Question

If you are a screenwriter for Hollywood you likely are a part of the Screenactors Guild Union. This Union has billions of dollars set-aside for retirement money in a pension. The pension often buys real estate investments as a part of its investment strategy. Identify the nature of this capital transfer.

Group of answer choices

Direct transfer

Indirect transfer with financial intermediary

Indirect transfer through Investment Bank

Answer 1

Direct transfer

Reason :

• A direct transfer is a transfer of assets from one type of tax-deferred retirement plan or account to another. Direct transfers are not considered official distributions and are therefore not taxable as income or subject to any penalties for early distribution. This type of transfer now usually occurs electronically.

• Direct rollovers from qualified retirement plans occur when the retirement plan administrator pays the plan’s proceeds directly to another plan or IRA, often in the form of a check. In the case of a 60-day rollover, funds from a retirement plan or IRA are paid directly to the investor, who must deposit the funds in another retirement plan or IRA within 60 days to avoid penalty.

  Examples of qualified retirement plans include:

• 401(k) plans
• Profit-sharing plans
• 403(b) plans
• 457 plans
• Money purchase plans
• Target benefit plans
• Employee stock ownership (ESOP) plans
• Keogh (HR-10)
• Simplified Employee Pension (SEP)
• Savings Incentive Match Plan for Employees (SIMPLE)

• The Internal Revenue Service (IRS) provides a guide to common qualified plan requirements. In general, qualified retirement plans meet the requirements of Internal Revenue Code Section 401(a) and are thus eligible to receive certain tax benefits. They usually come in two forms: the defined benefit plan, and the defined contribution plan. A cash balance plan is a hybrid of these two.

  Taxes are typically not paid when performing a direct rollover or trustee-to-trustee transfer. However, distributions from a 60-day rollover and funds not rolled over are typically taxable.

• A financial intermediary is an entity that acts as the middleman between two parties in a financial transaction, such as a commercial bank, investment bank, mutual fund, or pension fund. Financial intermediaries offer a number of benefits to the average consumer, including safety, liquidity, and economies of scale involved in banking and asset management. Although in certain areas, such as investing, advances in technology threaten to eliminate the financial intermediary, disintermediation is much less of a threat in other areas of finance, including banking and insurance.
• An investment bank (IB) is a financial intermediary that performs a variety of services. Most Investment banks specialize in large and complex financial transactions, such as underwriting, acting as an intermediary between a securities issuer and the investing public, facilitating mergers and other corporate reorganizations and acting as a broker or financial adviser for institutional clients.