BUSI 14

pension protection act

2006. shore up financial integrity of private traditional (defined benefit) plans while encouraging employees to make greater use of salary reduction (defined contribution) plans.

ERISA

Employee Retirement Income Security Act - 1974 protect employees participating in private employer retirement plans

individual retirement arrangement (or account)

IRA. like any other investment account opened with bank, stockbroker or mutual fund. institution is trustee

qualified pension plan

Internal Revenue Code corporate employer can deduct from taxable income the annual amount of contributions made. employees of this type will not include these payments in taxable income until the benefits are actually received

withdrawal

Keogh - must remain in account until 59.5 (unless seriously ill or disabled). early - subject to 10% tax penalties All IRAs - withdrawal begins at 59.5 or subject to 10% penalty (exclude first-time home purchase, qualifying ed costs, major medical, other emergencies) Keogh, SEP, IRA (except Roth) - withdrawals must begin by 70.5 (except Keogh and SEP gainful employment beyond 70.5)

survivorship benefit

On an annuity, the portion of premiums and interest that has not been returned to the annuitant before his or her death.

individual buying the annuity

annuitant

interest earned

between time annuities are paid for and distributed

vested rights

certain criteria that pension plans impose that must be met before the employee can obtain a nonforfeitable right to a pension

Roth IRA

couples filing jointly agi up to $193000 ($131000 for single) and without regard to participation in another retirement or pension plan can open. annual contrib's (up to $6500 for 50+, 2015) are made with after-tax dollars, accruing tax free. All withdrawals from account are also tax free provided that the account has been open for at least 5 years and individual is past 59.5

contributory pension plan

employer and employee share the contribution cost

noncontributory pension plan

employer pays the total cost of the benefits

profit-sharing plan

enable employees to participate in earnings of employers. IRS code, qualify, eligible for sameish tax treatment as other types of pension plans. encourages employees to work harder, because they benefit when the company prospers

Single Premium Annuity contract

purchased with a single payment

defined contribution plan

specifies contribution amount of employer and employee. At retirement, worker is awarded whatever level of monthly benefits those contributions will purchase. promises nothing at retirement except returns obtained by fund manager. only thing defined, amount of contribution that the employee and employer must make

Rollover

IRA, stays for long haul. If moved (or rolled over), transfer subject to 20% withholding tax if the proceeds transfer from the investment firm to you. if take possession even for a few days, withholding tax applies. one firm to another

investment decisions

advisor, help. if qualify for IRA or Roth, consider making the max contributions allowable. Indiv's in 30s and 40s, Roth is probably most appropriate, but check with invest advisor

self-directed retirement plans

allow indiv's to set up their own tax-sheltered retirement plan. Two basic types: Keugh & SEP; IRAs

Immediate Annuity

allows the annuitant to receive monthly benefits immediately

nondeductible IRA

anyone regardless of income level or coverage by a company-sponsored retirement plan can open. contributions (up to $5500 if under 50 and $6500 if 50 or older, 2015) are made with after-tax dollars. The earnings accrue tax free and are not subject to tax until withdrawn (after the indiv reaches 59 1/2)

defined benefit plan

formula for paying out benefits (not the amount of contributions) regardless of how well (or poorly) the retirement fund performs. employer must make up any difference to fund the benefits agreed to in the plan

life annuity - period certain

guarantees the annuitant a stated amount of monthly income for life; the insurer agrees to pa for a minimum number of years

pure life

life annuity with no refund. an option under which an annuitant receives a specified amount of income for life, regardless of the length of the distribution period

SEP plan

like keough. Except aimed at small-business owners, particularly those with no employees who want a plan that is simple and easy to administer

Variable Annuity

monthly income varies as function of the insurer's actual investment experience

Cash Balance Plan

more recent. characteristics of both defined benefit and defined contribution. employer is sole contributor, controls investment, guarantees benefit payout at retirement. employer's funding is a function of an employee's current salary. company only guarantees that the plan will earn a minimum return over the life of the employee's employment; actual amount received at retirement is not based on their salary at retirement. advantage - portable, can be rolled over into another one or IRA if leave company.

Traditional IRA

opened by anyone without retirement plan at place of employment regardless of income level or by couples filing jointly who (even if covered by another retirement plan) have an adjusted gross income of $98,000 or less ($61,000 for single filers)

Deferred Annuity

postpones benefit payments for a certain number of years

Accumulation Period

premiums are paid toward the purchase of an annuity

Annuity - Certain

provides specified monthly income for a stated number of years without consideration of any life contingency

installment premium annuity contract

purchased through periodic payments made over time

fixed-rate annuity

stipulates that the insurance company agrees to pay a guaranteed interest rate on your money

distribution period

when annuity payments are made

Keogh Plan

1962, part of Self-Employed individuals retirement act. payments may be taken as deductions from taxable income. anyone self-employed full or part time is eligible