Question

What is the difference between a defined-benefit and a defined-contribution plan? Are they both treated the...

What is the difference between a defined-benefit and a defined-contribution plan?

Are they both treated the same way for tax purposes?

What IRC sections reference these plans?

Which type of life insurance policies are taxable, and which are non-taxable?

What IRC sections reference whole life and term life, as well as key officer life insurance policies?

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Answer #1

Difference between a defined-benefit and a defined-contribution plan:

1. A defined benefit pension plan is a plan whichprovides a specified payment amount at the tiem of retirement, whereas a defined contribution plan allows both employees and employers to contribute and invest money over time to save for retirement.

2. 401(k) plan is defined contribution plan

Tax Treatement for defined-benefit and a defined-contribution plan

Contributions to defined-contribution plans are tax-deferred,that means neither the employer nor the employee pays tax on the initial contributions or accumulating plan earnings. The employee need to pay the tax at the time of withdrawl of funds.

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