Qualified Plans (6)

Distribution prior to age 59.5 impose a

10% penalty

Qualified retirement plan

approved by the IRS; gives both the employer and employee benefits such as deductible contributions and tax-deferred growth

Employer contributions made to a qualified plan

are subject to vesting requirements

SIMPLE plans

available to small businesses that employ no more than 100 employees who receive at least $5,000 in compensation from the employer during the previous year

Qualified plans have the following characteristics:

designed for the exclusive benefit of the employees and their beneficiaries, are firmly written and communicated to the employees, use a benefit or contribution formula that does not discriminate in favor of the prohibited group, are not geared exclusively to the prohibited group, are permanent, are approved by the IRS, have a vesting requirement

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

employees

To establish a SIMPLE plan the employer must not

have a qualified plan already in place

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

A 401(k) plan may be arranged as:

pure salary reduction plan, bonus plan, or thrift plan

403(b) (tax sheltered annuity)

qualified plan available to employees of certain nonprofit organizations under Section 501(c)(3) of the internal revenue code and to the employees of public school systems

Profit sharing plans

qualified plans where a portion of the company's profit is contributed to the plan and shared with employees

Under SIMPLE plans, participating employees may defer up to a specified amount each year, and the employer then makes a matching contribution up to an amount equal to what percent of the employee's annual wages?

3

The 2 most common qualified individual plans are

Traditional IRAs and Roth IRAs

Roth IRA

a form of an individual retirement account funded with after-tax contributions and can continue beyond age 70.5

401(k) plan

allows employees to take a reduction in their current salaries by deferring amounts into a retirement plan

Traditional Individual retirement account (IRA)

allows individuals to make tax deductible contributions until the age of 70.5

Simplified employee pension (SEPs)

an employee established and maintains an individual retirement account to which the employer contributes

Under the 401(k) bonus or thrift plan, the employer will contribute

an undetermined percentage for each dollar contributed by the employee

Under a 401(k) plan, participants may choose to do one of the following:

receive taxable cash compensation or have the money contributed into the 401(k) in cash or deferred arrangement plans

An IRA purchased by a small employer to cover employees is known as a

simplified employee pension plan

If the plan doesn't provide a definite formula for figuring the profits to be shared, employer contributions must be

systematic and substantial

The advantage to qualified plans to employers is

tax-deductible contributions

Benefits in qualified plans are

taxable to the plan participant when they are received during retirement at a time when the retired person is likely to be in a much lower tax bracket

Roth IRAs grow tax free as long as

the account is open for at least 5 years

The primary difference between a SEP and an IRA is

the much larger amount that can be contributed each year to a SEP

How are contributions to a tax-sheltered annuity treated with regards to taxation?

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