Maddie Norton Chapter 16 Period 2 1. What are you purchasing with your payroll tax paid to Social Security?

How will your benefit be paid for in 40 years? You are purchasing mandatory insurance that provides for you and your family in the case of disability, death, health problems, or retirement, and medicare. Your benefit will be paid for in 40 years as current workers pay social security which pays out benefits to those who retire though the ratio will be two current workers pay for one benefit check. 2. How many credits do you need to qualify for Social Security benefits? How is a credit earned? How many can you earn each year? To qualify for social security benefits you need 40 credits. A credit is earned is you pay money into the Social Security System about $1120 is one credit. You can earn 4 credits per year. 7. What is vesting? What does it mean for an employee? An employer? Why is it important when initially considering a job offer? when thinking about changing jobs? Vesting- to gain the right to the retirement contributions made by your employer in your name, this is usually after you have worked for many years you then receive a pension benefit. For an employee it mean you want to work for a long time and get larger pensions checks from vesting as it helps provides for retirement. For the employer they have to set aside money to pay in pensions checks this is why many companies eliminate the ability of vesting. This is important when considering a job as if you vest in the company they pay you pension checks but if you dont vest you dont get a pension check. You should consider it when changing companies if you are not vested in you current job and you leave you will not get any pension and the new job may not have vesting. 10. What are the two fundamental principles and advantages of a tax deferred retirement plan? Your contributions are not taxed so you can contribute more as that money does not go to the IRS. The Investment earnings are not taxed till you withdraw them so you can earn money on the interest that would have normally gone to the IRS. 13. What is a 401(k) plan and how does it differ from a 403(B) plan? Describe two advantages associated with contributing to such plans. 401(k)- a tax deferred retirement savings plan in which employees of private corporations may contribute a portion of their wages up to a max amount set by law. The difference is a 403b is used by non profits, religious groups, schools , and government not just regular companies.The advantages are you get to shelter money from taxes and employers often match all or part of your contributions. 18. How does the traditional IRA differ from the Roth IRA? What characteristics are common to both? IRA- a tax advantaged retirement account. The contributions may or may not be tax deductible depending upon income, and spouse coverage. Roth IRA- contributions are not tax deductible. What you contribute is after tax income but the money when it is in there it grows tax free and the withdrawal is tax free. They are both personal savings plans. 21. What is meant by the term rollover? Why is this important? Rollover is the extension or transfer of a debt or other financial arrangement. This is important as it makes sure that you dont lose any money and helps keep finances fitting your current life. 25. What is a 529 plan? What restrictions on funding, contributions, and withdrawals apply? 529 Plan- tax advantage savings plan used only for college and graduate school. The funding is tax deferred and one can contribute up to $300,000 and there are generally a 10% withdrawal fee.