FAQ: Estate

What are the advantages and disadvantages of having a trust instead of a will? How can a person change a will? Is there any way a will would not be given effect after the testator's death? What is a community property state and how does it affect estate planning? What are some common issues connected with nursing home care? What is probate and how does it work? What are some of the tax consequences of estate planning? How does a grantor choose a trustee? How can a person leave property to minor children? What are some of the fiduciary responsibilities owed by a trustee to the beneficiaries? Learn More: Estate Planning

What does it mean to be "vested" in my retirement plan?

What does it mean to be "vested" in my retirement plan?

If you are vested in your retirement plan, you can take it with you when you leave the company. If you are 50% vested, you can take 50% of it with you when you go. In the case of a 401(k) plan, you are always 100% vested in the salary you defer into the plan.

Is an IRA a retirement plan?

An IRA, or Individual Retirement Account, is indeed a retirement plan. However, it's not a qualified plan. Instead, IRAs are described in Section 408 of the Tax Code and have their own set of rules. One significant difference between qualified plans and IRAs is that qualified plans are established by businesses, while certain types of IRAs -- traditional or Roth IRAs -- are established by individuals. That means you can set up a traditional or Roth IRA for yourself, whether or not your employer has established a qualified plan for you at work.

Other types of IRAs, known as SEPs and SIMPLE IRAs, are for businesses and must be established by an employer. For example, the employer might be a corporation, a sole proprietor or a partnership. SEPs and SIMPLE IRAs permit larger tax deductions than do traditional or Roth IRAs.

I work for a company and also have a small business of my own. Can I set up a retirement plan for my business even if I'm covered by a plan at work?

Generally, yes. The restrictions on contributions you can make to a retirement plan are applied to each employer separately. If you work for a company, the company is an employer. If you are self-employed, you are a separate employer, and can have a separate retirement plan for your business. But be careful. If both you and your employer establish some type of salary reduction plan, you might run up against an overall limit on contributions.

The most common types of salary reduction plans are 401(k) plans, tax-deferred annuity or 403(b) plans (these generally cover university professors and public school teachers), and 457 plans (sponsored by state and local governments and other tax-exempt organizations). A SIMPLE IRA is also a salary reduction plan.

Although the amount of your salary or compensation you can defer into each of these plans is limited, the law also puts a limit on the total amount you can defer into all such plans, if you happen to be covered by more than one. The overall limit depends on the type of plan you participate in.

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