Glossary

Defined Contribution Plan

A Defined Contribution plan is a retirement plan in which an employee contributes money and their employer can make a matching contribution.

401(k)

A 401(k) is an employer-sponsored retirement account. It allows an employee to contribute a percentage of their pre-tax salary to a retirement account.

Cash Balance Plan

Cash balance plans are like traditional defined-benefit pension plans with a 401(k) or profit sharing component.

Defined Benefit Plan

A Defined Benefit plan is a qualified employer-sponsored retirement plan that helps self-employed and small business owners save for retirement by allowing you to make very high contributions. 

Individual Retirement Account

An Individual Retirement Account (IRA) allows you to save money for retirement in a tax-advantaged way, There are several types of IRAs—traditional IRAsRoth IRAsSEP IRAs, and SIMPLE IRAs and each have different rules regarding eligibility, taxation, and withdrawals.

Qualified Retirement Plans

Qualified retirement plans are retirement plans that meet certain requirements, as established by Section 401(a) of the Internal Revenue Code. Qualified retirement plans are usually offered through an employer and allow for pre-tax contributions and tax-deferred growth.

 

Profit-sharing plan

A profit-sharing plan is a type of Defined Contribution plan that allows companies help their employees save for retirement. An employee receives a share of a company’s profits, either in cash or company stock. A Cash Balance plan is often used in combination with a 401(k) profit-sharing plan in order to maximize contributions and tax deductions.

Prohibited Transaction

Certain transactions are prohibited under the Internal Revenue Code (IRC) and the Employee Retirement Income Security Act of 1974 (ERISA). Prohibited transactions are reported in the Form 5500 filing and trigger taxes and other penalties.

The IRC and ERISA contain outright prohibitions against direct or indirect economic transactions involving plan assets and parties related to the plan (referred to as disqualified persons or parties in interest) unless the transaction is covered by an exemption.

Prohibited transactions include, but are not limited to, the direct or indirect sale, exchange, or lease of property; extension of credit; provision of goods or services; transfer or use of plan assets and certain investments in employer securities or employer real estate in excess of the legal limits. In addition, plan fiduciaries are prohibited from receiving a kickback from any person in connection with a transaction involving plan assets.

The definitions for both party in interest and disqualified person are complex and include plan fiduciaries, service providers, sponsoring employers, as well as individuals who are related to the foregoing by family or business ties.

Please contact your tax or legal advisor if you have questions whether a particular transaction is prohibited and reportable on Form 5500 and 5330.

Plan Year

Refers to the 12 month period on which your plan is administered. This is usually the same as the fiscal year of your business.

Plan Sponsor/Employer

Refers to the business, partnership or proprietorship sponsoring the plan.

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