Chapter 14 Retirement and Education Savings Accounts Flashcards Preview

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Flashcards in Chapter 14 Retirement and Education Savings Accounts Deck (4)
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1

ERISA
Created standards for private sector employee pension plans

Determines qualified status
•Both employer and employee contributions are tax deductible

No discrimination

Open to all
•21 or older
•With one year of full-time service (1,000 hours)

Vesting provisions
•Specify the amount of money to which an employee is entitled when withdrawing from the plan
•Applies to contributions made by employer

2

Retirement Plans
401K
Roth taxes

401K - tax deduct at contrib, taxed at withdrawal
Roth - not tax deduct at contrib, usually tax free withdraw

3

Traditional and Roth IRAs

For both Traditional and Roth:

Early withdrawal penalty:
•Before age 59 ½ and 10% of taxable amount •Except in case of death, disability, qualified higher education expenses, or qualified first-time homebuyer distributions ($10,000 lifetime)


Rollovers and Transfers •Rollover: •Owner receives proceeds •Once per year (rolling 12 months) •Must be completed within 60 days •Trustee-to-Trustee Transfer: •No penalty or withholding •Owner does not have access to the funds •May be more than one per year

4

529 Plans
State-sponsored, college savings plan

One child per account; but the child is not the owner
Distributions

Withdrawals used for qualified higher education expenses will be tax-free on the federal level

If withdrawal not used for qualified education expenses, earnings are subject to ordinary income taxes plus a 10% penalty

If not used for one child’s education, funds can be transferred to a relative without tax penalty

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