Insurance Ch. 11

Retirement plans

401(k) Plan

This is a retirement savings plan that’s sponsored by an employer. A 401(k) plan allows an employee to save and invest a piece of her paycheck before taxes are taken out. Taxes are not paid until the money is withdrawn from the account

403(b) Plan

This is a retirement plan for certain employees of public schools, employees of specific tax-exempt organizations, and certain religious organizations

Defined Benefit Plan

This is a pension plan under which a specific benefit formula determines the benefits

Defined Contribution Plan

This is a tax-qualified retirement plan in which annual contributions are determined by a formula that’s established in the plan. Benefits which are paid to a participant will vary with the amount of contributions made on the participant’s behalf and the length of service under the plan

Employee Retirement Income Security Act of 1974 (ERISA)

This is a federal law that sets minimum standards for most voluntarily established pension and health plans in private industry to provide protection for individuals in these plans

Keogh Plan

This is a plan that’s designed to fund the retirement of self-employed individuals. The name is derived from the author of the Keogh Act (HR-10). Contributions that are made to such a plan are given favorable tax treatment

Non-Qualified Withdrawal

If the amount being withdrawn from a plan exceeds the total amount contributed, it’s considered a non-qualified withdrawal. The earnings generated after the contributions become taxable as ordinary income

Profit-Sharing Plan

This is a plan in which a portion of a company’s profits is set aside for distribution to employees who qualify under the plan

Qualified Plan

This is a retirement or employee compensation plan which is established and maintained by an employer that meets specific guidelines as determined by the IRS and consequently receives favorable tax treatment

Qualified Withdrawal

This is the tax-free distribution of earnings from a Roth IRA. To be considered a qualified withdrawal, the funds must have been held in the account for a minimum of five years. No portion of the withdrawal is subject to tax if it’s taken for one of the following reasons: permanent disability, made by a beneficiary after the owner’s death; or used to buy, build, or rebuild a first home ($10,000 lifetime limit)

Rollovers

This is when an individual retirement account (IRA) is established with funds that are transferred from another IRA or qualified retirement plan which the owner had terminated

Roth IRA

This is an individual retirement account (IRA) which allows a person to contribute after-tax funds up to a specified amount each year. Both the earnings generated in the account and withdrawals taken after the age of 59 1/2 are tax-free

Savings Incentive Match Plan for Employees (SIMPLE)

This is a qualified, tax-favored, employer retirement plan that a small employer (less than 100 employees) can make available to its employees

Simplified Employee Pension (SEP) Plan

This is a type of qualified retirement plan under which the employer contributes to an individual retirement account that’s established and maintained by the employee

Traditional IRA

This is an individual qualified retirement account through which an eligible individual can accumulate tax-deferred income up to a certain amount each year, depending on the individual’s tax bracket