parent, grandparent, or family friend, to establish an account (then known as the "account holder or account owner") in the name of a student (beneficiary) and "lock in" the cost of a specific number of academic periods or units at current prices, but the units or periods will be used in the future

Education savings plan (529 plan)

allows anyone, a parent, grandparents, or a family friend, to contribute to an account (then known as the "account holder or account owner") that will be used to pay a beneficiary's qualified education expenses (tuition, fees, books, supplies, and room and board)

Savings plan are not mutual funds, although many plans offer mutual funds as an investment option. (2)

These plans are municipal securities that are exempt from SEC registration. An offering circular is delivered as a disclosure document to potential investors.

ROTH 401K plan (2)

a 401K plan may be modified to include ROTH provisions which allow participants to allocate some or all of their contributions to a separate designated ROTH account. Contributions to a ROTH 401K are made on an after-tax basis and qualified distributions are tax-free (as with a ROTH IRA)

Prepaid tuition plan provides a

a hedge against increase tuition cost

Non-Qualified Deferred Compensation Plans (4)

a non-qualified contract between an individual and their employer to defer compensation as agreed-upon between the two parties. Such a plan is frequently used by highly paid athletes and executives who enter into large compensation contracts. Non-tax qualified deferred compensation plans are not subject to ERISA since they are agreements between two parties and their employer is not making contributions on behalf of the employee. Since the plan is not subject to ERISA, the employer may discriminate to whom such a plan is offered in favor of highly paid employees

457(b) Plan

a type of deferred compensation plan for employees of a state or local government or a tax exempt organization. Different rules apply to governmental versus non-governmental plan

403b plan / tax sheltered annuity arrangement (TSA) (3)

a type of plan for use by certain tax exempt (nonprofit) organizations to provide retirement benefits for their employees. This type of plan provides benefits by purchasing and annuities or contributing to custodial accounts invested in mutual funds. 403B plans cannot invest in limited partnerships.

457(b) Plan - employers or employees through salary reduction may contribute up to: (2)

a. $19,000 with a maximum catch up of $6000 for 2019 b. $19,500 with a maximum catch up of $6500 for 2020

Non-Qualified Deferred Compensation Plans information (6)

a. A contractual agreement is executed under which employee agrees to defer receipt of part of compensation until retirement, disability, or death b. Agreements mainly used condition under which some or all benefits will be forfeited c. Agreements are promises to pay. The employee enjoys no rights to any assets of the employer until retirement, disability, or death d. Business failures could lead to no payment as plan assets could be subject to the company's creditors. The employee becomes a general creditor of the company if the business fails e. Income taxes are deferred until receipts f. Such plan may be indexed to inflation

403b plan / tax sheltered annuity arrangement (TSA) - Contribution information (4)

a. Annual contribution ("additions") to a TSA plan b. Distribution may be made annually of two specified limits. All types of contributions are aggregated and cannot exceed the annual limits. c. Individuals who will be at least 50 years of age during the tax year may contribute an additional "catch up" amount to the plan. d. Annual contributions "additions" to a TSA plan are limited and are included in the retirement plan summer shorts at the end of this chapter

under a Defined Benefit Plan, the benefits received by employees are computed using a predetermined formula. (4) 1. Benefits are calculated based upon (3) 2. High salaries employees near retirement ___ 3. Benefits are taxable as 4. what does An Actuary do? 5. Defined benefit plants are typically used by 6. The cost of these plans can be ___

a. Benefits are calculated based upon compensation, years of service, and age (for example: a plan may dictate that when an employee retires, they will receive 5% of their average salary for the last three years for the number of years they worked for the employer.) b. High salaries employees near retirement benefits the most. Benefits are taxable as ordinary income c. An Actuary regularly reviews contributions amount to ensure that the fund will meet future benefits payments obligations d. Defined benefit plants are typically used by government employers and large companies. The cost of these plans can be prohibitive for small && mid sized companies.

