Questions and Answers
What is a qualified profit-sharing plan designed to do?
Allow employees to participate in the profits of the company
What type of employee welfare plans are not subject to ERISA regulations?
Church plans
A retirement plan that sets aside part of the company's net income for distributions to qualified employees is called a?
Profit-sharing plan
What is the income tax withholding requirement for an individual receiving eligible rollover funds from a profit-sharing plan?
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What is the tax consequence of a direct distribution from a 401(k) that is then rolled over into an IRA?
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How are Roth IRA distributions normally taxed?
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At what age can an IRA owner start making withdrawals without being subjected to a tax penalty?
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What is the penalty tax for premature IRA distributions?
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What can an employer offering a qualified retirement plan do?
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How long does an individual have to
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What is the excise tax rate imposed by the IRS on individuals aged 70 1/2 or older who do not take required minimum distributions?
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Who is considered to be the owner of a 403(b) tax-sheltered annuity?
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Where are post-tax dollar contributions found?
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Which plan is intended for sole proprietors and their employees?
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What percentage of tax is withheld when funds are shifted straight from one IRA to another?
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Which retirement plan can be started by an employee even if another plan exists?
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What does a trustee-to-trustee transfer of rollover funds in a qualified plan avoid?
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What is the maximum deductible IRA contribution allowable for an individual with an annual income of $25,000?
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All of the following statements about traditional individual retirement accounts are false EXCEPT:
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What federal taxes apply if a 55-year-old receives a $30,000 distribution from a previous employer's 401(k) minus $6,000 withholding?
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By what date must traditional individual retirement annuity distributions start?
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What happens if the owner of an IRA names their spouse as beneficiary and then dies before any distributions are made?
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What deduction can the widow of Rick, who left behind an individual IRA account, qualify for?
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Which product would best serve a retired individual looking to invest a lump sum of money through an insurance company?
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In a qualified retirement plan, how are yearly contributions to an employee's account managed?
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In an individual retirement account (IRA), how are rollover contributions treated?
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Study Notes
Retirement Plans Overview
- A qualified profit-sharing plan enables employee participation in company profits.
- Church plans are excluded from ERISA regulations.
Types of Retirement Plans
- A profit-sharing plan allocates part of a company's net income for qualified employee distributions.
- Roth IRA distributions are tax-free, while traditional IRAs impose a 10% penalty for premature withdrawals before age 59 ½.
Tax Implications and Penalties
- 20% is withheld for income taxes on eligible rollover funds from profit-sharing plans.
- Federal income tax withholding applies to distributions from 401(k) accounts.
- The IRS imposes a 50% excise tax on individuals aged 70 ½ or older who fail to take required minimum distributions.
Contribution Limits and Withdrawals
- An IRA owner can start penalty-free withdrawals at age 59 ½.
- Maximum deductible IRA contribution for an individual with a $25,000 annual income is $25,000.
- Contributions to Roth IRAs are made with post-tax dollars.
Transfers and Rollovers
- Funds can be rolled over from an IRA or qualified plan within 60 days.
- A trustee-to-trustee transfer avoids mandatory income tax withholding.
- Rolling funds directly into another IRA incurs no tax withholding.
Special Cases and Provisions
- A Keogh Plan serves sole proprietors and their employees.
- Traditional IRAs require distributions to start by April 1st after turning 70 ½.
- If an IRA owner names a spouse as the beneficiary, the surviving spouse can roll the account into their own IRA.
Death Benefits and Taxes
- The marital deduction applies to IRA balances left to a surviving spouse.
- A distribution from a 401(k) plan results in income taxes plus a 10% penalty if not rolled over.
Miscellaneous Information
- Employees can independently start an Individual Retirement Account (IRA), even when another plan exists.
- In qualified plans, yearly contributions are capped at IRS-set maximums, while rollover contributions in IRAs face no dollar limits.
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Description
Test your knowledge on retirement plans with these flashcards from Chapter 9. This quiz covers essential terms and concepts related to qualified profit-sharing plans and employee welfare plans. Perfect for reviewing key information for financial studies!
