- retirement account advantage: tax-deferral or
tax-saving advantages for co. establishing retirement plan and individuals
covered
Defined benefit plan
· pension plan based on employee’s salary
· employee puts away a %age of earnings for employee
· employer manages plan
· retiree get fixed dollar amount or fixed percentage of
amount put in by employer
· amount retiree gets-years of service and salary they received
while working
· managed for all qualified employees
· plan is not separated into individual accounts
· max contribution by employer-based on employee’s average
compensation
· can favor older employees>young employees
· limit on amount that can be contributed/employee is greater
with defined benefit plan > than defined contribution plan
· IRS sets contribution limits
· Deductible contributions for company only
· Individual withdraw-taxed as ordinary income
· Employees can make tax deductible contributions
Defined contribution plans
· Employer can put in $ for employee
· Employee can match what $ employees put in
· Employee can contribute entire amount for account
· Contributions in pretax dollars, taxed at withdrawal
A defined benefit plan is most
advantageous for which of the following employees?
· Older employees
· Older have only a few years to put away $
· Limit on contributed amount is higher>defined
contribution plan limits
Profit sharing plan
· Co. contribution based on co. profits
· Higher salary employees get more>benefits
· Company can decide not to contribute that year
Money purchase plan
· Employers must put in each year
· Contributions based on %age of salary
401k plan
· Employers can match employee contribution
· Employee can defer taxes on contributions up to limit for
year
· CONTRIBUTION AMOUNT NOT ON TEST
Employee stock ownership plan
· Co. has employees buy co. stock at a discount
· Co. stock given to employees as a bonus
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