457(b) Plan - The tax advantages for participants and a 457B plan include: (2)

a. Contributions are tax deferred b. Earnings on the retirement money are tax deferred

ABLE program details (3)

a. Contributions to a ABLE program generally are used to acquire units in a state trust and are invested consistent with the trust investment objectives b. Units of the trust generally are municipal fund securities c. Although contribution are not tax-deductible, under current federal tax, earnings in an ABLE account accrue free of federal income tax and distributions from an ABLE account that are used for the qualified disability expenses of the designated beneficiary excludable from the designated beneficiary taxable income

401k plan details include: (8) 1. Creation of these plans is 2. Many employers provide 3. This plan may also have 4. Pre-tax contribution may be made 5. This plans are sometimes called (3) 6. Contribution and earnings growth tax is _ 7. Rollovers can be made directly from 8. Employees are also allowed to make

a. Creation of these plans is voluntary by employers b. Many employers provide matching incentives where the employer will match employee distribution up to a certain percentage of compensation c. This plan may also have profit-sharing programs attached to them d. Pre-tax contribution may be made annually up to a specified limits and are included in the retirement plan summary chart at the end of this chapter e. This plans are sometimes called "CODA" plan - Cash or Deferred arrangement or cash accumulation plan or Capital accumulation plan f. Contribution and earnings growth tax deferred g. Rollovers can be made directly from a 401K plan to Roth IRA h. Employees are also allowed to make after-tax contribution but those are not be deductible

Keogh plan / HR-10 plan (5)

a. Introduction: à Keogh plan is a qualified, tax deferred retirement plan for self-employed individuals that can be set up as a defined contribution plan (like a profit sharing plan) or a defined benefit plan. KEOGHS are more complex to set up then SEP but our advantages as they allow for higher contribution limits b. Plan designed for: self-employed individuals with earnings from self-employment including sole proprietorships, partnerships, and unincorporated entities c. Eligibility: recipients of income from self-employment and their full-time employees who meet certain requirements (work thousand hours per year, or 21 years of age or older, and have at least one year service to the company) are eligible d. Contribution information is included in the retirement plan summary short at the end of this chapter e. Allowed investments: keogh plans can invest in stocks, bonds (including treasury bonds), mutual funds, unit investment trusts, and variable annuities

(403b plan / tax sheltered annuity arrangement (TSA)) - There are three types of employers that qualify to offer a 403B plan:

a. Public educational systems such as teachers and administrators b. Certain 501C 3 organizations such as religious, education, charitable organizations, Etc c. Certain employers of ministers

Money purchase plan - contribution limits (3)

a. The lesser of 25% of compensation or b. $56,000 for 2019 c. $57,000 for 2020

529 plan general information: (3)

a. There can only be one student per account b. One student can have multiple accounts established for them c. Anyone can establish an account for student. There does not have to be a personal relationship between the parties

"Non-qualified Distribution" - For distributions from a ROTH account that's not satisfied the above requirements, a portion of the distribution may be included in the (3)

accounts owner's gross income. The amount included as gross income will generally be subject to the 10% penalty taxon early withdrawals. The holder of the plan can avoid a 10% penalty if they begin to take substantially equal periodic payments over the remaining life expectancy

Education savings plan (529 plan) - earnings

accumulate tax-free

many people mistakenly think an IRA itself is an investment, however

an IRA is really only a container in which an individual can keep stocks, bonds, mutual funds, and a wide variety of other investments

the Traditional IRA - deduction active participants for a defined benefit plan

an individual who is not excluded under the eligibility provisions of the plan is considered to be an active participant if he or she is eligible to participate for any part of the plan year ending with or within the tax year, even though the individual has elected not to do so, has failed to make a mandatory contribution, or has failed to meet the minimum service requirements

Assets of a 529 plan can be transferred, tax free to

another 529 plan for the same beneficiary once during a 12 month.

Roth individual retirement account (Roth IRA) - Eligibility to contribute

are allowed up to certain limitations and adjusted gross income

the Traditional IRA - plan designed for (2)

are opened and used by individuals (and their spouse) who receive compensation these plans are personal accounts controlled by individuals themselves

Roth individual retirement account (Roth IRA) Plan designed for:

are opened and used by individuals (and their spouses) who receive compensation. These plans are personal accounts controlled by individuals themselves

Payroll deduction plan

are typically non-qualified plans that allow an employee to voluntarily elect to have their employer take deduction (after tax) from their paychecks to find insurance, healthcare, or other items.

