Which of the following qualified plans is an employer-sponsored IRA?

Rationale

Simple Employee Pension Plan (SEP) is an employer-sponsored IRA.

A SEP is a type of retirement plan that allows employers to make contributions to traditional IRAs set up for employees, making it a qualified plan under the Internal Revenue Code. This structure enables both employer contributions and employee tax-deferred growth, functioning distinctly as an employer-sponsored IRA.

A (Simple Employee Pension Plan (SEP)) CORRECT

This option correctly identifies a plan that allows employers to contribute to IRAs on behalf of employees, thus qualifying it as an employer-sponsored IRA. The SEP plan is designed to help small businesses provide retirement benefits to their employees, aligning with IRS guidelines for employer contributions.

B (Key-employee plan) YOUR ANSWER

A key-employee plan typically refers to non-qualified deferred compensation arrangements designed to provide benefits to select high-level employees. Unlike SEPs, these plans do not involve IRAs and are not governed by the same rules, meaning they do not qualify as employer-sponsored IRAs.

C (Tax-Sheltered Annuities) YOUR ANSWER

Tax-Sheltered Annuities (TSAs), also known as 403(b) plans, are retirement plans for certain employees of public schools and tax-exempt organizations. While they offer tax advantages, they operate under different regulations than IRAs and do not qualify as employer-sponsored IRAs per the definition of qualified plans.

D (Deferred Compensation) YOUR ANSWER

Deferred compensation plans are arrangements where an employee earns wages but agrees to receive them at a later date, often linked to retirement. These plans are generally non-qualified and do not involve IRAs, thus disqualifying them as employer-sponsored IRAs under IRS regulations.

Conclusion

In summary, the Simple Employee Pension Plan (SEP) uniquely qualifies as an employer-sponsored IRA, allowing for tax-deferred contributions made by employers on behalf of employees. In contrast, the other options—key-employee plans, tax-sheltered annuities, and deferred compensation plans—do not meet the criteria for employer-sponsored IRAs, as they either involve different structures or lack the necessary IRA association. Understanding these distinctions is crucial for effective retirement planning and compliance with tax regulations.

Which of the following qualified plans is an employer-sponsored IRA?

Simple Employee Pension Plan (SEP) is an employer-sponsored IRA.

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