Individual retirement accounts Flashcards
Can contributions now be made after the age of 73 into an IRA?
Yes
To contribute to an IRA you have to have compensation (earned income), what is considered compensation?
Earnings from wages, salaries, tips, professional fees, and bonuses in addition alimony and separate maintenance payments are also considered compensation
S corporation distributions are considered unearned income (K1 distributions)
Income must be constructively received
What are the keys to IRA deductibility?
Neither spouse is an active participant or a single person is an active participant IRA contributions are deductible
This includes annual additions, which are employer contributions and employee contributions and forfeitures
457 governmental plans are excluded
What are the phaseouts for IRA deductibility?
$230,000-$240,000 if one spouse is an active participant and the other spouse is not
$77,000-$87,000 single
$1203,000-$143,000 married
These apply to AGI
IRA distributions taken before age 59 1/2 trigger a 10% penalty. What are the exceptions to this role?
Death
Total and permanent disability
Qualified education expenses
Distribution used to pay medical insurance premiums after separation from the employment (maybe subject to the floor of 10% of AGI)
Substantially equal payments
First home up to $10,000
Medical expense greater than 7.5% of AGI
$5000 for qualified birth adoption
Federally declared disaster (limited)
If all or part of the IRA is pledged as security for a loan, what happens?
That portion is treated as a distribution and it results in a loss of IRA status on the whole account
Taxpayer has earned income or a spouse with earned income. What are the phase out for a Roth IRA?
Based on AGI
Single: $146,000-$161,000
Married: $230,000-$240,000
Is eligibility for contributions to a Roth IRA restricted by an individual’s age
No
Is the eligibility to participate in a Roth IRA affected by an individuals participation in an employer sponsored retirement plan?
No, it is not
Does a Roth conversion satisfy an RMD?
No, it does not satisfy. You must take out the RMD before the conversion.
Can a non-spouse beneficiary who inherited a qualified plan convert that plan to an inherited Roth IRA?
Yes, must be a direct transfer
Note a beneficiary who inherited an IRA cannot convert it to an individual Roth IRA
What are the ordering rules for distributions from a Roth IRA?
- Roth contributions are considered to be withdrawn first, not taxable
- Converted amounts are withdrawn second
- Earnings are withdrawn on last
What are the Roth IRA distribution rules due to the death of the original owner?
- Distributed within five years of the owner‘s death if no designated beneficiary
- Distributed over 10 years to the designated beneficiary following the owner’s death
- Sole beneficiary is the owner surviving spouse:
- May delay distributions until the Roth owner would have reached age 73 or may treat the Roth as his or her own roll it into their Roth
- Surviving spouse, treats the inherited Roth as his or her own Roth then no distributions are required by the surviving spouse
What happens when a taxpayer puts too much into a Roth IRA and then needs to re-characterize that for tax purposes?
Taxpayer can still undo the contribution without being subject to an excess contribution penalty by re-characterizing the contribution to a traditional IRA before he files taxes otherwise a 6% penalty
What is a Roth 401(k)?
- Only 401(k)s 403bs and governmental 457 plans may offer
- Contributions are included in gross income
- Subject to the maximum elective deferral amounts of $23,000 plus the $7500 catchup
- Rollovers only to another Roth account or Roth IRA
- Tax status of Rath 401(k) subject to a five year term after the first contribution
- No exception for first time home purchases
- Do not have to take RMD‘s that has been eliminated
- Employers are not obligated to offer