According to the Department of Education, a 529 plan is treated as an (3)

asset of the parent for federal financial aid qualification purposes. Assets in the child's name are assessed at a rate of 20% for the expected family contribution as opposed to the parent assessment bracket of 5.64%. This means that putting contribution into a 529 plan is a good idea when it comes to qualifying for financial aid

distributions from a SIMPLE individual retirement account may be rolled over into other types of retirement plans after the employee has participated in the plan for (2)

at least two years. Distribution within the first two years may only be rolled over to another SIMPLE plan

contribution must be made in

cash and may be made up to April 15th of the year following the year that a deduction is claimed

Many mutual funds companies manage

college savings plans for the states

excess contributions

contribution above the limits which are not removed from the account are subject to a cumulative 6% EXCISE TAX

SIMPLE plan - Earnings and distributions (2)

contributions are made to the employees personal individual retirement account which is subject to the same rules as a traditional individual retirement account. Therefore, the treatment of earnings and withdrawals is the same as with a traditional individual retirement account. However, the 10% penalty for Early distributions from a SIMPLE individual retirement account is increased to 25% of the early distribution is made within the first two years

The simplified employee pension (SEP/SEP individual retirement account) -Earning and distributions

contributions are made to the employees personal individual retirement account which is subject to the same rules as a traditional individual retirement account. Therefore, the treatment of earnings and withdrawals is the same as with a traditional individual retirement account.

When a broker dealer is a primary distributor of a 529 plan, the broker dealer must receive and provide to investors a (3)

copy of the official statement, also referred to as the plan disclosure document, which includes information concerning opening an account, fees, cost, risk, investment performance, plan governance, administration, and tax consideration. Official statement for estate 529 plan must be filed with the miscible security information library and are available to the public

IRA account can be opened and held at almost any

custodian institution such as a bank, brokerage, or insurance company

529 plan contribution are not

deductible on a federal tax return

the Traditional IRA - deduction (5)

deduction for IRA contributions are permitted depending on the taxpayer's filing status and adjusted gross income: 1. individuals who are NOT ACTIVE in a retirement plan at work 2. individuals who ARE ACTIVE in a retirement plan at work 3. active participants 4. individuals with an UNEMPLOYED SPOUSE 5. an individuals as well as their UNEMPLOYED SOUSE ARE PERMITTED TO MAKE NON-DEDUCTIBLE IRA

Keogh plan / HR-10 plan - Rollovers

distributions from a KEOGH plan may be rolled over into another KEOGH plan or into other types of retirement plan such as my IRAs or other qualified plans (401K). Rollovers must be completed within 60 days.

403b plan / tax sheltered annuity arrangement (TSA) - rollovers

distributions from a TSA plan may be rolled over into another TSA plan or into other types of retirement plan such as IRA or qualified plan (401K plan).

Contribution made to a SIMPLE plan deductible to an employer if they are made by the

due date of the employers tax return, including extensions

Coverdell - education savings account: Taxpayers may make contributions to both an (2)

educational IRA and a qualified state tuition program in the same year for the same beneficiary. The annual gift tax exclusion apply

Recharacterization (3)

effective January 1, 2018, recharacterizations are no longer permitted. However, note that recharacterization worked as follows if a individual has made a contribution to a traditional or Roth individual retirement account and decide that it would be more beneficial to use to the other type of IRA, the contribution may be recharacterization as having originally made to the desired type of IRA. Individuals have until the due date of their tax return for the year in which the contribution was made to complete the re-characterization

401K plan - Part time employees (2) 1. employees (at least 21 years old) who worked at least 2. as a result, employers must maintain 401k plans for employees who qualify under either if the following eligibility requirement (2)

employees (at least 21 years old) who worked at least 500 hours per year for three consecutive years are now eligible for company's 401k plan as a result, employers must maintain 401k plans for employees who qualify under either if the following eligibility requirement: 1) complete a one year of service requirement (the existing 1000 hour requirement or 2) three consecutive years of service during which the employees complete at least 500 hours of service

403b plan / tax sheltered annuity arrangement (TSA) - plan designed for

employees of certain nonprofit organizations only. This includes public schools as well as educational, charitable, and religious organizations (hospitals, foundations, churches)

