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Questions and Answers
What are the income tax benefits of a qualified plan?
What are the income tax benefits of a qualified plan?
Employer contributions are tax deductible and are not taxed as income to the employee. The earnings accumulate tax deferred.
What are some examples of qualified plans?
What are some examples of qualified plans?
- HR10 (Keogh) (correct)
- IRA (correct)
- SIMPLE (correct)
- 401(k) (correct)
- SEP (correct)
What is required to qualify an individual to contribute to a traditional IRA?
What is required to qualify an individual to contribute to a traditional IRA?
Earned income
What are the consequences of withdrawing funds from the traditional IRA prior to the age of 59 1/2?
What are the consequences of withdrawing funds from the traditional IRA prior to the age of 59 1/2?
SIMPLE plans are available to groups of how many employees?
SIMPLE plans are available to groups of how many employees?
In qualified plans, are employer contributions taxed as income to the employees?
In qualified plans, are employer contributions taxed as income to the employees?
What is a penalty for excessive contributions to a traditional IRA?
What is a penalty for excessive contributions to a traditional IRA?
For a retirement plan to be qualified, it must be designed for whose benefit?
For a retirement plan to be qualified, it must be designed for whose benefit?
What qualified plan is suitable for the self-employed?
What qualified plan is suitable for the self-employed?
What is this type of plan called: An employer sponsoring the qualified retirement plan for its employees where the employer contributes money whenever the business has profit?
What is this type of plan called: An employer sponsoring the qualified retirement plan for its employees where the employer contributes money whenever the business has profit?
In what formal payment must the contributions to a traditional IRA be made?
In what formal payment must the contributions to a traditional IRA be made?
What is the primary purpose of a 401(k) plan?
What is the primary purpose of a 401(k) plan?
What type of plan is a 401(k)?
What type of plan is a 401(k)?
Who qualifies for tax sheltered annuities, or 403B plans?
Who qualifies for tax sheltered annuities, or 403B plans?
If a retirement plan is 'qualified', what does that mean?
If a retirement plan is 'qualified', what does that mean?
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Study Notes
Income Tax Benefits of Qualified Plans
- Employer contributions to qualified plans are tax deductible.
- Employee contributions are not taxed as income.
- Earnings within the plan accumulate tax-deferred.
Examples of Qualified Plans
- Individual Retirement Account (IRA)
- 401(k) plans
- HR10 (Keogh) plans
- Simplified Employee Pension (SEP)
- Savings Incentive Match Plan for Employees (SIMPLE)
Contributions to Traditional IRA
- Contributions require the individual to have earned income.
Penalties for Early Withdrawal
- Withdrawing from a traditional IRA before age 59 1/2 incurs a 10% penalty.
SIMPLE Plan Employee Limit
- Available for employers with no more than 100 employees.
Employer Contributions in Qualified Plans
- Employer contributions are not considered taxable income for employees.
Excessive Contribution Penalty
- A penalty of 6% applies for excessive contributions to a traditional IRA.
Qualification of Retirement Plans
- Qualified plans must be designed specifically for the benefit of employees.
Qualified Plans for Self-Employed Individuals
- HR-10 or Keogh plans are suitable for the self-employed.
Profit Sharing Plans
- Employer-sponsored plans that contribute funds based on business profits are known as profit-sharing plans.
Payment Form for Traditional IRA Contributions
- Contributions must be made in cash.
Primary Purpose of a 401(k) Plan
- Aimed at providing income during retirement.
Nature of 401(k) Plans
- Classified as qualified profit-sharing plans.
Tax Sheltered Annuities (403B Plans)
- Available to employees of nonprofit organizations and public school systems under Section 501(c)(3).
Definition of 'Qualified' Retirement Plans
- A 'qualified' retirement plan enjoys favorable tax treatment.
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