ExamFX: Taxes, Retirement and Other Insurance Concepts

nonqualified plans

NOT TAX DEDUCTIBLE DOES NOT NEED IRS APPROVAL CANDISCRIMINATE TAX DEFERRED EXCESS OVER COST BASIS IS TAXED

Retirement Plans 2 types

Qualified and nonqualified plans

Qualified retirement plan

TAX DEDUCTIBLE APPROVED by the IRS CANNOT DISCRIMINATE TAX DEFERRED ALL WITHDRAWLS are TAXED

401K

allows employees to take a reduction in salary by deferring abmounts into a retirement plan. and the company can also match employee's contribution.

Individual Retirement Account

allows individuals to make tax deductible contributions until the age of 70 and a half. IRA's withdrawls may begin at age 59 and a half but no later than age 70 and a half.

liquidity

as a result of the cash accumulation feature some life insurance policies provide liquidity to the policy owner that means the policy's cash values can be borrowed against at anytime and used for immediate needs.

Simple plans

available to small businesses that employ NO MORE THAN 100 employees. TAX deferred on both earningss and contributions until funds are withdrawn.

Profit sharing

company profit is contributed to the plan and shared with employees, but the contributions must be systematic and substantial

Traditional IRA

contribute 100% of income up to an IRS specified limit. grows tax deferred contributions tax deductible 10% penalty for early distributions. payouts must begin by 70 and a half

ROTH IRA

contribute 100% up to an IRS specified limit. excess contribution penalty 6% grows tax free if account is open for at least 5 years contributions are not tax deductible. distributions are not taxable. payouts don't have to begin by 70 and a half

non contributory plan

employer pays 100% but the employs have to give 100% participation

403 B

for non profit organizations, employee and employer contribute.

Group Life Insurance

group insurance is issued to the sponsoring organization. ANnually renewable term. evidence of insurability not required unless outside of enrollment period. Participants under the plan do not receive a policy because they do not own or control the policy.

Certificate of insurance

handed out to members in a group insurance policy as evidence for being insured

Conversion Privledge

if terminated employee has the right to convert to an individual policy without proving insurability but the policy is based on his attained age. benefit remains the same but premium becomes higher. 31 DAYS AFTER TERMINATION.

ROTH IRA

is a form of an individual retirement account funded with after tax contributions an individual can contribute 100% contributions can go beyond age 70 and a half. grows tax free if account is open for at least 5 years

rollover

is a tax free distribution of cash from one retirement plan to another. Generally IRA rollovers must be completed within 60 days from the time money is taken out of the first plan

Primary insurance amount PIA

is based on the workers average earnings and the workers age at retirement.

Master policy/contract

is issued to the sponsor of the group which is often an employer

cash accumulation

life insurance may be used to accumulate specific amounts of monies for specific needs

HR 10 (keogh plans)

make it posible for self employed persons to be covered under an irs qualified retirement plan

contributory plan

premium payment is shared between employees and employer, but only requires 75% participation.

Group underwriting

purpose of the group (must be made other than to obtain group insurance). size of the group- larger the group the more accurate the projections of future loss are. Turnover the group- from the underwriting perspective a group should have a steady turnover. Financial strength- because group insurance is costly to admin the underwriter should consider whether or not the group has the financial resources to pay the policy.

Simplified Employee Pension plans (SEP)

qualified plan for small employer. an individual retirement account to which the EMPLOYER contributes.

Transfer (or direct transfer)

refers to a tax free transfer of funds from one trustee to another

survivor protection

the death of the primary wage earner will usually stop the flow of income to a family the death of a non earning spouse.

Difference between an SEP and IRA

the large cash amount that can be contributed each year to an SEP

estate creation

the purchase of life insurance creates an immediate estate

Third-party Ownership

third party owner is a legal term used to identify and idicidual or entity that is not an insured under the contract but that what a legally enforceable right under it.

settlement options

when the beneficiary receives payments consisting of both principal and interest.