Defined contribution plans (3) 1. definition 2. what type of contribution can the employer make? 2. Unlike a defined benefit plan, the retirement benefit___

employees or the employer (or both) make contributions to employees individual accounts. Employers may make matching and profit-sharing contributions to employees accounts as well which are fixed by a predetermined formula. Unlike a defined benefit plan, the retirement benefit cannot be calculated in advance but depends upon the amount of contributions and the performance of investment in the account

The savings incentive match plan for employees (simple) - Eligibility - (2)

employers must set up an account and make contributions for all eligible employees. Employees are eligible to participate if they received $5000 or more in compensation for the employer during each of the last two calendar year and are reasonably expected to receive $5000 or more in compensation during the current calendar year

Prepaid tuition plan typically charge

enrollment and administrative fees

Savings plans typically charge

enrollment fees, annual maintenance fees, and acid management fees in addition to "loads" for plans sold by brokers.

529 education savings plan or qualified tuition programs (3)

established && maintained by a state government and allow individuals to set up to pay for student's qualified education expenses at any eligible educational institution. Contribution and tax deduction limits vary by state. Although contributions to these plants are not deductible for federal income tax purposes, these plan are tax advantage because any annual earnings and qualified withdrawals are tax-free at the federal level

Qualified Retirement plans (3) 1. established and maintained by 2. These plans are designed to 3. Example of such plans include (2)

established and maintained by a private employer that meets the requirement of the employee retirement income security act (ERISA). These plans are designed to provide retirement benefits for employees and are eligible for significant tax benefits. Example of such plans include 401(k) and profit-sharing plans

Accountability

fiduciaries are required to be accountable

the Traditional IRA - deduction an INDIVIDUAL IS AN ACTIVE PARTICIPANT

for any tax year in which the individual makes a voluntary or mandatory employee contribution

Permissible rollovers

generally permitted between any type of IRA, qualified plan or 403B plan

Private non-governmental 457 plan for

hospitals, unions, and charitable organizations and generally limit participation to a select group of management or highly compensated employees.

As a result, employers must maintain 401K plan for employees who qualify under either of the following eligibility requirements (2)

i. Complete a one year of service requirements (the existing thousand hour requirement) OR ii. Three consecutive years of service during which the employees complete at least 500 hours of service

403b plan / tax sheltered annuity arrangement (TSA) - Annual contribution ("additions") to a TSA plan may include: (3)

i. Elective salary reduction contributions made by the employee ii. Non-elective contributions made by the employer iii. After-tax contributions made by the employee

Coverdell - education savings account: The impact on financial aid depends on who the account owner is: (4)

i. If the account is on by the students, it will have a high impact on financial aid or legibility ii. If the account is owned by the parent, it has a low impact on financial aid eligibility iii. Qualified distribution from a Coverdell account are not counted as income in the FAFSA and thus do not reduce financial aid eligibility iv. A covered plant can be transferred to another "qualified individual"

HANDLING OF INHERITED IRAs - "stretching" an IRA (3)

is a strategy used to distribute IRA assets to beneficiaries beyond the lifetime of the person who originally established the IRA and allows beneficiaries to enjoy tax-deferred growth however, the Secure Act of 2019 abolished this option and now requires that the beneficiary withdraw all assets i the account within 10 years there are no required minimum withdrawals, but the entire balance must be distributed by the end of the 10th year

fiduciary

is defined as anyone who has the power to exercise discretionary authority or control over a plan's management or assets or who is paid a fee or any form of compensation for investment advisory services

401k plan - distributions (4) 1. May begin at age 2. Funds withdrawn before beginning age are subject to a 3. Are mandatory by age 4. Required minimum distributions (RMDs) must begin no later than 5. Latest distributions are subject to 6. Distribution to plan holders are taxable as 7. The 401K owner will pay fewer taxes on their distributions because they 8. Exception: required minimum distributions from a 401(k) plan can be delayed until retirement if (2)

i. May begin at age 59 1/2. Funds withdrawn before age 59 1/2 are subject to a 10% penalty tax except in the case of death or permanent disability ii. Are mandatory by age 72. Required minimum distributions (RMDs) must begin no later than April 1 following the calendar year in which the owner reaches age 72. Latest distributions are subject to a 50% penalty tax on the insufficient distributions. iii. Distribution to plan holders are taxable as ordinary income. The 401K owner will pay fewer taxes on their distributions because they will fall into a lower tax bracket upon their retirement iv. (Exception: required minimum distributions from a 401(k) plan can be delayed until retirement if you continue to be employed by the plan sponsor beyond age 72 AND you do not own more than 5% of the company.)

