H&R BLOCK CHAPTER 11 Questions with Correct Answers

A deferred compensation plan available through a wide range of employers. Contributions to a 401(k) plan are tax-deferred to the employee (income tax is not charged on the amount of the contribution at the time it is made). Distributions from the plan are taxed as ordinary income to the recipient when received. - 401[K] A retirement plan available to employees of many public educational institutions and tax-exempt organizations. Also known as a tax-sheltered annuity plan. - 403[B] A deferred compensation plan available to employees of many government entities and certain tax-exempt, non-governmental entities. - 457 A taxpayer who is covered by a qualified employer-maintained retirement plan, or a qualified self-employed retirement plan, if even for only one day during the year. - ACTIVE PARTICIPANT A fixed sum payable to a person at specified intervals for a specific period of time or for life. Payments represent a partial return of capital and a return on the capital investment. - ANNUITY The person the owner of a retirement account chooses as the recipient of funds or other benefits of the account after they die. Taxpayers may choose beneficiaries for IRAs, insurance policies, and other types of accounts. - BENEFICIARY Wages, commissions, tips, professional fees, and net self-employment income from services rendered; that is, earned income. For IRA purposes, compensation also includes alimony and separate maintenance payments. - COMPENSATION (1) Gift to a qualified charitable organization, generally deductible on Schedule A. (2) Money placed in a retirement fund, such as an individual retirement arrangement or an employer-maintained retirement plan. - CONTRIBUTION Compensation that will be taxed when received or upon the removal of certain restrictions on receipt, and not when earned. For example, contributions to a qualified retirement plan on behalf of an employee are considered deferred compensation. Such contributions will not be taxed to the employee until the funds are made available or distributed to the employee, usually upon retirement. - DEFERRED COMPENSATION An employee benefit plan that provides a fixed, pre-determined benefit for employees at retirement. The most common type of defined benefit plan is a pension plan. - DEFINED BENEFIT An employee benefit plan that provides a separate account for each person covered and pays benefits based on account earnings. The employee and/or the employer may contribute to the account. Examples include §401(k) plans and profit-sharing plans. - DEFINED CONTRIBUTION Money or property a taxpayer receives from a retirement plan, such as an individual retirement arrangement (IRA) or an employer-maintained retirement plan. - DISTRIBUTION A distribution from a qualified retirement plan or individual retirement arrangement (IRA) before the plan participant has reached age 59½. Such distributions are subject to a 10% penalty tax if a qualified exception does not apply. - EARLY DISTRIBUTION