qualified plans
-defined benefit
-cash balance
-money purchase
-target benefit
-profit sharing
- 401 (k)
- stock bonus
- esop
other plans
-sep
-simple
-tax sheltered annuities
qualified plan requirements
-broad participation by rank and file
-vesting
- employee communications
-nondiscrimination
-prefunded
-plan document
non qualified deferred compensation
-for executives only
-few design restrictions
-employer deduction matched to the year in which the employee has income
-not prefunded
IRA
-deductible and nondeductible contributions
-roth
-seps and simples are funded this way
-rollover business involves big dollars
broad employee participation
in order for the owners and managers to participate in the tax benefits, the plan must cover a significant number of rank and file employees
vesting
to make sure that long service employees who leae prior to the plans normal retirement age recieve some benefits, an empoyee must be vested in some benefits after he or she has reached a specified number of years of employment
employee communications
all plans must describe to employees what the terms and conditions of the plan are and to what benefits a participant will be entitled
nondiscrimination
all plans must have rules regarding the relationship between the level of benefits provided for highly compensated employees and the level of benefits provided to the rank and file
prefunded
all plans require that assets be contributed to a funding vehicle- once assets are in the plan, they are no longer owned by the employer sponsoring the plan. these assets can be used only to pay plan benefits.
plan document
plans need to be stated clearly in writing
superannuated employees
older employees whos productivity levels are lower than their salary levels
tax advantage retirement plan
employer sponsored retirement plans that are eligible for special tax treatment. these plans include qualified plans, SEPS, SIMPLEs, and 403 (b) plans
active participant
he/she is in an employer maintained retirement plan
-an employee who is covered only by a nonqualified plan is not considered
rollover
-tax payers can withdraw all or part of the balance in an ira and reinvest it within 60 days in another IRA
trustee to trustee transfer
an ira owner who wants to change service providers can transfer the account directly from one trustee to another.
-cant violate 60 day rule
rollover from a qualified plan
most distributions made from a qualified plan , 403b, or 457 plan sponsored by the government can be sent into a new or existing ira
-not allowed when distribution is part of a series of periodic payments over the participants life expectancy or a period
direct rollover
to avoid 20% withholding , plan with a direct payment to new trustee
traditional tax deductible ira
for those with no employer sponsored plan or with incomes below a certain level
traditional non deductible ira
for those with an employer sponsored plan and incomes over a certain level
-can withdraw contributions at anytime w/o penalty
-returns accumulate tax deferred, taxable as income when withdrawn
-form 8606
roth ira
contributions not deductible; for those with incomes below a much higher level, regardless of employer sponsored plans
-qualified distributions are all tax free including investment return and capital gains
traditional ira
-each income earned under age 70 1/2 that is not an activve participant in an employer retirement plan can make tax deductible contributions
-$5500 or 100% or compensation, whichever is less for those under 50
-owners 50 can over can increase annual contr
compensation
generall includes earnings from work and alimony
-doesnt include: investment earnings or retirement income
-liberal rules for self employment
contribution requirements
-must be in cash
-due date of the tax return- no extensions
excess contributions
-too much
-6 % penalty tax each year
-can withdraw before tax year due date without penalty
qualified roth distributions
-it is made after the 5 year period beginning with the first taxable year for which a contribution was made AND
-the payment or distribution made on or after the date you reach 59 1/2-
-clock restarts with rollovers.
unqualified roth distributions
pay income tax = 1-% penalty
conversion to roth
2 methods:
-take funds from traditional IRA and contribute to the Roth IRA within 60 days OR
-rollover funds directly between the 2 IRA plans
amount is taxabke
spousal ira contribution
-joint income at least equals IRA contributions
-married filing jointly
-spouse earns less than tax payers
investment restrictions
-life insurance
-collectibles
-prohibited transactions
prohibited transactions
-borrowing money from it
-selling property to it
-receiving unreasonable compensation for managing it
-using it as a security for a loan
-buying property for personal use with IRA funds
deemed iras
for financial services professionals who work primarily with employers
currently insured
only necessary that a worker have credit for at least 6 quarters of coverage out of the 13 quarter
disability insured
-must be fully insured
-have a minimum amount of work under social security with a recent time period.
-age 31 or older must have credit for at least 20 of the last 40 quarters.
-ages 24-30 must have credit for at least half the quarters of coverage from
AIME
the term used to describe the indexed earnings figure used to calculate social security benefits. represents the 35 highest years of wages earned by individual
PIA
amount a worker will receive if he or she retires at normal retirement age or becomes disabled, and it is the amount on which benefits for family members are based
COLA
OASDI benefits are increased automatically each jan as long as there has been an increase in the cpi for the one year period ending in the 3rd quarter of the prior year
provisional income
portion of the OASDI benefits subject to tax
-taxpayers adjusted gross income
-taxpayers tax exempt interest for the year
-half of the taxpayers social security benefits for the year
full retirement age
67
early retirement
62
delayed retirment
70
-increase in benefits each year up to 70
not covered
-fed workers hired before 84
-railroad employees
-business owners who receive only divident income for services performed
-children under age 18 who are employed by a parent in an unincorporated business
-state and local government employee groups who are
quarter of coverage
-4 per year
-$1220 each
fully insured
40 quarters
-eligible for SS retirement and disability benefits; survivors benefits to widow/er
earnings test
-benefits are reduced $1 for every $2 over threshold
-special rule for year of retirement
-benefits reduced $1 for each $2 earned about top threshold
involuntary termination
may withdraw an application for benefits only within 12 months of their first social security payment and are limited to ONE withdrawal per lifetime
replacement ratio
assumes that the standard of living enjoyed during the years just prior to retirement will be the determinant of the standard of living needed in the first year of retirement