Keogh plan / HR-10 plan - Distributions (3)

i. May begin at age 59 1/2. Funds with Ron before age 59 1/2 or subtract two 810% penalty tax except in the case of death or permanent disability ii. Are mandatory by age 72. Required minimum distribution must begin no later than April 1 following the calendar year in which the owner reaches age 72. Late distributions are subject to a 50% penalty tax on the insufficient distributions iii. Distributions to plan holders are taxable as ordinary income

IRS Rule - One year waiting period for IRA rollovers:

if you make a tax-free rollover of a distribution from an IRA, you generally cannot make another rollover from the same IRA within a one year period. You also cannot make a rollover from the IRA to which the distribution was rolled over.

safe harbor 404(c) provisions

in a qualified retirement plan refers to the protection from liability given to the employer/sponsor of a self-directed plan if the employee/participant makes imprudent investment decisions and loses money

An individual as well as their unemployed spouse are permitted to make nondeductible IRA contributions (up to contribution limits) to the extent that they are

ineligible to make deductible IRA contributions due to restrictions (active in employers plan, AGI limitations).

Fiduciary responsibility and accountability Required. FIDUCIARIES must act solely in the (2)

interest of the plan participants and beneficiaries using CARE, SKILL, PRUDENCE, DILIGENCE Those who violate conduct rules may be held liable for losses to the plan.

Prepaid tuition plan do not have

investment risk

Individual Retirement Account (IRA)

is a personal account fr people who are emplotes (and their spouses) that provides either a tax-deferred or tax-free way of saving for retirement

401k plan

is a plan that allows a worker to save for retirement by having a portion of their salary "deferred" into a personal 401K account.

HANDLING OF INHERITED IRAs - a trust (2)

is designated as the beneficiary of an IRA, it becomes the owner of the account and the beneficiaries of the trust become the beneficiaries of the IRA the maximum payout period is based on the OLDEST BENEFICIARY'S AGE

the Traditional IRA (2)

is the original IRA designed to encourage EMPLOYED INDIVDUALS to save for retirement by providing them with tax incentives advantages include the fact that contributions to the account are generally tax deductible (with limitations) and that the taxes on contributions and earnings in the account are deferred, generally until the owner retires and begins taking withdrawals when they may be in a lower tax bracket

Prepaid tuition plan are available for all

levels of education including grammar school, high school, public college and universities as well as trade schools

Coverdell - education savings account: This accounts are most appropriate for

low and middle income level contributors

the Traditional IRA - deduction based on the employee spouses compensation amounts, Individuals with unemployed spouse may

make the maximum allowable Contribution for themselves and their unemployed spouse may also make the same contribution

401k plan - rollovers (2)

may be rolled over into another qualified plan or IRA. Rollovers must be completed within 60 days.

the Traditional IRA - deduction individuals who are NOT ACTIVE in a retirement plan at work (2)

may deduct ALL of their contributions up to the contributions limitations there are no restrictions on deductions based upon the Adjusted Gross Income of an individual who is not active in another plan

HANDLING OF INHERITED IRAs - a non-spouse

may not elect to become the owner of the account and may not rollover the IRA to another IRA distributions will be taxes as ordinary income to the beneficiary in the year in which the distribution is received

Standards

minimum standards are required for participation, vesting, and providing promise benefits (VESTING: the conveying to an employee of unconditional entitlement to a share in a pension fund. ; - the conveying to an employee of inalienable rights to money contributed by an employer to a pension fund or retirement plan especially in the event of termination of employment prior to the normal retirement age)

in a 529 plan, An account holder/owner can establish

multiple accounts for different students

according to the Secure Act of 2019, there is

no age limit on making contribution to an IRA as long as the working individual has sufficient earned income (previously, the age limit was 70 1/2)

