Assignment 2 - IRA's Flashcards
Indiv. decides…
- if to make a contrib.
- how much to contib.
- how to invest
- when to take a distrib.
Tax-treatment
CONTRIBs = MAY be tax-ded.
EARNINGs = are tax-def’d
DISTRIBs = MAY be taxed
Sources of Income
- Earned income
- Rollovers: another IRA, SEP, SIMPLE, qualif’d plan, 403(b)
- Spousal
- Beneficiary
To be elig. to make an IRA contrib…
- earned income
OR
- alimony that is included in gross income
- must be under age 70 1/2
contribution limits
- 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
bankruptcy catch-up
*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
Excess Contribs.
*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
Contribs and Inv.
- only as contrib.
- must go into a nonforfeitable acct
- cannot inv. in = life ins.; collectibles; cannot commingle w/ other property
- can hold RE
*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
Individual Retirement Annuity
IRA - prohibited transactions
- 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
IRA LOANs
BAD
- from Indiv. Ret. Annuity = results in entire annuity losing tax-exempt status
- amt of loan subject to = premature distrib. penalty; income tax
Distrib. Trad’l IRA
- req’d by age 70 1/2 = Apr. 1st year following attainment of age 70 1/2; and subsequent years
Distrib. Methods of Trad’l IRA
- lump sum
- life “annuity” form of pmt
- periodic pmt of life expectancy
- term certain
- recalc. method
Taxation of Distrib. = Tradi’l IRA
- income tax due, except for nonded. contrib.
- nonded. contrib.
- no cap gains treatment
Premature distrib. from trad’l IRA
- 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
Eligible Plans - ROLLOVERS
- qualified plans
- 403(b)s
Direct Transfer Rollover
- 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
Regular Distrib. Rollover
- 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
- 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
Conduit IRA
Rollover Time Limits
- 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.
Primary distinction of ROTH IRA
- 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)
ROTH IRA Contrib.
- 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.
Conversion of Tradit’l IRA to ROTH IRA
- yes
- amt moved into the Roth IRA is taxed that year
- no early distrib. penalty
ER sponsored IRA
- 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
- 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
Deemed IRA
Pmts that must be made once a participant reaches age 70 1/2 or retires (whichever is later)
Required Minimum Distributions
taxable income that arises from the conduct of business that is not substantially related to the exempt purpose of the plan
unrelated business income
tax payable by the estate after the death of a person
estate tax
allowable deductible IRA contribution
- $5,500 in 2009 and 2010
- catch-up contribution $1,000 (2008)
IRA Contribution Deductibility Limit
Single - $52,000-$62,000 (2007)
married - $83,000-$103,000 (2007)
- 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”
ROTH IRA
Contrib. AGE limits
- can’t make reg. annual contrib. starting w/ the taxable yr the indiv. attains age 70 1/2
spousal IRA
- 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
Deductibility of contrib. to IRA
- 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
Qualified Distrib. for ROTH IRA
requirements
- age 59 1/2
- disabled
- died and pmt is made to benef. or estate
- used to pay for first-time home buyer expenses (max $10,000)
advice requirements for qualified fiduciary advisor
- compensation for advice provided doesn’t vary w/ the investment option chosen
- provided through a computer model
