Employer-sponsored retirement plans, generally referred to in the aggregate as qualified employee plans, constitute one of the important “legs” of the retirement stool that individuals look to for their income in retirement. The other two legs of that stool are personal savings—through investment in securities, deferred annuities, savings accounts, etc.—and Social Security retirement benefits. This course will examine qualified employee plans, their limits and their tax treatment along with a discussion of annuities and their taxation.
Annuities offer their owners the opportunity to systematically liquidate a principal sum or save money for a long-term objective. For many annuity buyers, that objective is to provide income during retirement. As we will see in our examination of annuities, they provide owners with a number of advantages; principal among them is their tax treatment. By purchasing and investing in an annuity, a contract owner can avoid current income taxation of earnings. By avoiding current income taxation, earnings that might have been used to pay current income taxes can be invested to produce additional income.
Annuities’ tax advantages aren’t limited to tax deferral, however; annuities offer additional tax advantages. For example, an investor purchasing a variable annuity can change his or her investment allocation in the contract’s variable subaccounts whenever desired. Typically, such changes are made in order to implement new objectives or to modify the level of risk assumed. From a tax point of view, the important issue is that the contract owner can make these changes without being required to recognize income as would be required if, for example, the investor liquidated his or her stock portfolio in order to purchase bonds. In addition to these tax benefits, a contract owner that elects to annuitize his annuity contract, i.e. to take a periodic income from it, will find that part of each periodic income payment may be tax free as a return of his or her investment in the annuity contract.
Course Publication Date:
February 21, 2024
This course is available with
NO ADDITIONAL FEE if you have an active
self study membership or
all access membership or can be purchased for
$30.00!
| Author: | Paul Winn |
| Course No: | TAX-PENSANN-3124 |
| Recommended CPE: | 3.00 |
| Delivery Method: | QAS Self Study |
| Level of Knowledge: | Overview |
| Prerequisites: | None |
| Advanced Preparation: | None |
| Recommended Field of Study: | Taxes
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Learning Objectives
- Describe the types and characteristics of qualified employee plans.
- Explain the limits imposed on qualified employee plan contributions and benefits.
- Describe the requirements applicable to qualified employee plan loans.
- Explain the rules governing rollovers to and from qualified employee plans.
- Describe the tax treatment of loans from qualified plans.
- Apply the federal tax laws to qualified employee plan contributions and distributions.
- Recognize changes resulting from the Secure Act 2.0 on qualified plans including Penalty Reductions and Exceptions.
- Recognize changes resulting from the Secure Act 2.0 on qualified plans including Required Minimum Distributions.
- Recognize changes resulting from the Secure Act 2.0 on qualified plans including Plan Loans.
- List the principal types of annuities.
- Describe the principal characteristics of deferred and immediate annuities.
- Explain the tax treatment of annuity contributions, distributions taken as an annuity, surrenders, loans and withdrawals.