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RPA 2 > Assignment 2 - IRA's > Flashcards

Assignment 2 - IRA's Flashcards

1
Q

Indiv. decides…

A
  1. if to make a contrib.
  2. how much to contib.
  3. how to invest
  4. when to take a distrib.
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2
Q

Tax-treatment

A

CONTRIBs = MAY be tax-ded.

EARNINGs = are tax-def’d

DISTRIBs = MAY be taxed

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3
Q

Sources of Income

A
  1. Earned income
  2. Rollovers: another IRA, SEP, SIMPLE, qualif’d plan, 403(b)
  3. Spousal
  4. Beneficiary
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4
Q

To be elig. to make an IRA contrib…

A
  • earned income
            OR
  • alimony that is included in gross income
  • must be under age 70 1/2
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5
Q

contribution limits

A
  • traditional IRA = $5,000 or 100% of earned income
  • additional $1,000 = age over 50
  • $3,000 catch-up if ER declares bankruptcy in 2007-2009
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6
Q

bankruptcy catch-up

A

*3x normal catch-up

  • ER declares in 2007-2009
  • ER or other person is indicted due to some bus. transaction
  • Indiv. must have been partic. in the ER’s 401(k) for at least 6 months
  • ER made matching contribs. of at least 50%
  • matching contribs. were made w/ ER stock
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7
Q

Excess Contribs.

A

*indiv. misses the deadline for making the contrib. (April 15) for one year and then makes the contrib. for the next year.

  • 6% excise tax on excess
  • applied each yr until excess is w/drawn from IRA
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8
Q

Contribs and Inv.

A
  • only as contrib.
  • must go into a nonforfeitable acct
  • cannot inv. in = life ins.; collectibles; cannot commingle w/ other property
  • can hold RE
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9
Q

*Flexible premium annuity

  • cannot require premium (discretionary)
  • cannot accept over $4,000 per year
  • contract is non-transferrable
  • dividends used to purch. addit’l benef. or reduce future premium
A

Individual Retirement Annuity

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10
Q

IRA - prohibited transactions

A
  • selling, exchanging, or leasing property
  • lending money or extending credit (LOANS)
  • furnishing goods, services or facilities
  • transferring to or using plan assets
  • 10% penalty of amount involved
  • increases to 100% if not corrected timely
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11
Q

IRA LOANs

A

BAD

  • from Indiv. Ret. Annuity = results in entire annuity losing tax-exempt status
  • amt of loan subject to = premature distrib. penalty; income tax
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12
Q

Distrib. Trad’l IRA

A
  • req’d by age 70 1/2 = Apr. 1st year following attainment of age 70 1/2; and subsequent years
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13
Q

Distrib. Methods of Trad’l IRA

A
  • lump sum
  • life “annuity” form of pmt
  • periodic pmt of life expectancy
  • term certain
  • recalc. method
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14
Q

Taxation of Distrib. = Tradi’l IRA

A
  • income tax due, except for nonded. contrib.
  • nonded. contrib.
  • no cap gains treatment
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15
Q

Premature distrib. from trad’l IRA

A
  • prior to age 59 1/2
  • 10% penalty
  • Exceptions: death or disability; medical expenses; pmt of med. prem. if unempl’d; education; purchase of 1st home; substantially equal periodic pmts for at lease 5 yrs or age 59 1/2 (which is later)
  • penalty assessed retroactively if done incorrectly
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16
Q

Eligible Plans - ROLLOVERS

A
  • qualified plans
  • 403(b)s
17
Q

Direct Transfer Rollover

A
  • instruction from the an indiv. for a plan trustee to transfer funds directly to the IRA
  • check goes from plan to IRA
  • never directly to indiv.
  • check is always written out to IRA
18
Q

Regular Distrib. Rollover

A
  • indiv. receives check from plan; made out to them
  • 20% withholding mandatory
  • indiv. may rollover total amt, but must make up the w/held amt out of pocket, and then get it as a tax refund
19
Q
  • type of IRA
  • holds only funds rolled-over from qualif’d plan
  • entire amt (rollover plus earnings) can be rolled-over to a subsequent qualif’d plan
  • cannot commingle assets w/ indiv. IRAs
A

