Employee Benefits and Retirement Planning
Qualified plans
Qualified retirement plans meet ERISA and tax-code requirements in exchange for tax advantages. Know the difference between defined benefit (employer promises a benefit) and defined contribution (employee bears investment risk). 401(k) plans allow elective deferrals, often with employer match; vesting schedules govern employer contributions.
IRAs and limits
Traditional IRAs offer deductible contributions subject to income limits and active-participant rules; Roth IRAs offer tax-free qualified withdrawals with income phase-outs. Required minimum distributions apply to traditional accounts after the applicable age; Roth IRAs generally have no lifetime RMDs for the owner. Know contribution limits, catch-up provisions, and the 10% early withdrawal penalty with its exceptions (e.g., disability, qualified higher education, first-time homebuyer up to $10,000 for IRAs).
Social Security
Understand the role of the primary insurance amount, full retirement age, early-claiming reductions, and delayed-claiming credits. Spousal and survivor benefits are frequently tested.
Other benefits
Know Section 125 cafeteria plans, flexible spending accounts (use-it-or-lose-it), HSAs (triple tax advantage with high-deductible health plans), and group life and disability.
Worked example
An employee contributes $6,000 to a 401(k) with a 50% match up to 6% of a $60,000 salary. A 6% contribution ($3,600) earns the full $1,800 match; contributing less forfeits free money. Rule of thumb: always capture the full employer match first.
Traps
Questions blur the tax treatment of traditional versus Roth, or the penalty exceptions between IRAs and employer plans.