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CHAPTER 19

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					Chapter 19

    Basic Retirement Plans




          Chapter 19: Basic Retirement
                     Plans
             Basic Retirement Plans
              Qualified Plans
              Other tax-advantaged plans
              Non-qualified plans




Chapter 19: Basic Retirement
           Plans                         2001, Dalton Publications, LLC
             Qualified Plans
              Pension plans
              Profit-sharing plans




Chapter 19: Basic Retirement
           Plans                       2001, Dalton Publications, LLC
             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
              Net unrealized appreciation
              ERISA protection
              Timing of income tax deduction

Chapter 19: Basic Retirement
           Plans                                   2001, Dalton Publications, LLC
             Disadvantages of Qualified
             Retirement Plans
              Costs to qualify, fund, and administer the plan
              Small business tax credit
              Annual compensation limit
              Eligibility requirements
              Coverage of employees
              Vesting requirements
              Top-heavy plans
              Disclosure requirements
              Annual testing
              Retirement plans as part of a compensation package

Chapter 19: Basic Retirement
           Plans                                  2001, Dalton Publications, LLC
             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 will be in a lower income tax
               bracket than during the working years.
Chapter 19: Basic Retirement
           Plans                               2001, Dalton Publications, LLC
             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                                  2001, Dalton Publications, LLC
             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                           2001, Dalton Publications, LLC
             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                           2001, Dalton Publications, LLC
             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                                  2001, Dalton Publications, LLC
             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                                  2001, Dalton Publications, LLC
             Other Tax-Advantaged Plans
              Individual Retirement Account (IRA) or
               IRA Annuity
              Simplified Employee Plan (SEP)
              Savings Incentive Match Plan for
               Employees (SIMPLE)
              403(b) Plan


Chapter 19: Basic Retirement
           Plans                          2001, Dalton Publications, LLC
             Distributions from Qualified and
             Other Tax-Advantaged Plans
              If the contributions were pre-tax, 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                               2001, Dalton Publications, LLC
             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                                2001, Dalton Publications, LLC

				
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