Individual Retirement Accounts Flashcards
1
Q
Traditional IRA - annual contributions
A
- $6,500 with $1,000 catch up (50+)
- limited to lesser of limit for 100% of compensation
- pre 2019, alimony counts as compensation
2
Q
Spousal IRA
A
- if married person doesnt work, they still can contribute to spousal IRA as long as couple has comp that equals or exceeds the contributions
3
Q
IRA eligibility
A
- any person receiving comp can contribute
- the contribution could be deductible or not
- earnings grow tax deferred
4
Q
Keys to IRA deductibility
A
- plans affecting status: qualified plans, SIMPLE, SEP, TSA, union plans (not 457)
- activity as participation: ER contribs, EE contribs, forfeitures
NO ONE: if neither spouse is active participant or if single person isnt active participant, then IRA contributions are deductible
ONE: if one spouse is participant and one is not, the non-active spouse can make a deductible contrib if AGI is less than 218k (228k phaseout)
BOTH: phase out limits for deductibility - 73k-83k (S), 116k-136k (MFJ)
5
Q
Early distribution penalty
A
- taken before 59 1/2 trigger 10% penalty
- Exceptions:
- death - total disability - qualified edu expenses - medical premium after separation from employment (10% floor of AGI) - substantially equal payments - first home (10K) - medical expense (>7.5% AGI) - adoption/birth (5k) - federally declared disaster
6
Q
IRA loans
A
- no loans permitted
- if borrowing from IRA or using as loan, considered to receive entire interest
- if all or part of IRA is pledged as security for loan, pledge treated as distribution - loses IRA status
7
Q
Roth IRA
A
- restricted based on income (provided) not age
- need earned income
- not deductible
- not affected by participation in employer plan
- lesser of 6,500 limit or 100% comp (combines traditional and roth IRA)
- grow tax deferred and qualified distributions are tax free
- nonworking spouse can contribute too
- no RMD
8
Q
Roth conversions
A
- no income level restriction
- distributions allowed (within 60 days) from traditional IRA (or qualified plan, SEP, SIMPLE, 403b, 457) to Roth IRA
- roth conversion does not satisfy RMD, need to take RMD first
9
Q
Non-spouse beneficiaries
A
- can convert qualified plan balance to inherited roth ira
- direct transfer allowed only
- cannot convert IRA to inherited roth
10
Q
Ordering rules for distributions
A
- if Roth has both conversion and contributory amount, contributions are withdrawn first - not taxed
- converted amount withdrawn second
- earnings withdrawn last
11
Q
Contributory distributions
A
- first amount withdrawn from Roth when taking distribution
- tax free no matter when its withdrawn
12
Q
Conversion distributions
A
- taken after all contributions are withdrawn first
- 5 year holding period: if account is over 5 years old, no tax or penalty, if account is less than 5 years old then no tax but 10% penalty unless meeting exceptions
- exceptions to failing 5 year holding period: 59 1/2 +, death, disability, first home (10k), medical expenses, medical premium while unemployed, substantially equal payments, higher edu, birth/adoption
13
Q
Earnings distributions
A
- taken last after contributions and conversions
- could be subject to tax and/or 10% penalty if conditions not met
- 5 year holding period: failing to meet with no special conditions - tax and penalty. failing to meet but special purpose - tax and no penalty
- meets 5 year period and qualified event: no tax or penalty
- meets 5 year period and special purpose: tax and no penalty
- meets 5 year period and no special purpose: tax and 10% penalty
Qualified events: 59 1/2, death, disability, first home (10k)
14
Q
Required minimum distributions
A
- no RMD for roths
- distribution rules at death
1. distribute within 5 years of death if no beneficiary
2. distributed over 10 years to beneficiary
3. is only beneficiary is spouse, spouse may delay distributions until roth owner would be 73 or treat roth as own (rollover) so no RMD
15
Q
Roth 401k
A
- only 401k, 403b, and 457 can offer this
- after tax account for elective deferrals
- included in gross income
- 22,500 max with 7,500 catchup
- ER contributions still made traditional
- no income limits
- distributions only tax free if 59 1/2 and 5 year holding period met , died, or disabled
- no RMD
