Retirement Plans

Basic overview of retirement plans, as it applies to FINRA Exams.

This lecture will cover two key topics retirement plans and annuities this lecture applies primarily to the series six the series seven series 24 series 10 and the series 65 and 66 examinations as it relates to retirement plans on the exam there are all sorts of rules regarding the time limit to contribute the deadline to contribute the acceptable contributions

The fact that you can start to take money out 59 and a half you have to take money out at seven and a half i’m not going to focus as much on those details in this lecture because those are largely memorization issues where students tend to have difficulties with retirement plans is remembering which plans are pre tax plans also called qualified plans that’s a term

I’m gonna use here in this lecture and which tax are out which plans are after tax plans also called non qualified plans so some of these plans are pre-tax some of these plans are after tax so starting with corporate retirement plans a corporate hiring plan could be qualified what does it mean as far as we’re concerned for the test was only for plan to be qualify

Qualified means pre-tax contributions also called tax deductible contributions they grow tax-deferred which means the interest and savings the interest and gains are not taxed each year and distributions are fully taxed as ordinary income so pre-tax contributions which grow tax-deferred and distributions are fully taxed as ordinary income fully tax means when you

Take money out of the plan every dime is taxed every dollar that you take out is taxed in order to be qualified the plan must be erisa guidelines okay erisa is a set of federal retirement plan guidelines among other things the plan must be non-discriminatory so it’s got to be offered to everybody in a firm to satisfy certain requirements and it’s got to have a

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Vesting schedule that vesting schedule states how much an individual gets to keep if they leave the firm non qualified plans non qualified plans as far as we’re concerned for the text our after-tax contributions the money it was in after-tax so when you take money out how much of it is taxed only the growth within qualified plans there are two types you have a

Defined benefit plan and a defined contribution plan an example of a defined benefit plan is a pension plan and the defined benefit plan the retirement income is predetermined and defined benefit plan the retirement income is predetermined it’s based on the employees age position and tenure tn ure what does that mean tenure means how long they’ve been with the

Firm it’s based on their age position and tenure with the firm the defined contribution plan on the other end and the burden is on the employee to make their own contributions examples include a 401 k a profit-sharing an employee stock ownership plan a sep ira and a keogh plan keogh is for self-employed persons and again i’m not going to go through the specific

Details of these because that’s not what this lecture is about this lecture is about knowing that when they refer to a kea plan you want to visualize it right here on the chart which means you know it’s a defined contribution plan and you know that all defined contribution plans are qualified plans the key thing here is memorizing this chart when you get to the

Test you’ll be able to visualize where everything falls then you have non-qualified plans which include deferred comp and payroll deductions you don’t have to know a lot about these in detail but suffice to say they can be discriminatory in nature so they do not need to be offered everybody at the firm and they are generally gonna be after tax contributions they’re

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Generally after tax contributions so again if you can memorize this chart that should put you in a good spot for the test and plus the next few charts i’m going to discuss iras just like corporate plans can also be qualified or pre-tax or non qualified which means after tax what makes an ira pre-tax who can have a pre-tax ira individuals who are ineligible for

A qualified corporate plan so if you work for a company that does not offer you a 401k depending on your income you can potentially have a pre-tax i are right so somebody who works for company that does not offer them a qualified loan whether or not they use doesn’t matter if it’s offered or not if you work for coming it does not offer a 401k you can potentially

Have a pre-tax ira if you do work for a company that has that offers you a 401k you can still have an ira it’s just gonna be after-tax contributions will be made with after-tax dollars and he might ask well why would anybody bother then because the money still grows tax-deferred even if it’s after-tax the money grows tax-deferred so all the gains and income and

Whatnot is not taxed all the way until the end variable annuities can also be pre-tax or post tax who gets a qualified or pre-tax variable annuity a public sector employee so somebody who works for a public school or a non-profit that’s called a 403b plan it’s called a 403b it pre-tax annuity it’s called the four or three points like a cousin of the 401k anybody

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Else can also have a variable annuity it’s just going to be post tax it’ll be after-tax so again the combination of these charts will hopefully help you remember the tax consequences for various types of retirement vehicles on the test there are three types of plans that offer tax and that offer after-tax contributions with tax-free distributions so it’s after-tax

Going in when you take the money out you don’t pay a dime of tax those include roth iras covered out educational savings accounts and section 529 college savings plans these are all after-tax dollars going in but tax-free coming out assuming you need distribution criteria such as how long the money’s in the account and things of that sort we’re not going to again

Were not only go into those details here but that these plans are after tax going in tax-free coming out

Transcribed from video
Retirement Plans By Knopman Marks Financial Training