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chapter 11
| 401 (k) Plan | A retirement savings plan sponsored by an employer, allowing employees to save and invest a portion of their paycheck before taxes are taken out |
| 403(b) plan | A retirement plan for employees of public schools, specific tax-exempt organizations, and religious organizations |
| defined benefit plan | This is a pension plan under which a specific future benefit is determined by a formula that typically incorporates an employee’s years of service and compensation level |
| defined contribution plan | A retirement plan where a formula determines annual contributions, and benefits vary based on contributions and service length. |
| employee retirement income security act of 1974 | A federal law setting minimum standards for pension and health plans in private industry |
| employee stock ownership plans | Employee stock ownership plans provide employees with an ownership interest in the company via shares held in an ESOP trust until the employee retires or leaves the company |
| exclusive benefit rule | This rule states that assets held in a company's qualified retirement plan must be maintained for the exclusive benefit of the employees and their beneficiaries |
| keogh plan | a retirement plan for self-employed individual offering favorable tax treament |
| money purchase plan | A money purchase plan is a type of qualified defined contribution retirement plan in which the employer MUST contribute a predetermined, fixed percentage of each employee's salary, regardless of company profits. |
| non qualified retirement plan | A retirement or employee compensation plan that does not meet the requirements set forth by the federal government and is therefore not eligible for favorable tax treatment |
| non qualified withdrawal | Withdrawals exceeding contributions are taxable as ordinary income. |
| profit sharing plan | A plan where a portion of a company's profits is distributed to qualifying employees |
| qualified plan | A retirement plan that meets IRS rules for favorable tax treatment. |
| qualified withdrawal | Tax-free distribution of earnings from a Roth IRA under specific conditions. |
| required minimum distributions (rmds) | Mandatory withdrawals from retirement accounts imposed by the IRS to ensure retirement funds don't grow tax-deferred forever. |
| rollovers | When an individual retirement account (IRA) is established or expanded with funds transferred from another IRA or a qualified retirement plan that the owner had terminated |
| Roth individual retirement account (roth ira) | An individual retirement account allowing after-tax contributions with tax-free earnings and withdrawals |
| savings incentive match plan for employees(simple) | A qualified, tax-favored, employer retirement plan that a small employer (less than 100 employees) can make available to its employees |
| section 457 plan | A deferred compensation plan specifically designed for state and local government employees and specific nonprofit organizations. |
| simplified employee pension (sep) plan | A qualified retirement plan where employers contribute to employees' IRAs |
| stock bonus plan | A plan that distributes company stock to eligible employees |
| tradition individual retirement account (ira) | A traditional IRA is an individually qualified retirement account into which an eligible individual can accumulate tax-deferred income up to a certain amount each year, depending on the individual’s tax bracket |
| vesting | The schedule under which employees’ rights to receive the funds contributed to a plan by their employers gradually become guaranteed based on their years of service |
| qualified plans meet what? | federal requirements and receive favorable tax treatment |
| employer contributions to qualified plan are what? | tax deductible business expenses |
| employee contributions and earnings in what grow tax deferred? | qualified plans |
| when are non qualified plan most often used? | for highly compensated employees |
| ERISA requirments | must be established solely for employe's benefit with the intention of being ongoing |
| vesting schedules | full vesting after 5 years, or 20% after 3 years, with full vesting after 7 years |
| employees are always in their own contributions | 100% |
| money purchase plans | employer MUST contribute a fixed percentage of the employees salary |
| profit sharing plans | Contributions based on company profits; not required every year |
| stock bonus plans | Benefits are given in the form of company stock, not based on profits |
| employee stock ownership plans | provide employees ownership interest in the company |
| what does final benefit depend on | contribution amounts plus investment returns |
| keogh plans | for unincorporated businesses; can be defined contribution or benefit |
| simplified employee pension (sep) | employer contributes to employee's IRA |
| SIMPLE plan | available to businesses with 100 or fewer employees |
| minimum age (21) and service (1year) standards must be satisfied | ERISA requirement |
| plan assets must be legally segregated from the sponsoring organization's funds | ERISA requirment |
| types of defined contribution plans | money purchase plans, profit sharing plans, stock bonus plans, ESOPs |
| contributions are not included in the employee's yearly gross income | 401 k |
| plans often include matching employer contributions | 401k |
| Deferred amounts are not included in gross income until received | section 457 plans |
| early withdrawals before age 59 1/2 are subject to 10% penalty tax plus income tax | traditional IRA |
| maximum annual contribution 7,000 | traditional IRA |
| no require minimum distributions during the owner's lifetime | roth IRAs |
| must be completed within 60 days of distribution | rollovers |
| one rollover per year rule applies | rollovers |
| available for non working spouses | spousal IRAs |
| death or disability, medical expenses, higher education expenses, first time home purchase | early withdrawal exceptions |
| Coverdell education savings accounts | education IRAs |
| can be used or primary, secondary, and higher education expenses | education savings plans |
| unused funds can be rolled over to another beneficiary before age 30 | education savings plans |
| state operated investment plans | section 529 plans |
| college savings plan and prepaid tuition plan | section 529 plans |
| earnings and qualified withdrawals are federal tax free | section 529 plans |
Created by:
Lupe12