Goals in setting up a Retirement plan for the Employer include:
1)
2)
3) - ANSWER 1) Helps to retain and attract employees
2) Reward long term employment
3) Ensure employer is saving for retirement.
What is a defined benefit plan?
- A defined contribution plan maintains an - ANSWER individual account balance for each
participant.
What is a defined benefit plan?
- A participant's benefit is based solely - ANSWER on the value of the account balance.
What is a defined benefit plan?
- The account will reflect - ANSWER contributions, forfeitures, and investment earnings
allocated to the account.
What is a defined benefit plan?
- Because the size of a participant's benefit at retirement depends in part on
__________________________________________________ and
____________________________________________________ - ANSWER the partici-
pant is considered to bear the risk of investment.
amount of investment returns experienced by the participant's account,
1
,What is a defined benefit plan?
- Because of the direct link between investment returns and the ultimate benefit enjoyed by
the participant, many defined contribution plans permit participants to - ANSWER direct
the investments for their own accounts.
401(k) Plans
- A 401(k) plan is a - ANSWER profit-sharing plan or stock bonus plan that allows for em-
ployee elective deferrals.
401(k) Plans
- A 401(k) plan allows employees to ___________________________. The tax code section
that allows this is ________________ thus the name. - ANSWER defer some of their com-
pensation to a retirement plan
Section 401(k),
401(k) Plans
- Any employer can adopt a 401(k) plan except for - ANSWER state and local government
employers.
A 401(k) plan allows elective deferrals and may include a combination of the following types
of contributions.
1)
2)
3) - ANSWER 1) Matching contributions
2) Non elective contributions
3) After tax contributions
2
, Contributions made to a 401(k) plan
Elective deferrals are amounts of an - ANSWER employee's salary that the employer con-
tributes to a plan, at the election of the employee, in lieu of paying current compensation.
There are two types of elective deferrals with different tax treatments.
1)
2) - ANSWER 1) A pre-tax deferral is not included in the employee's current taxable in-
come but rather is taxable upon distribution.
2) A Roth Deferral is currently taxable, but the earnings may be tax-free upon distribution if
certain conditions are met.
Matching contributions: - ANSWER Are employer contributions that are based on an em-
ployee's elective deferrals or after-tax contributions
Non-elective contributions - ANSWER Are employer contributions made to all employees
regardless of, and not tied to, any elective deferrals that any employee makes.
After-tax contributions - ANSWER Are employees contributions that are included in the
employee's current taxable income, but unlike Roth deferrals, the earnings are taxed when
distributed.
The two rules to consider for 401(k) plans are:
1)
2) - ANSWER 1) Top heavy rules
2) Non-discrimination rules
Top heavy rules
1)
3
1)
2)
3) - ANSWER 1) Helps to retain and attract employees
2) Reward long term employment
3) Ensure employer is saving for retirement.
What is a defined benefit plan?
- A defined contribution plan maintains an - ANSWER individual account balance for each
participant.
What is a defined benefit plan?
- A participant's benefit is based solely - ANSWER on the value of the account balance.
What is a defined benefit plan?
- The account will reflect - ANSWER contributions, forfeitures, and investment earnings
allocated to the account.
What is a defined benefit plan?
- Because the size of a participant's benefit at retirement depends in part on
__________________________________________________ and
____________________________________________________ - ANSWER the partici-
pant is considered to bear the risk of investment.
amount of investment returns experienced by the participant's account,
1
,What is a defined benefit plan?
- Because of the direct link between investment returns and the ultimate benefit enjoyed by
the participant, many defined contribution plans permit participants to - ANSWER direct
the investments for their own accounts.
401(k) Plans
- A 401(k) plan is a - ANSWER profit-sharing plan or stock bonus plan that allows for em-
ployee elective deferrals.
401(k) Plans
- A 401(k) plan allows employees to ___________________________. The tax code section
that allows this is ________________ thus the name. - ANSWER defer some of their com-
pensation to a retirement plan
Section 401(k),
401(k) Plans
- Any employer can adopt a 401(k) plan except for - ANSWER state and local government
employers.
A 401(k) plan allows elective deferrals and may include a combination of the following types
of contributions.
1)
2)
3) - ANSWER 1) Matching contributions
2) Non elective contributions
3) After tax contributions
2
, Contributions made to a 401(k) plan
Elective deferrals are amounts of an - ANSWER employee's salary that the employer con-
tributes to a plan, at the election of the employee, in lieu of paying current compensation.
There are two types of elective deferrals with different tax treatments.
1)
2) - ANSWER 1) A pre-tax deferral is not included in the employee's current taxable in-
come but rather is taxable upon distribution.
2) A Roth Deferral is currently taxable, but the earnings may be tax-free upon distribution if
certain conditions are met.
Matching contributions: - ANSWER Are employer contributions that are based on an em-
ployee's elective deferrals or after-tax contributions
Non-elective contributions - ANSWER Are employer contributions made to all employees
regardless of, and not tied to, any elective deferrals that any employee makes.
After-tax contributions - ANSWER Are employees contributions that are included in the
employee's current taxable income, but unlike Roth deferrals, the earnings are taxed when
distributed.
The two rules to consider for 401(k) plans are:
1)
2) - ANSWER 1) Top heavy rules
2) Non-discrimination rules
Top heavy rules
1)
3
