Question 1

What is an Individual Retirement Account?

Accepted Answer

An Individual Retirement Account or “IRA" is a personal account for people who are employed (and their spouses) that provides either a tax-deferred or tax-free way for saving for retirement.

Question 2

Is an IRA an investment? / What is it?

Accepted Answer

No. An IRA is only a container in which an individual can keep stocks, bonds, mutual funds, and a wide variety of other investments.

Question 3

Where can IRA accounts be opened and held?

Accepted Answer

IRA accounts can be opened and held at almost any custodian institution such as a bank, brokerage, or insurance company.

Question 4

IRA contributions may be invested in:

Accepted Answer

Stocks, bonds, mutual funds, and other securities Certain U.S. Government, or state-issued gold, silver, platinum, and palladium coins, etc. Real Estate

Question 5

IRA contributions may NOT be invested in:

Accepted Answer

Collectibles — such as antiques, paintings, rugs, diamonds, and stamps. Life insurance

Question 6

What are "Inadvisable Investments" to be held in an IRA?

Accepted Answer

Because IRA earnings are tax-deferred or tax-exempt, there is NO benefit to investing in tax-exempt securities such as municipal bonds and municipal bond funds.

Question 7

Can everyone take advantage of IRA accounts?

Accepted Answer

No.

Question 8

What are the limitations of each type of IRA?

Accepted Answer

Each type of IRA has eligibility restrictions, contribution limits, and penalties for early withdrawal of assets.

Question 9

Handling of Inherited IRAs -- What happens if the owner of an IRA dies and the designated beneficiary is a surviving spouse?

Accepted Answer

The transfer qualifies for the federal estate tax marital deduction. Meaning — the surviving spouse may elect to become the owner of the account and may treat the inherited IRA as their own.

Question 10

Handling of Inherited IRAs -- Can the surviving spouse make contributions and/or rollover the inherited IRA?

Accepted Answer

Yes. The spouse may make contributions and/or rollover the inherited IRA.

Question 11

Handling of Inherited IRAs -- Does the surviving spouse pays taxes on any distributions of the inherited IRA?

Accepted Answer

Yes. The spouse pays taxes on any distributions.

Question 12

Handling of Inherited IRAs -- What happens if the owner of an IRA dies and the designated beneficiary is a non-spouse?

Accepted Answer

A non-spouse may NOT elect to become the owner of the account and may NOT rollover the IRA to another IRA.

Question 13

Handling of Inherited IRAs -- How are distributions to a non-spouse taxed upon distribution?

Accepted Answer

Distributions will be taxed as ordinary income to the beneficiary in the year in which the distribution is received.

Question 14

Handling of Inherited IRAs -- Can the non-spouse beneficiary become the owner of the deceased person's IRA?

Accepted Answer

No. If the beneficiary is a non-spouse, they cannot become the owner of the deceased person’s IRA. A distribution has to be taken and taxes have to be paid.

Question 15

Handling of Inherited IRAs -- What happens if the owner of an IRA dies and the designated beneficiary is a trust?

Accepted Answer

When a trust is designated as the beneficiary of an IRA, it (the trust) becomes the owner of the account, and the beneficiaries of the trust become the beneficiaries of the IRA.

Question 16

Handling of Inherited IRAs -- What is the maximum payout period based on if the beneficiaries of a deceased person's IRA is a trust?

Accepted Answer

The maximum payout period is based on the oldest beneficiary’s age.

Question 17

Handling of Inherited IRAs -- If a person dies, and the beneficiary of their IRA is a trust, does the trust become the owner of the account?

Accepted Answer

Yes. If a person dies, and the beneficiary of their IRA is a trust, the trust may become the owner of the account.

Question 18

Handling of Inherited IRAs -- What is "stretching" an IRA?

Accepted Answer

a strategy used to distribute IRA assets to beneficiaries BEYOND the lifetime of the person who originally established the IRA. allows beneficiaries to enjoy tax-deferred growth.

Question 19

Handling of Inherited IRAs -- Does a charity pay income tax on an inherited IRA?

Accepted Answer

No. A charity will not pay income tax on an inherited IRA, since a charity pays no income tax on gifts it receives. (Charities don't pay federal or state tax.)

Question 20

What is a Traditional IRA?

Accepted Answer

A Traditional IRA is the original IRA designed to encourage employed individuals to save for retirement by providing them with tax incentives.

Question 21

What are the advantages of a Traditional IRA?

Accepted Answer

Advantages include the fact that contributions to the account are generally tax deductible (within limitations) and that the taxes on contributions and earnings in the account are deferred, generally UNTIL the owner retires and begins taking withdrawals when they may be in a lower tax bracket.

