Insurance People who are self-employed, whether as sole proprietors or as business partners, may establish retirement plans for themselves under a law named for the congressman who introduced it. Known as Keogh or HR-10 plans, they receive beneficial tax deferrals provided they qualify under the Internal Revenue Code. While the extensive details of the legal requirements are beyond the scope of this course, the following paragraphs highlight critical features. In addition to covering the self-employed person, Keogh plans must cover some employees as stipulated by law, while other employees, such as certain part-timers, may be excluded. The plan must have a funding formula that doesn’t discriminate unfairly among employees who are required to be covered, specifically not penalizing lower-paid employees while providing an unfairly greater benefit for highly-paid employees. The amount that may be contributed to a Keogh plan is limited by law. Self-employed individuals who contribute to a Keogh plan may take a business tax deduction for contributions made for themselves and for employees. The contributions and interest earned are not taxed as current income. These amounts are taxed when they are paid out as retirement income or otherwise withdrawn. Employees may make their own personal contributions to the Keogh plan. While these voluntary contributions are not tax deductible to the employees, they do accumulate and earn interest on a tax-deferred basis, with tax payable on the interest only when funds are withdrawn. Annuities may be used to fund Keogh plan benefits as either a defined benefit plan or a defined contribution plan. DEFINED BENEFIT PLAN As the name implies, a defined benefit plan is one that specifies or defines the amount of the benefit that will be paid at retirement. When the plan is established, a formula is included for determining the benefit amount. Contributions to the plan are then made in order to provide that predetermined benefit. DEFINED CONTRIBUTION PLAN A defined contribution plan specifies a formula for the amount of the contribution that will be made, rather than the amount of the benefit to be paid at retirement. The law stipulates a maximum amount that may be contributed. While the future benefit amount is unknown, it can be estimated at various points based upon the participants length of service, amounts actually contributed, and the estimated and actual earnings on contributions. CORPORATE PENSION AND PROFIT SHARING PLANS Annuities may also be used to fund corporate pension and profit sharing plans. While Keoghs are designed for self-employeds, corporate and profit-sharing plans are aimed at retirement for people employed by corporations. Like Keogh plans. these corporate plans must meet strictly-written requirements to be considered qualified for special tax treatment. A corporate pension plan may be either a defined contribution or a defined benefit plan. By law, pension plans must be established specifically to pay retirement benefits to employees. Contributions are paid by the employer on behalf of employees, subject to very detailed nondiscrimination requirements with regard to lower-paid and highly-compensated employees. Pension plans must conform to a formula for determining the amount of contributions or the amount of benefits. Corporate profit sharing plans. which are designed to share actual company profits with employees, are more flexible in terms of how contributions are made. Some plans have a formula to determine what portion of profits will be distributed to employee accounts, while others do not. Even when no formula exists, non-discrimination controls must be in place to ensure individual employee contributions will be made fairly. GROUP DEFERRED ANNUITY A group deferred annuity is one option available to corporations for funding defined benefit or defined contribution plans. Every year, the employer uses the contribution to purchase a (Group) Single Premium Deferred Annuity for each employee included in the plan. After many years, the employee receives the benefits from all annuities purchased on his other behalf. Group deferred annuity plans have been popular because, first, they guarantee income since they are provided by an insurance company with the same guarantees any other annuity enjoys; and second, the insurer takes responsibility for all of the administrative details. As new forms of funding have been developed, however, group deferred annuities have become less popular with larger businesses, although many smaller businesses still find them attractive. About the Author: 相关的主题文章: