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Questions and Answers
What is a qualified profit-sharing plan designed to do?
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?
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?
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?
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?
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?
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?
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?
What is the penalty tax for premature IRA distributions?
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What can an employer offering a qualified retirement plan do?
What can an employer offering a qualified retirement plan do?
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How long does an individual have to
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?
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?
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?
Where are post-tax dollar contributions found?
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Which plan is intended for sole proprietors and their employees?
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?
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?
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?
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?
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:
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?
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?
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?
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?
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?
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?
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?
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!
