Qualified Plans

the advantage of qualified plans to employers is

Tax-deductible contributions

profit sharing plan

the employer will contribute monies into an employee's retirement plan when the comp shows a profit

401k plan may be arranged

-pure salary reduction plan -bonus plan (%) -thrift plan (%) plans permit early withdrawl for specified hardship reasons such as death or disability -loans are also permitted in certain instances up yo 50% of the participants vested accrued benefit or the annual IRS established dollar amount

Simplified employee pension

-suited for the small employer or for the small employer or for the self employed -much larger amount that can be contributed each year to a SEP -higher tax deductible contribution limit than an IRA

what is different between qualified and nonqualified retirement plans

-taxation of withdrawals -taxation of contributions -IRS approval requirements

IRA

allows individuals with earned income to make tax deductible contributions regardless of age. Early withdrawls before age 59 are subject to 10% additional tax. -owner must receive at age of 73

under the 401k bonus or thrift plan, the employer will contribute

an undetermined percentage for each dollar contributed by the employee

An employer has sponsored a qualified retirement plan for its employees where the employer will contribute money whenever a profit is realized what is this called

profit sharing plan

401k

qualified retirement plan allows employees to take a reduction in their current salaries by deferring amounts into a retirement plan. -the comp can also match the employee's contribution -options: receive taxable cash compensation or have the money contributed into a 401k in cash or deferred arrangements plans

nonqualified plans

require no gov approval -and are used as a means for an employer to discriminate in favor of a valuable employee with regard to employee benefits

what type of retirement account does not require the owner to start taking distributions at age 73?

roth IRA

how are contributions to a tax sheltered annuity with regards to taxation

they are not included as income for the employee but are taxable upon distribution

exceptions to early distribution rule

death disability divorce decree a loan from the plan

403 b plan

-a tax sheltered annuity -qualified plan available to employees of certain non profit orgs under section (501) c3. -and employees of public school systems -contributions can be made by the emp or by the emloyee through a salary reduction and are excluded from the employee's current income.

qualified plan

-accumulate on a tax deffered basis -distibution amount received by the employee will be treated as ordinary income -employee and emp cont are not counter as income to the employee for income tax purposes

Tax qualified annuities

-annuity earnings are tax deferred -they must be approved by the IRS -Withdrawals are taxed -subject to vesting requirements

what are the tax advantages of a qualified plan

-funds accumulate on a tax deferred basis -employee and emp conts are not counted as income to the employee for income tax purposes -emp contributions are tax deductible as ordinary business expense

requirements of a qualified plan

-must be perm -communicated to all employees -exclusive benefits of the employees

SIMPLE PLAN

-small businesses - a min of 5000 in annual compensation -no other qualified plan can be used -no more than 100 employees -taxation is deferred on both cont and earnings until funds are withdrawn

profit sharing plans

are qualified plans where a portion of the company's profit is contributed to the plan and shared with employees. -if plan does not provide a definite form for calc the profits to be shared, employer contributions must be systematic and substantial

for a retirement plan to be qualified, it must be designed for the benefit of

designed for the exclusive benefit employees

under what circumstance will a withdrawal of retirement plan before the age 59 will have to pay no penalties

distributions made as a result of a divorce settlement

qualified retirement plan

gives the employer and employee benefits such as deductible contributions and tax deferred growth

Roth IRA

is a form of an individual retirement account funded with after tax contributions.

HR-10 or Keogh plans

make it possible for self employed persons to be covered under and IRS qualified retirement plan. -plans allow self emp. ind. to fund ret. plan with pre tax dollars. -a person must have worked at least 1000 hours per year to be eligible