retirement plan outline

Self employed defined contribution retirement plan

·        Aka HR-10 retirement plan

·        A.k.a Keogh plan

·        Contributions must be $ from earned income

·        Self employed: The less of $51,000 per year or 100% of earned income

·        Cannot hold gold,diamonds, coins, antiques

·        Contributions are tax deductible

·        Earnings accumulate tax-deferred

Trustee/custodian

·        oversee account

·        comply with IRS rules

Plan for employee

·        25% of employee’s salary or less

·        Self employed people must contribute for their employees if they want to use plan for their account

·        Vesting in one year

Retirement plan features

·        Withdraw in lump sum-average over 10 years

·        Withdraw at intervals-like annuity pay out

·        IRA rollover into 401k

·        401k rollover into IRA

·        1035 exchange,transfer insurance product into another insurance product or annuity

·        Annuity can NOT be exchanged for insurance policy

·        Pension plans don’t invest in municipal bonds, already tax deferred

·        If employee leaves before one year, $ goes into pot for other employees

·        If employees leave after partial/full vesting they can take $ when leave or take money later, pay income tax or roll into IRA or other tax qualified plan in 60 days

·        Transfer from one trustee to another,allowed to roll money over once per year

·        Same trustee, can move $ from one investment to next investment within same company

What is the maximum contribution a self-employed individual can make to a self-employed defined contribution plan?

·        $51,000

·        Self-employed defined contribution plan a.k.a. HR-10 plan a.k.a. Keogh plan

·        Can do $51,000 or 100% of income whichever is less

·        Employee of self-employed person can contribute up to 25%

ERISA

·        Employee  retirement income security act of 1974

·        Purpose-employers protect $ interests of employees retirement/pension plans

·        How to monitor retirement plans

·        Trustee must put $ in low risk investments

·        Reports to IRS

·        Reports for employees of contribution amounts and earnings

·        ERISA covers corporations

·        ERISA does not cover federal government or municipalities

Which of the following is covered by ERISA?

·        The investing policies of pension plans by private employers

·        Protect employees so pension plans aren’t raided in corporate takeover

·        Makes trustee financially responsible

403b retirement plan

·        For tax exempt organization such as church, school, charitable foundation, nonprofit corporation

·        For teachers, church employees, nurses

·        A.k.a. tax sheltered annuity plans

·        Employees make voluntary contributions

·        Plan set up with bank or financial institution

·        Can be through mutual fund companies, insurance companies

·        Employees put in part of their salary up to limit

·        Contributions-pre tax, tax deductible to employee

·        Withdraw, pay-out-taxed as ordinary income

·        Can rollover into IRA if employee leaves

Which of the following can contribute to a 403b plan?

·        Nonprofit employees

retirement plan outline

Qualified retirement plan

·        Tax deferred

·        Banned-collectables

·        Investment separate from income to save for retirement

·        Deduct $ from salary, not taxed as income year received

·        For 401k, IRA, self employed defined contribution retirement plan

·        Penalty tax-10% if withdraw before 59.5

·        Withdrawals taxed as ordinary income

·        After tax contributions to IRA not taxed, added to cost basis

·        MUST withdraw by April 1 after age 70.5

·        Whole payment taxed as ordinary income if no payment made with after tax $

·        Take payments for retirement, no penalty tax if not 59.5 and if payments are long enough to equal a life expectancy. Ex. 55 year old could take 12 payments a year for 25 years without tax penalty.

 

Nonqualified

·        Contributions made with after tax $

·        Not tax deferred

·        Banned-collectables

·        $ taxed before annuity bought

·        Dividends, interest, capital gains-tax deferred

·        Investments in variable annuities and mutual funds

·        Taxed at annuity period

·        taxed when lump sum withdrawn

·        10% penalty if not 59.5 years

·        MOST QUESTIONS

·        Annuity payment-part return of capital, part taxed as ordinary income

Lump sum

·        Beginning $ is appreciation-all taxed

·        Contribution portion-not taxed

·        Partial withdraw-first $ withdraw is taxed as appreciation

·        Under 59.5, 10% penalty + taxed as ordinary income

Exceptions to 10% penalty

·        Death

·        Disability

·        Payments for higher education for a family member

·        First home purchase-$10,000. Not for building a new home. Can buy,build or renovate a first home.

·        Medical expenses

·        Payments taken in amounts paid over life expectancy

Investors in a nonqualified variable annuity cannot withdraw any money without penalty before what age (excluding disability or other medical emergencies)?

·        59.5 years old

·        Can withdraw for early retirement, medical expenses or permanent disability

·        Still have to pay ordinary taxes