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					Chapter 19

    Basic Retirement Plans




          Chapter 19: Basic Retirement
                     Plans
2




                 Basic Retirement Plans
                   Qualified Plans
                   Other tax-advantaged plans
                   Nonqualified plans




    Chapter 19: Basic Retirement
               Plans                         2003 BISYS Education Services
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                 Qualified Plans
                   Pension plans
                   Profit-sharing plans




    Chapter 19: Basic Retirement
               Plans                        2003 BISYS Education Services
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                   Characteristics of Qualified
                   Retirement Plans
                  Employer contributions are not subject to federal
                   income tax or payroll tax
                  Employee contributions are not subject to federal
                   income tax
                  Employee contributions are subject to payroll tax
                  Tax-deferred growth
                  Special income tax averaging/NUA
                  ERISA protection
                  Timing of income tax deduction
                  Small business tax credit
                  Retirement plans as part of a compensation package
    Chapter 19: Basic Retirement
               Plans                                  2003 BISYS Education Services
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                 Disadvantages of Qualified
                 Retirement Plans
                   Costs to qualify, fund, and administer the
                    plan
                   Annual compensation limit
                   Eligibility requirements
                   Coverage of employees
                   Vesting requirements
                   Top-heavy plans
                   Disclosure requirements
                   Annual testing
    Chapter 19: Basic Retirement
               Plans                                2003 BISYS Education Services
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                 Benefits of Tax Deferral
                   Tax deferral is perhaps the biggest benefit for
                    an employee who participates in a qualified
                    retirement plan.
                   Neither plan contributions nor earnings on
                    contributions are currently subject to income
                    tax.
                   In retirement, when distributions begin, the
                    plan participant generally will be in a lower
                    income tax bracket than during the working
                    years.
    Chapter 19: Basic Retirement
               Plans                                2003 BISYS Education Services
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                 Types of Qualified Retirement
                 Plans
                   Classified as:
                        Pension or Profit-sharing
                        Defined-benefit or Defined-contribution
                        Contributory or Noncontributory
                        Corporate or Keogh




    Chapter 19: Basic Retirement
               Plans                                 2003 BISYS Education Services
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                 Pension Plan vs. Profit-Sharing
                 Plan
                   A pension plan is a qualified plan
                    structured to provide a regularly paid
                    fixed sum at retirement
                   A profit-sharing plan is a qualified
                    defined-contribution plan featuring a
                    flexible (discretionary) employer-
                    contribution provision

    Chapter 19: Basic Retirement
               Plans                            2003 BISYS Education Services
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                 Defined-Benefit Plan vs.
                 Defined-Contribution Plan
                   A defined-benefit plan specifies the
                    actuarially determined benefit that each
                    employee receives at retirement.
                   A defined-contribution plan specifies the
                    annual employer current contribution.
                    The amount of benefit received by an
                    employee depends on what the account
                    balance is at retirement.
    Chapter 19: Basic Retirement
               Plans                            2003 BISYS Education Services
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              Contributory Plan vs.
              Noncontributory Plan
                Qualified retirement plans may be
                 distinguished as either contributory
                 (employee makes some contribution) or
                 noncontributory (employer pays all).
                Most pension and profit-sharing plans
                 are noncontributory.
                     Exceptions are the 401(k) and thrift plan
                      (an after-tax savings plan).
 Chapter 19: Basic Retirement
            Plans                                  2003 BISYS Education Services
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              Corporate Plan vs. Keogh Plan
                Corporate-sponsored plans
                     Regular C corporations or S corporations


                Keogh plans (a qualified plan for
                 unincorporated businesses)
                     Self-employed, Schedule C, partnerships,
                      LLCs filing as partnerships

 Chapter 19: Basic Retirement
            Plans                                 2003 BISYS Education Services
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              Other Tax-Advantaged Plans
                Individual Retirement Account (IRA) or
                 IRA Annuity
                     Traditional – pretax
                     Roth – after tax
                Simplified Employee Plan (SEP)
                Savings Incentive Match Plan for
                 Employees (SIMPLE)
                403(b) Plan
 Chapter 19: Basic Retirement
            Plans                             2003 BISYS Education Services
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              Distributions from Qualified and
              Other Tax-Advantaged Plans
                If the contributions were pretax, then both
                 contributions and earnings are treated as
                 ordinary income equal to the distribution, and
                 thus receive ordinary income tax treatment.
                If the contributions were after tax, the
                 contributions are treated as a return of
                 capital and the earnings are treated as
                 ordinary income. Each distribution is
                 prorated as to return of taxable basis and
                 ordinary income subject to income tax.
 Chapter 19: Basic Retirement
            Plans                               2003 BISYS Education Services
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              Nonqualified Plan
                A retirement plan that can discriminate
                 in favor of executives, but which is not
                 eligible for the special tax benefits
                 available for qualified or other tax-
                 advantaged retirement plans.
                     Deferred-compensation plans
                     Split-dollar life insurance
                     Employee stock option plans (ESOP)
 Chapter 19: Basic Retirement
            Plans                                2003 BISYS Education Services

				
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