Life: Chapter 9
What is a SEP?
A simplified employee plan for small businesses or self-employed where an employee has an individual retirement account to which the employer contributes.
What would disqualify a company's retirement plan from receiving favorable tax treatment?
It is temporary
Dana is an employee who deposits a percentage of her income into her individual annuity. Her company also contributes a percentage into a separate company pension plan. What kind of annuity is this considered?
Qualified retirement annuity
Who were Keogh plans designed to provide pension benefits for?
The self-employed
What is the purpose of a SIMPLE Plan?
To allow eligible employers to set up a tax-favored retirement savings plan for their employees.
What is the purpose of the Employee Retirement Income Security Act of 1974?
To protect the rights of workers covered under and employer-sponsored plan.
What are the federal requirements of a qualified plan?
-Must benefit a broad cross-section of employees -Vesting schedule must be defined -Employer establishes the plan
What are the 3 types of defined contribution plans?
1)Profit-sharing plan 2)Stock bonus plan 3)Money purchase plan
A Roth IRA owner must be at least what age in order to make tax-free withdrawals?
59 1/2 and owned account for a minimum of 5 years
Within how many days must a Traditional IRA be rolled over to another IRA in order to avoid tax consequences?
60 days
Within how many days must a rollover be completed in order to avoid being taxed as current income?
60 days
What is a pension?
A benefit plan that establishes a definite future benefit, tied to years of service and/or compensation.
What is a Roth IRA
A product of 1997 Tax Relief Act where no income tax deductions can be taken from contributions made but the earnings on those contributions are tax-free when withdrawn.
What is the Self Employed Individuals Retirement Act of 1962?
An act that treats small business owners and self-employed individuals as employees so they can participate in a qualified plan.
What is a Traditional IRA?
An individual retirement plan set up by the person so they can save money for retirement and receive a current tax break.
Rob has a benefit at work which enables him to defer his current receipt of income and have it paid at a later date, when he will probably be in a lower tax bracket. Which benefit fits this description?
Deferred compensation option
What is the purpose of a 401(k) plan?
Employees elect to take a salary reduction by deferring amounts into a retirement plan.
When is a withdrawal from a Roth IRA considered as qualified?
Funds have been held in account for 5 years and owner has reached 59 1/2, has died, become disabled, or is buying first home.
When a qualified plan starts making payments to its recipient, which portion of the distributions is taxable?
Gains
Who is eligible for a 403(b) plan?
Nonprofit groups, education groups, religious groups, etc.
How are contributions made to a Roth IRA handled for tax purposes?
Not tax deductible
Which retirement plan does not qualify for federal income tax deductions?
Roth IRA
Who is qualified to participate in a Keogh Plan (HR-10s)?
Small business owners, self-employed individuals as long as the employees are included.