M7: Retirement Planning Flashcards
A plan that allows an employee to defer salary to a tax-deferred profit sharing plan.
401(k) plan
Also known as a tax-sheltered annuity, a blank is available to employees of certain charitable, religious, educational, and other 501(c)(3) nonprofit organizations.
403(b) plan
That portion of the master or prototype plan document that contains all the alternatives and options that may be selected by an adopting employer.
Adoption agreement
Average monthly earnings of a worker used by Social Security to calculate a worker’s Primary Insurance Amount (PIA). This amount is adjusted for inflation to reflect an average in today’s dollars.
Average Indexed Monthly Earnings (AIME)
A defined benefit plan that provides for specific annual employer contributions that accumulate at a guaranteed investment return.
Cash balance pension plan
A vesting schedule in which the employee is 0% vested until after either three or five year of service, at which time the employee will be 100% vested.
Cliff vesting schedule
A small business that is sole proprietorship, a partnership, or a close corporation.
Closely held business
A retirement plan to which the participant (employee) can make contributions.
Contributory retirement plan
Pertains to eligibility for Social Security. A worker is blank if they have been credited with at least six quarters of coverage during the 13 calendar quarters ending with the quarter in which the worker dies or becomes entitled to retirement or disability benefits. Currently married status is needed for survivors to be eligible for benefits if the deceased worker was not fully insured.
Currently insured
An individual retirement account that allows the owner to deduct the amount of the contribution from current federal income taxes.
Deductible IRA
A nonqualified pension arrangement whereby an executive or highly compensated employee may have current compensation deferred until a later date, presumably when they retire. To receive future benefits, the employee may have to meet certain requirements established by the employer; however, the employer has an enforceable obligation to pay agreed-upon benefits to the employee.
Deferred compensation plan
A pension plan in which the benefits that an employee will receive upon retirement are specified in the plan. For example, the employee may be told that they will receive a monthly pension benefit equal to 60% of their compensation while working. To fund the plan, the employer then takes the promised compensation into account, as well as the length of time until retirement, the employee’s projected earnings, the prevailing level of interest rates, and numerous other factors.
Defined benefit pension plan
A plan in which the contribution that will be made is specified, such as a profit sharing plan. For example, an employer may specify that intends to contribute 10% of each employee’s salary to a pension plan. The benefit that the employee ultimately receives will be a function of the amount that was contributed by the employer, the length of time that contributions were made on the employee’s behalf, and investment returns.
Defined contribution plan
Pertains to retirement plans and IRAs. A direct transfer moves retirement benefits from one institution to another, also called a “trustee to trustee” transfer. The individual never has possession of the benefit dollars. This differs from a rollover, in which the individual may have possession of the funds for as long as 60 days before reinvesting funds in a second plan without tax consequences.
Direct transfer
Pertains to retirement plans. An early withdrawal is typically a distribution that is received before the recipient attains age 59 1/2, and often results in a 10% early withdrawal penalty.
Early withdrawal
A deferral of compensation made by the employee participant in a 401(k), 403(b), 457 plan, or SIMPLE plan.
Elective deferral
A federal law governing the operation of most private retirement plans. Qualified employer-sponsored retirement plans must comply with blank. This provides protection for the employee, whose retirement assets will be protected even if their employer goes bankrupt.
Employee Retirement Income Security Act of 1974 (ERISA)
Contributions made by the employer into a retirement plan. These can include matching contributions, nonelective contributions, discretionary employer profit sharing contributions, and required employer contributions to a qualified plan.
Employee contributions
The age at which full Social Security old age benefits are available. blank ranges from age 65 to age 67 depending upon the year an individual was born.
Full retirement age (FRA)
A pension plan in which the employer contributes an amount each year that is adequate to fund current and future pension liabilities (payouts).
Fully funded pension plan
Pertains to Social Security. A person is considered to have blank status if they have earned 40 quarters of coverage under Social Security. A blank person is eligible for survivors’ benefits for a qualified spouse, child, and/or dependent parent; a death benefit payment; and retirement benefits for themself, a qualified spouse, and a qualified child.
Fully insured
A vesting schedule whereby the employee becomes vested in increments of 20% over a period of time. Two-to-six year graded vesting vests in six years, starting with 20% after two years of service, 40% after three years, 60% after four years, 80% after five years, and 100% after six years of service.
Graded vesting schedule
A retirement plan that any individual with earned income can establish and fund. An individual may contribute no more than $6,500 (2023) in one year to the account (plus another $1,000 if age 50 or older). Depending upon the taxpayer’s circumstances, the contribution may be fully deductible, partially deductible, or not deductible. All investment earnings accumulate tax deferred until distributions are received at retirement. Tax penalties are assessed for early withdrawals from an IRA. Early withdrawals are generally classified as those that take place before an individual attains age 59 1/2.
Individual retirement account (IRA)
