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Questions and Answers
What is a non-qualified plan?
What is a non-qualified plan?
- A retirement plan established by an employer.
- A plan with a defined contribution schedule.
- A plan that meets federal guidelines and is eligible for tax benefits.
- A plan that does not meet federal guidelines and is not eligible for certain tax benefits. (correct)
What is a qualified plan?
What is a qualified plan?
- A plan that meets certain requirements established by the federal government. (correct)
- A plan that is specifically designed for individual contributors.
- A plan that only benefits corporate executives.
- A plan that does not meet federal requirements.
What are general qualification requirements for employer-sponsored retirement plans?
What are general qualification requirements for employer-sponsored retirement plans?
The plan must be for the exclusive benefit of employees and their beneficiaries, communicated in writing, established by the employer, non-discriminatory, have a defined vesting schedule, and approved by the IRS.
Employer contributions to a qualified retirement plan are considered taxable income to the employee in the year they are contributed.
Employer contributions to a qualified retirement plan are considered taxable income to the employee in the year they are contributed.
What is a defined benefit plan?
What is a defined benefit plan?
What is a defined contribution plan?
What is a defined contribution plan?
What is a vesting schedule?
What is a vesting schedule?
What is a Group Deferred Annuity?
What is a Group Deferred Annuity?
What is the purpose of Individual Deferred Annuities?
What is the purpose of Individual Deferred Annuities?
What are pension plans?
What are pension plans?
What is a target benefit pension plan?
What is a target benefit pension plan?
What does a 401(k) plan allow an employee to do?
What does a 401(k) plan allow an employee to do?
What do IRAs help individuals do?
What do IRAs help individuals do?
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Study Notes
Retirement Plans Overview
- Non-qualified plan: Does not meet federal guidelines; not eligible for tax benefits.
- Qualified plan: Meets federal requirements; receives favorable tax treatment.
General Qualification Requirements
- Plans must benefit employees and beneficiaries exclusively.
- Must be communicated in writing and be permanent.
- Established by the employer; should not discriminate based on income or sex.
- Must have a defined vesting schedule and IRS approval.
Characteristics of Qualified Retirement Plans
- Employer contributions are deductible business expenses.
- Earnings grow tax-deferred; employees are not taxed upon contribution.
- Employee taxation occurs upon benefit payment, often in retirement.
- Contributions to individual qualified plans like IRAs may be tax-deductible.
Types of Qualified Plans
- Defined benefit plan: Offers a specific retirement benefit based on salary; employer contributions are variable.
- Defined contribution plan: Employer makes fixed contributions, expressed as a percentage of compensation; retirement benefits vary.
Vesting and Annuities
- Vesting schedule: Indicates employee ownership percentage in employer-funded benefits.
- Group Deferred Annuity: Employer acquires a master contract; provides specified retirement income through deferred annuities.
- Individual Deferred Annuity: Funded for each participant; premium rates based on age and sex.
Additional Plan Types
- Profit-sharing plan: Not a fixed liability; allows profit distribution among employees.
- Pension plans: Provide determinable benefits over time based on service years and compensation.
- Target benefit pension plan: Hybrid of defined-contribution and defined-benefit plans; specifies a target benefit.
Employee Savings Plans
- 401(k) plan: Allows pre-tax compensation reduction; often includes employer matching contributions.
- IRAs: Enable individuals to save with pre-tax contributions; contributions limited by IRS-defined thresholds.
- Contributions are potentially tax-deductible based on income levels.
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