Chapter 10 - Retirement Plans
defined contribution plan
A tax qualified retirement plan in which annual contributions are determined by a formula set forth in the plan. Benefits paid to a participant vary with the amount of contributions made on the participants behalf and the length of service under the plan
3. How are contributions made to a Roth IRA handled for tax purposes?
Not tax deductible (bc payouts are tax free)
4. Within how many days must a Traditional IRA be rolled over to another IRA in order to avoid tax consequences?
60 days
12. 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
6. Which of these retirement plans do NOT qualify for a federal income tax deduction?
Roth IRA
13. All of the following are exempt from the 10% tax penalty for early qualified plan withdrawals EXCEPT
stock purchases
11. Erica is 35 years old and owns an IRA. At what age can she begin to receive distributions without a tax penalty?
59 1/2
14. 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
Keogh Plan
designed to fund retirement of self-employed individuals; name derived from the author of the keogh act, under which contributions to such plans are given favorable tax treatments.
Qualified Plan
retirement or employee compensation plan established and maintained by an employer that meets specific guidelines spelled out by the IRS and consequently receives favorable tax treatment. withdrawing funds from a QP for purchasing stocks or other securities would ensue a 10% tax penalty
7. Under a Traditional IRA, interest earned is taxed
upon distribuition
10. A rollover from a Traditional IRA to another IRA MUST be done within ___ days to avoid tax consequences.
60
5. Within how many days must a rollover be completed in order to avoid being taxed as current income?
60
Traditional IRA
A personal qualified retirement account through which eligible individuals accumulate tax-deferred income up to a certain amount each year, depending on the person's tax bracket.
Which of these statements concerning Traditional IRAs is CORRECT?
Earnings are taxable when withdrawn
2. 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
Deferred Compensation Option
allows an employee to defer current receipt of income and have it paid at a later date. when presumably the employee will be in a lower income tax bracket
Roth IRA
an individual retirement account allowing a person to set aside after-tax income up to a specified amount each year. Both earnings on the account and withdrawals after age 59½ are tax-free. funds are taxed as income so the payouts will be tax free unlike traditional IRA Roth imposes no age limits. also they can be inherited and passed down, traditional cannot
Rollovers
an individual retirement account established with funds transferred from another IRA or qualified retirement plan that the owner had terminated. a distribution from a Traditional IRA is eligible for a tax free rollover if invested in another IRA in 60 days.
8. Which of the following would disqualify a company's retirement plan from receiving favorable tax treatment?
if it is temporary
1. Mike has inherited his father's traditional IRA. As beneficiary, he will pay ____ taxes on any money withdrawn.
income