IRA limitations (2)

not everyone can take advantage of IRA accounts. Each type of IRA has eligibility restrictions, contribution limits, and penalties for early withdrawal of assets

if an extension is granted for the filing of a tax return, the IRA contribution must still be made

not later than April 15th

529 plan contribution growth tax free and distribution are tax free when used for qualified education expenses. Distributions made for non-qualified reasons are subject to (2)

ordinary income taxes plus a 10% penalty tax. The penalty tax can be avoided for a specific reason, for example, death or disability

Remedies

participants may pursue legal actions for fiduciaries breaches

Education savings plan (529 plan) is based on the

performance of the investments chosen by the account holder/owner.

Savings plan offered a potential for higher returns then prepaid tuition plan depending upon the

performance of the portfolio

401K plan - The department of labor (DOL) (2) 1. require that a plan administrator must 2. Firms are not required to

require that a plan administrator must furnish investment related information for each option offered under a plan (generally in the form of a chart) to a plan participant prior to where on the date the participants direct their investment and at least annually thereafter: Firms are not required to file the information (Chart) with FINRA.

Money purchase plan (2)

s a defined contribution pension plan which requires a fixed percentage of compensation to be contributed to each eligible employee annually by the employer only. These plans are for a business of any size, or individuals with self-employment income, earn on either a full or part-time basis

Contributions can be made to both a 529 plan and a coverdell educational saving account in the

same year for the same beneficiary, however, annual gift tax exclusion do apply

FIDUCIARY must (2)

select, monitor, remove and replace a diverse selection of alternative investments appropriate for plan participants. However, FIDUCIARIES could transfer responsibility for any losses resulting from participants decisions by this designating the plan as a self-directed plan

For saving plan the maximum contribution limits can be

set at more than $300,000 depending on the state

The simplified employee pension (SEP/SEP individual retirement account) - Plan designed for:

small business owners and their employees. Employers make contributions to the personal individual retirement account of employees which are owned and controlled by employees themselves

The savings incentive match plan for employees (simple) - Plan Designed For:

small business owners are employees, unlike SEPs, SIMPLE plans are limited to small employers with hundred or fewer employees.

Education savings plan (529 plan) portfolio can include

stocks and bonds

Policy penalties and the 10% federal penalty will not apply in the case of the (3)

students death, disability, or receipt of a scholarship

Qualified withdrawals to pay for qualified education expenses are

tax free

the Traditional IRA - Earnings

taxes on all earnings in the IRA are deferred until withdrawals are made from the IRA.

For a prepaid tuition plan, the maximum contribution is

the amount needed to pre-pay the number of years or units of tuition offered by state

Coverdell - education savings account: Funds from the account may be rolled over into the account of a sibling or other family member if

the funds are not a used by the intended child

in Education savings plan (529 plan), The account owner of the savings plan bears

the investment risk

HANDLING OF INHERITED IRAs - surviving spouse (4)

the transfer qualifies for the federal estate tax marital deduction, may elect to become the owner of the account and may treat the inherited IRA as their own may make contributions and/or rollover the inherited IRA pay taxes on any distribution

501(c)(3) Entities

these entities are nonprofit organizations (generally charitable organizations) and are exempt from paying federal income tax

Rollover

they treat distribution from one retirement plan or account and the transfer of the distributed assets to another retirement account or plan. Rollovers must be accomplished within 60 days to avoid current tax liability

the Traditional IRA - Rollovers: (3)

to or from another IRA, KEOGH, or a qualified plan are permitted. Individuals has 60 days to invest benefit from a retirement plan into the new accounts before incurring a tax liability. Tax-free rollovers are limited to once every 12 months if the rollover is an a IRA to IRA (60 day) rollover

Municipal Securities Rulemaking Board (MSRB) rules state unless that the advertisement include (2)

total return quotation current to the most recent month and it seven business days prior to the date of any use of the end of the advertisement, the legend must also identify either a toll-free (or collect) telephone number or a website where an investor may obtain total return quotations current to the most recent month and for which such total return, or all information required for the calculation of such total return, is available

There are specific requirements under Safe harbor 404(c) provisions for these plans (4) under these guideline, plan participants must: 1. have the ability to 2. The three plans must (2) 3. Be provided with (2) 4. Be informed that they may (2)

under these guideline, plan participants must: ■ Have the ability to choose between at least three categories of investments which are diversified. ■ The three plans must differ for when it comes to risk levels and expect a return relation to that risk ■ Be provided with a certain level investor education and disclosures related to various factors that affect investments ■ Be informed that they may make changes to their chosen plan on a regular basis and no less than quarterly.