Conduit IRA

20
Q

Rollover Time Limits

A
  • must rollover w/in 60 days of regular distrib. (not direct rollover)
  • can’t rollover from IRA to IRA more than once in 12 month period if assets are in taxpayer’s possession for a period of time. (N/A for direct transfers; N/A for rollovers from plan to an IRA)
  • IRS can waive 60 day time limit if missed due to no fault of the indiv.
21
Q

Primary distinction of ROTH IRA

A
  • Roth IRA contribs. are subj. to income tax in the year of the contrib.
  • distrib. is NEVER subj. to income tax (if rules are followed)
22
Q

ROTH IRA Contrib.

A
  • max = $5,500 (same as tradit’l)
  • phase out tied to AGI = Single $101,000-$116,000; Married $159,000-$169,000
  • not deductible
  • can make contrib. after age 70 1/2
  • not taxed upon distrib. if worked 5 years AND = 59 1/2; death/disbil.; 1st home under $10,000
  • 10% penalty otherwise (except for educ.)
  • no requirement min. distrib.
23
Q

Conversion of Tradit’l IRA to ROTH IRA

A
  • yes
  • amt moved into the Roth IRA is taxed that year
  • no early distrib. penalty
24
Q

ER sponsored IRA

A
  • not SEP
  • doesn’t need to be provided to all EE’s or be nondiscrim.
  • treated as addit’l comp (FICA owed) OR P/R deduction
  • subj. to $4,000 limitation and “active participant” rule
  • EE is always 100% vested in their IRA
25
Q
  • type of add-on IRA
  • created by EGTRRA
  • qualif’d retirement plan or a tax-sheltered acct that allows EEs to make vol. contribs. to an IRA that is a separate acct estab. under the plan
  • extra “money type” or sub-acct w/n a qualif’d plan
  • allows IRA to be held w/n the ER’s retirement plan
  • no partic. testing requirement
A

Deemed IRA

26
Q

Pmts that must be made once a participant reaches age 70 1/2 or retires (whichever is later)

A

Required Minimum Distributions

27
Q

taxable income that arises from the conduct of business that is not substantially related to the exempt purpose of the plan

A

unrelated business income

28
Q

tax payable by the estate after the death of a person

A

estate tax

29
Q

allowable deductible IRA contribution

A
  • $5,500 in 2009 and 2010
  • catch-up contribution $1,000 (2008)
30
Q

IRA Contribution Deductibility Limit

A

Single - $52,000-$62,000 (2007)

married - $83,000-$103,000 (2007)

31
Q
  • same contrib. limits as regular IRA
  • contribs. are taxed in yr of contrib.
  • contribs. can be made after age 70 1/2
  • distrib. (earnings and contrib.) are not taxed if “qualifed”
A

ROTH IRA

32
Q

Contrib. AGE limits

A
  • can’t make reg. annual contrib. starting w/ the taxable yr the indiv. attains age 70 1/2
33
Q

spousal IRA

A
  • must file joint return
  • created by Small Business Job Protection Act
  • able to contrib. up to $2,000 (combined max of $4,000)
  • additional catch-up contrib. if age 50
34
Q

Deductibility of contrib. to IRA

A
  • IF not actively partic. in qualified ER plan = may deduct full amt ($4,000)
  • IF active partic. in ER plan = deduction amt is decreased based on income levels
35
Q

Qualified Distrib. for ROTH IRA

requirements

A
  1. age 59 1/2
  2. disabled
  3. died and pmt is made to benef. or estate
  4. used to pay for first-time home buyer expenses (max $10,000)
36
Q

advice requirements for qualified fiduciary advisor

A
  • compensation for advice provided doesn’t vary w/ the investment option chosen
  • provided through a computer model

RPA 2 (13 decks)

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