Chapter 14.2 Flashcards
What can contributions in IRA’s be invested in?
- Stocks, bonds, mutual funds, and other securities
- Certain U.S. Government or state issued gold, silver, platinum, and palladium coins and bullion
- Real Estate
IRA contributions may not be invested in:
- Collectible items such as antiques, paintings, rugs, diamonds, and stamps
- Life insurance
Inadvisable investments in IRAs
Tax-exempt securities such as municipal bonds and municipal bond funds
Inherited IRAs- Beneficiary is a surviving spouse
The transfer qualifies for the federal estate tax marital deduction. The surviving spouse may elect to become the owner of the account and may treat the inherited IRA as their own. The spouse may make contributions and/or rollover the inherited IRA
Inherited IRAs- Beneficiary is a Non-Spouse
May not elect to become the owner of the account and may not rollover the IRA to another IRA. Distributions will be taxed as ordinary income to the beneficiary in the year in which the distribution is received
Inherited IRAs- Beneficiary is a Trust
It becomes the owner of the account and the beneficiaries of the trust become the beneficiaries of the IRA. The maximum payout period is based on the oldest beneficiaries age
Inherited IRAs- Beneficiary is a “Stretching” an IRA
Is a strategy used to distribute IRA assets to beneficiaries beyond the lifetime of the person who originally established the IRA and allows beneficiaries to enjoy tax-deferred growth
Inherited IRAs- Beneficiary is a Charity
A charity will not pay income tax on an inherited IRA, since charity pays no income tax on gifts it receives
What type of compensation qualifies for IRA contributions?
Earned income and alimony.
**Does not include pensions, annuities, and other deferred compensation
Traditional IRA Deductions for individuals who are not active in a retirement plan at work:
May deduct all of their contributions up to the contribution limits.
Traditional IRA Deductions for individuals who are active in a retirement plan at work:
May be able to deduct a contribution to an IRA depending upon income limitations based on your tax filing status and your adjusted gross income.
Roth IRA - Qualified distribution
-Must have a 5 year holding period - The distribution may not be made before the end of the 5th year after which the individual made their initial contribution to the Roth IRA.
and
-Must meet one of the following criteria:
-Is made after the IRA owner has reached age 59.5
-Is made as a result of the death or disability of the IRA owner
-Is used for “qualified first time home buyer expenses”
-Is used for educational expenses
-Is used for medical insurance premiums
SEP(Simplified Employee Pension)
A type of retirement plan used by small business owners to provide retirement benefits for themselves and their employees. The advantages of a SEP include the low cost of administration and the tax-deductible nature of contributions.
SEP Eligibility
If an employer makes a contribution they must make contributions for employees who are eligible. Employees are eligible to participate if:
- They are 21 years of age or older
- They have worked for the employer during at least 3 of the preceding 5 years
- They have received at least $600 in wages for the current tax year
SIMPLE(Savings Incentive Match Plan for Employees)
Provides a simplified way for small employers and their employees to contribute toward retirement. Allows employers a tax deduction for contributions they make to the SIMPLE IRA Plan. The SIMPLE also allows eligible employees to make elective salary deferrals to the plan. The plan is designed for small employers with 100 or fewer employees.