Employee retirement income security at (ERISA) (4) 1. was enacted in 2.. It Created ___ 3. ERISA does not compel 4. Instead, the act ___

was enacted in 1974 to protect retirement assets of participants in private sector employee benefit plans. It Created standards and rules that plans and plan fiduciaries (managers) must follow in the administration of "qualified plans." ERISA does not compel employers to offer pension plans or require that a plan provide a minimum level of benefits. Instead, the act imposed federal standards for plans once they have been established

Roth individual retirement account (Roth IRA) (5) 1. were established by 2. Unlike a traditional individual retirement account, contributions to a Roth individual retirement account are 3. distribution are 4. qualified withdrawals of both contributions and earnings in the account can be made 5. This benefits individuals who

were established by the taxpayer relief act of 1997 and are another way for individuals to save for retirement. Unlike a traditional individual retirement account, contributions to a Roth individual retirement account are not tax deductible from the owner's gross income. However, since taxes have already been paid on contribution, contribution dollars can be withdrawn at any time without penalties. The big difference with a ROTH individual retirement account is that upon retirement, qualified withdrawals of both contributions and earnings in the account can be made tax-free. This benefits individuals who anticipate being in a higher tax bracket upon retirement.

the Traditional IRA - Spousal IRA (3)

when an individual has a non-working spouse, a "Spousal IRA" can be opened in the name of the non-working spouse function as a Traditional IRA for the non-working spouse but allow for contributions and deductions equal to those of a Traditional IRA subject to AGI in general, assets may not be rolled over from the IRA of one spouse to the IRA of another spouse (separate IRA owner) while both account owners are still alive

Prohibited transactions -ERISA specifically names for prohibited practices of FIDUCIARIES of a plan (3)

■ A Fiduciary shall NOT: ● Deal with the assets of the plan in its own interest or for its own account ● Act in any transaction involving the plan on behalf of a party whose interests are adverse to the interest of the plan, it's participants, or its beneficiaries. ● Receive any consideration for its own personal account from any party dealing in connection with a transaction involving the assets of the plan

investment policy statements NOTES (2)

■ A test used to determine if any investment is proper for any plan is the "amount of risk" involved in the investment ■ If the plan guidelines allow it, covered call writing and transactions and index options can be don

investment policy statements do not need to contain (4)

■ Specific criteria for selecting securities for the investment portfolio ■ Compensation arrangements for the IA. Compensation arrangements are included in the investment advisory contract. (ADV part two) ■ Summary plan description - which is a document describing the features of an employer sponsored plan ■ Tax treatment of specific investment held in the plan

Investment policy statement should clearly describe: (7)

■ The clients or participants investment goals and objectives ■ A statement of purpose and responsibilities ■ Guidelines for review ■ Risk tolerance and liquidity requirements ■ recommended allocations among asset classes as to minimize the risk of large losses ■ Expect returns and expected range of returns (benchmarks related to objectives) ■ Time horizon

Primary tax benefits of a qualified plans are: (6) 1. The employers is entitled to 2. Employees do not have to 3. In tax qualified deferred compensation plans( e.g., 401k plans), income taxes are ____. 4. HOWEVER, contributions amounts are still subject to (3) 5. earnings in the plan are 6. taxes are paid only when

■ The employers is entitled to current deduction for their plan contributions ■ Employees do not have to pay a current income taxes on plan contributions made by the employer ■ In tax qualified deferred compensation plans( e.g., 401k plans), income taxes are deferred on contributions until distributions are taken from the plan. ■ However, contributions amounts are still subject to Social Security, Medicare, and state and federal unemployment tax ■ earnings in the plan are tax deferred until received by the employee or their beneficiary ■ Taxes are paid only when funds are distributed, usually at retirement when the taxpayer is in a lower tax bracket

