Regarding tax favored retirement plans for employees and self-employed persons, comment on the following:
a.The exclusion versus deduction approaches as to contributions by participants.b.Tax-free accumulation of earnings.c.The deferral of income tax consequences.d.Employee versus self-employed status.
What will be an ideal response?
| a.??? | Contributions by employees to retirement plans that are qualified provide a tax benefit either in the form of an exclusion from gross income or as a deduction for AGI. The traditional IRA takes the deduction approach. This is also the case of contributions by a self-employed person to a Keogh (H.R. 10) plan. |
| b.? | A characteristic of all tax-favored retirement plans is that income accumulates free of tax. This allows for a greater accumulation to take place up to the point of distribution. |
| c.? | Except in the Roth IRA, the main objective of retirement plans is to defer taxation until distributions are made. |
| d.? | Keogh (H.R. 10) plans are, in effect, the self-employed version of employee retirement plans. |
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