Chapter 13

Question 1

What are “Qualified Plans”?

Answer 1

• created by Congress to protect employees
• ensure employers are adequately funding pension benefits
• ensure employers are not ONLY providing retirement to high compensate executives
  -QP receive tax-favored status only if they meet certain criteria specified by IRS

Question 2

What are the 2 main types of Qualified Plans?

Answer 2

(1) Defined Benefit Plan
(2) Defined Contribution Plan

Question 3

What is a DBP?

Answer 3

• specify the exact benefit the employee will receive at retirement based on a FIXED formula
• LESS risky
• TRADITIONAL pension plan

Question 4

Who bears the investment risk in a DBP?

Answer 4

the EMPLOYER

Question 5

Which QP pays all employees from the SAME account maintained by the employer?

Answer 5

DBP

Question 6

Are distributions from DBP taxable to employee when received as ordinary income?

Answer 6

YES
- reported in Form 1099-R

Question 7

What is a DCP?

Answer 7

• EMPLOYER specifies the amount it will contribute to the employee’s retirement account (%)
• think 401k

Question 8

Who bears the risk in a DCP?

Answer 8

the EMPLOYEE

Question 9

Why have many employers begun to replace DBP with DCP?

Answer 9

• LESS admin burden
• LESS investment risk to employer

Question 10

Are there separate retirement accounts for each employee in a DCP?

Answer 10

YES

Question 11

What are the Annual contribution limits for EMPLOYEE DCP (2024)?

Answer 11

• $23,000 if < 50 yrs old by EOY
• $30,500 if >= 50 yrs old by EOY (includes $7,500 “catch-up” contribution)

Question 12

What are the Annual contribution limits for EMPLOYER + EMPLOYEE DCP (2024)?

Answer 12

• $69,000 ($76,500 if >= 50 yrs old by EOY with $7,500 “catch-up”) -OR-
• 100% employee’s compensation

Question 13

Are distributions from DCP taxable to employee when received as ordinary income?

Answer 13

YES

Question 14

What are the 2 types of Individually managed Qualified Retirement Plans?

Answer 14

TRADITIONAL IRAs
ROTH IRAs

Question 15

Traditional IRAs

Answer 15

• “FOR” AGI deduction for contributions
• taxpayer get advantage NOW
• must contribute by 4/15 of subsequent yr
• distributions taxed as ORDINARY income

Question 16

What is the “for” AGI deduction for traditional IRA contributions (in general)?

Answer 16

• deduction is the LESSER
  (1) earned income
  (2) up to $7,000 (up to $8,000 if >= 50 yrs old at EOY w/ $1,000 “catch-up”)

Question 17

ROTH IRAs

Answer 17

• contributions are NOT deductible
• taxpayer gets the tax advantage LATER
• must contribute by 4/15 of subsequent yr
• distributions are NOT taxed (“qualified” distributions of earnings too)

Question 18

What are the allowed annual ROTH IRA contributions for 2024 (in general)?

Answer 18

the lessor of:
(1) earned income -OR-
(2) up to $7,000 (up to $8,000 if >= 50 yrs old at EOY w/ $1,000 “catch-up”)

Question 19

What is a qualified distribution?

Answer 19

• account must be open for 5 YEARS before the taxpayer is able to receive qualified distributions AND
• must be 59 1/2 to receive QD -OR-
• distribution made to beneficiary upon death of taxpayer -OR-
• distribution is attributable to the taxpayer being disabled -OR-
• 1st home purchase (limit $10,000)