The simplified employee pension (SEP/SEP individual retirement account) - Contribution information: (4)

○ Contribution are tax-deductible for the employer ○ Contribution are discretionary and may vary from year to year, ○ Employees are 100% vested in the contribution made by the employer ○ Employees may make their own additional contributions to their accounts under this plan in accordance with the traditional individual retirement account regulations and limitations. ○ Contribution limitations are included in the retirement plan summary chart at the end of this chapter

The simplified employee pension (SEP/SEP individual retirement account) - if an employer makes a contribution they must make contributions for employees who are eligible. Employees are eligible to participate if: (3)

○ They are 21 years of age or older ○ They have worked for the employer during at least three of the preceding five years ○ They have received at least $600 in wages for the current tax year

SIMPLE plan - Rollover IRA (2) 1. A rollover IRA is simple as 2. As of 2015 the IRS

● A rollover IRA is simple as a traditional IRA holding money from a distribution from a qualified plan or 403B plan. It is used as a "conduit" between retirement accounts. Aslong as assets are not mixed with other contributions, they can later be rolled over into another qualified plan were 403b plan ● As of 2015 the IRS would only allow "one" rollover per year regardless of the number of IRA that are owned by an individual

When determining future needs associated with the college education of a child, all of the following factors are relevant: (4)

● An estimate of when the child will begin college and the time horizon until the child finishes college ● The current cost of college and the anticipated inflation of this cost ● The anticipated return on investments dedicated to paying for a college education ● The amount that a donor intends to contribute to such an account or plan on an annual basis

Safe harbor 404(c) provisions - Be informed that they may make changes to their chosen plan on a regular basis and no less than quarterly. Those who offer those plans: (3) 1. Are PROHIBITED FROM 2. Must ensure that participants have access to 3. Must ensure that the options available to participants are

● Are PROHIBITED FROM OFFERING as one of the three investment choices, a plan that is comprised of SECURITIES OF THE COMPANY ● Must ensure that participants have access to the proper disclosures and investor education related to that material ● Must ensure that the options available to participants are properly diversified and that the features and risk levels are properly disclosed.

Roth IRA - Rollover (2)

● Roll roll over between Roth individual retirement accounts are permitted and can be done tax-free ● Traditional individual retirement accounts can be rolled over to a Roth individual retirement account with certain restrictions. Amount transferred will be taxable as income to the owne

(ERISA) A Fiduciary shall NOT caused a plan to engage in a transactions, if he knows or should know that such transactions constitutes a direct or indirect: (6)

● Sale, exchange, or leasing of property between a pension plan and a party in interest ● Lending of money or other extension of credit between a pension plan and a party in interest ● Furnishing of goods, services, or facilities between a pension plan and a party and interest ● Transfer it to, or use by or for the benefits of, a party interest, of any assets of a pension plan. ● Acquisition, on behalf of a pension plan, of any employer security or employer real property unless ERISA requirements are met ● Use of plan assets of the benefit of "disqualified persons," which includes The participants immediate family, including the participants parents

Safe harbor 404(c) provisions - Be provided with a certain level investor education and disclosures related to various factors that affect investments such as: (5)

● Time horizon ● Anticipated levels of return ● The risk/reward relationship ● The benefits of proper diversification ● Realistic goals and objectives for such a pla

Roth individual retirement account (Roth IRA) Contribution information: (4) 1. contribution may be made 2. Individuals will be at least 50 years of age during the tax year may contribute 3. Contributions to ROTH individual retirement accounts are 4. age limit

● contribution may be made annually up to the specified limits. All contributions to traditional and ROTH individual retirement accounts are aggregated and cannot exceed the limit ● Individuals will be at least 50 years of age during the tax year may contribute an additional "catch up" "amount to an individual retirement accounts ● Contribution of catch-up limitation are included in the retirement plan summary chart at the end of this chapter ● Contributions to ROTH individual retirement accounts are not tax-deductible ● There is no age limit on making contributions to a ROTH individual retirement Account as long as the working individual has sufficient earned income