Account Types & Tax Qualifications

Question 1

Which is better: Traditional or Roth?

Answer 1

All else equal (the same investments were made, for same period of time, with the same tax rates and tax laws), neither is better than the other.

Question 2

What is the problem with this line of thought?

“My taxable income is higher now than it will be in retirement, so I think it makes sense to contribute to tax-deferred accounts.”

Answer 2

The problem is, many people stop here, with the potential positives of contributing to a tax-deferred account, but they do not look into the potential negatives that can come later on down the road.

Question 3

Briefly, what are the benefits of Roth conversion?

Answer 3

1. Withdrawals don’t increase taxable income
2. Social Security taxability
3. Beneficiary implications
4. RMD’s

Question 4

What are the benefits of a 401(k) vs an IRA?

Answer 4

1. Employer matching
2. Higher limits
3. Loans
4. No withdrawal penalty with separation at age 55

Question 5

What are the negatives of a 401(k) vs an IRA?

Answer 5

1. Limited investment options / limited diversification
2. RMD’s
3. Usually can’t do Roth conversion

Question 6

The maximum contribution taxpayers can make to 401(k) plans in 2022 is _______.

Answer 6

$20,500

For taxpayers 50 and older, an additional $6,500 catch-up amount brings the total to $27,000.

Question 7

The maximum contribution taxpayers can make to IRAs in 2022 is _______.

Answer 7

$6,000

For taxpayers 50 and older, an additional $1,000 catch-up amount brings the total to $7,000.

Question 8

Annual catch-up contributions up to $6,500 in 2022 may be permitted by these plans:

Answer 8

• 401(k) (other than a SIMPLE 401(k))
• 403(b)
• SARSEP
• Governmental 457(b)

Question 9

A SIMPLE IRA or a SIMPLE 401(k) plan may permit annual catch-up contributions up to _____.

Answer 9

$3,000