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When you have completed this chapter, you should understand the following learning objectives: Discuss the basic tax and operational structure of tax-deferred plans and annuities, explain details about and contributions to employer-sponsored retirement plans, describe the tax rules related to contributions to individual-sponsored retirement plans,. | Chapter 11 Retirement and Other Tax-Deferred Plans and Annuities “The income tax laws do not profess to embody perfect economic theory.” -- Oliver Wendell Holmes, Jr. 1 LO #1 – The Basics Retirement plans are encouraged and receive tax advantages. Encourage saving for retirement or education Generally, taxation is deferred (not eliminated) Retirement plans include employer-sponsored plans and individual-based plans. 2 The Internal Revenue Code provides benefits to encourage individuals to save for retirement or education. Individuals can participate in retirement plans sponsored by their employer or plans that the individual sets up on their own. In general, retirement plans allow individuals to save for retirement and not pay taxes on the money saved until they retire, LO #1 – The Basics Understand retirement plan terminology Annuity Beneficiary Contributions Distributions Donor Tax-deferred retirement (or other) plan Trustee 3 It is important to understand the terminology related to a retirement plan. LO #1 – The Basics Tax-deferred does not mean tax-free. Generally, untaxed contributions are taxed when distributed. Previously-taxed contributions are not taxed on distribution. Contributions can provide a tax deduction to the person/company that makes them. 4 The basic premise of most, but not all, retirement plans is that contributions are made with money on which the eventual recipient has not yet paid tax. These are pre-tax, or untaxed, dollars. If this is the case, then when the money is withdrawn, tax will be due. Some retirement plans are funded with dollars that have already been taxed. In this case, withdrawals are generally not taxed. LO #2 – Employer-Sponsored Retirement Plans Employer-sponsored plans include: Qualified pension and profit-sharing plans 401(k) plans 403(b) plans Keogh plans Simplified Employee Pensions (SEP) SIMPLE plans 5 Some retirement plans are established, run, and are sponsored by an employer. Six types of employer-sponsored plans . | Chapter 11 Retirement and Other Tax-Deferred Plans and Annuities “The income tax laws do not profess to embody perfect economic theory.” -- Oliver Wendell Holmes, Jr. 1 LO #1 – The Basics Retirement plans are encouraged and receive tax advantages. Encourage saving for retirement or education Generally, taxation is deferred (not eliminated) Retirement plans include employer-sponsored plans and individual-based plans. 2 The Internal Revenue Code provides benefits to encourage individuals to save for retirement or education. Individuals can participate in retirement plans sponsored by their employer or plans that the individual sets up on their own. In general, retirement plans allow individuals to save for retirement and not pay taxes on the money saved until they retire, LO #1 – The Basics Understand retirement plan terminology Annuity Beneficiary Contributions Distributions Donor Tax-deferred retirement (or other) plan Trustee 3 It is important to understand the terminology related to