Question 22

What are the two conditions to be eligible to contribute to a Traditional IRA?

Accepted Answer

have the sufficient earned income to make a contribution, and the individual cannot be 70 1/2 by the end of the year.

Question 23

Who is the Traditional Individual Retirement Account (Traditional IRA) designed for?

Accepted Answer

individuals (and their spouses) who receive compensation.

Question 24

Are Traditional IRA plans personal accounts controlled by the individuals themselves?

Accepted Answer

Yes. These plans are personal accounts controlled by individuals themselves.

Question 25

What are the contribution limits for a Traditional IRA?

Accepted Answer

Contributions may be made annually up to 100% of earned income not to exceed specified limits. — $5,500/year ($1,000 catch-up for 50+) — same for 2017 and 2018.

Question 26

Can individuals who will be at least 50 years of age during the tax year contribute an additional “catch-up” amount to their IRA?

Accepted Answer

Yes.

Question 27

What happens if an individual makes a contribution above the Traditional IRA limits?

Accepted Answer

Contributions above the limits which are not removed from the account are subject to a cumulative 6% excise tax.

Question 28

What type of compensation qualifies for an IRA contribution?

Accepted Answer

Compensation that qualifies for an IRA contribution includes earned income and alimony.

Question 29

What type of compensation does NOT qualify for an IRA contribution?

Accepted Answer

but does not include pensions, annuities, or other deferred compensation that the individual might be receiving.

Question 30

If you have a job and have earned income, or are receiving alimony from an ex-spouse, can you use those items to make contributions into your IRA?

Accepted Answer

Yes.

Question 31

Can you take money from a pension that you are receiving and put that into an IRA?

Accepted Answer

No.

Question 32

Contributions to a Traditional IRA must be made in

Accepted Answer

cash.

Question 33

Contributions must be made in cash and may be made up to _________ of the year following the year that a deduction is claimed.

Accepted Answer

April 15th.

Question 34

If an extension is granted for the filing of a tax return, can you make an IRA contribution after April 15th?

Accepted Answer

No. If an extension is granted for the filing of a tax return, the IRA contribution must STILL be made not later than April 15th.

Question 35

Can you make contributions to a Traditional IRA after age 70 1/2?

Accepted Answer

No. Contributions may NOT be made after age 70 1/2.

Question 36

Can contributions to a Traditional IRA be tax deductible?

Accepted Answer

Yes, but under certain conditions. Deductions for IRA contributions are permitted depending on the taxpayer’s filing status and adjusted gross income.

Question 37

If an individual is not active in a retirement plan at work, how much of their contributions can they deduct?

Accepted Answer

ALL their contributions up to the contribution limits.

Question 38

If an individual is active in a retirement plan at work, how much of their contributions can they deduct?

Accepted Answer

Depends on tax filing status (individual or joint) and your adjusted gross income.

Question 39

Who is considered an active participant in a defined benefit plan?

Accepted Answer

an individual who is not excluded under the eligibility provisions under the plan is considered to be an ACTIVE participant if he or she is eligible to participate for any part of the plan year ending with or within the tax year, even though the individual has elected not to do so, -OR- has failed to make a mandatory contribution, -OR- has failed to meet the minimum service requirements.

Question 40

Who is considered an active participant in a defined contribution plan?

Accepted Answer

an individual is considered to be an active participant if contributions or forfeitures are allocated to an individual’s account for the plan year that ends with or within that tax year.

Question 41

Would an individual who makes a voluntary or mandatory employee contribution be considered an active participant?

Accepted Answer

Yes. An individual is an active participant for any tax year in which the individual makes a voluntary or mandatory employee contribution.

Question 42

If an individual puts money into a Traditional IRA in any tax year, would they be considered an active participant?

Accepted Answer

Yes.

Question 43

What are the contribution limits for individuals with an unemployed spouse?

Accepted Answer

Individuals with an unemployed spouse MAY make the maximum allowable contribution for themselves and their unemployed spouse may ALSO make the same contribution based on the employed spouse’s compensation amount.

Question 44

Are individuals and their unemployed spouses' contributions to an IRA non-deductible?

Accepted Answer

Yes, to the extent that to the extent that they are INELIGIBLE to make deductible IRA contributions due to restrictions. Meaning — active in an employer’s plan or they’re outside of the AGI limitations.

Ch 11(1) Retirement Plans & College Tuition Plans | Individual Retirement Accounts Flashcards

Detail Individual Retirement Accounts

Brainscape's Knowledge GenomeTM

Ch 11(1) Retirement Plans & College Tuition Plans | Individual Retirement Accounts Flashcards

Detail Individual Retirement Accounts

Brainscape's Knowledge Genome^TM