For these plans, the employer’s investments must have sufficient returns to pay a set benefit to the employees for retirement.
Any IRA that has been passed to a beneficiary upon the death of the original owner of the account. unless the beneficiary is a spouse or charitable remainder trust, the account must be distributed within 10 years.
For individuals with self-employment income (only for sole proprietorships, not LLCS or S/C Corps), the business owner can contribute up to 20% of self-employment income and up to 25% of employees’ compensation.
The amount that the person will receive at full retirement age, (which is 66 for current retirees.) Calculated based on the monthly earnings amount that social security tax has been paid on each working year.
Flexible contributions that vary based on the company’s profits, and if no profits are made, then no contributions are made either. These plans have much higher max annual contribution limits than 401ks and other employer retirement plans.
This is a distribution that must be taken from qualified retirement plans (IRA, 401(k), 403(b), 457s) when the individual is 72 years of age or older. This minimum amount comes out of the tax-qualified retirement plan each year and gets taxed as ordinary income.
Account balance December 31st of the prior year divided by the life expectancy factor (from uniform table)
Direct rollovers can be done to move an IRA from one custodian to another with no penalties and no taxes. Indirect rollovers involve withdrawing all funds in an account to move to a new custodian. In the interval, the money is in the hands of the client. Rollovers from one IRA to another can only be done once per year and must be completed within 60 days.
A Roth IRA is a type of individual retirement account that is funded with after-tax dollars, and any withdrawals are tax-free (so long as the individual is 59.5 and has had the account for five years). There are income restrictions and contribution limits to Roth IRAs.
Good for business owners, as they can contribute pre-tax dollars for themselves (20% of their income) and for any eligible employees (25% of their wages).
Only available for companies with less than 100 employees and have no other retirement plans in place; often cheaper and easier to set up than 401ks, so these plans are good for small businesses. Employee cannot withdraw or roll funds into another IRA from a SIMPLE in the first two years without incurring a 25% penalty plus ordinary income tax.
A Traditional IRA account is created for the benefit of an individual saving for retirement, and only the account owner can contribute to it. Contributions to a Traditional account are made with pre-tax dollars and earnings accumulate tax-free, but any withdrawals will be taxed. There are age requirements and contribution limits for these accounts.
Type of employee-sponsored individual retirement account that is funded with pre-tax dollars and often has a matching feature by the employer. 401(k)s have a higher max contribution limit than IRAs.
Similar to a 401k but for a non-profit company. Also funded with pre-tax (tax-deductible) dollars.
A deferred compensation plan whose contributions are tax-deductible, and contribution limits are the same as those for 401ks and 403bs. This can be beneficial to an employee who wants to save more than just maximum ($19,500 in 2020) in their 401(k)/403(b) or those whose contributions are limited because they earn too much, as they provide another avenue to save an additional dollars tax deferred.
CFP® certification is a voluntary certification granted in the United States by Certified Financial Planner Board of Standards, Inc. It is recognized in the United States and a number of other countries for its (1) high standard of professional education; (2) stringent code of conduct and standards of practice; and (3) ethical requirements that govern professional engagements with clients. Individuals who become certified are required to complete continuing education.
The glossary terms displayed on our website are solely for information purposes. Nothing contained herein should be considered as investment advice. The terminology and definitions provided on our website derive from third-party sources believed to be reliable and accurate at the time the information was retained. Morris Financial Concepts, Inc. is not responsible for errors or omissions in the material on third party websites and does not necessarily approve of or endorse the information provided. For questions or to report in known material inaccuracies, please contact us.