Retirement Plans Overview Quiz

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Questions and Answers

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?

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?

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.

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What is a defined benefit plan?

A qualified plan where the employer agrees to make contributions to provide a specific defined retirement benefit. Signup and view all the answers

What is a defined contribution plan?

A qualified retirement plan where the employer specifies contributions which are usually a percentage of employee compensation. Signup and view all the answers

What is a vesting schedule?

It reflects the employee's percentage of ownership in benefits resulting from employer contributions. Signup and view all the answers

What is a Group Deferred Annuity?

A plan where the employer holds a master contract and certificates of participation are given to employees. Signup and view all the answers

What is the purpose of Individual Deferred Annuities?

To fund a defined benefit plan by taking out individual deferred annuities on each plan participant. Signup and view all the answers

What are pension plans?

Plans established by employers to provide systematically for the payment of determinable benefits to retired employees. Signup and view all the answers

What is a target benefit pension plan?

A plan that combines elements of both defined-contribution and defined-benefit plans with a specified target benefit. Signup and view all the answers

What does a 401(k) plan allow an employee to do?

Reduce their compensation by a stated percentage and contribute that amount to a tax deductible and tax deferred account. Signup and view all the answers

What do IRAs help individuals do?

Save money to finance their retirement through pre-tax contributions. Signup and view all the answers

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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Description

Test your knowledge on retirement plans, including their qualifications and characteristics. Understand the differences between qualified and non-qualified plans along with the types of qualified plans available. This quiz will help you grasp essential aspects of retirement planning.