IRA, 401K

Question 1

Rollover of Lump sum distributions from 401K account when employees receive it when they terminate employment with that employer is tax free if the distbn is rolled over/transferred into another qualified retirement plan within 60 days, the employee can avoid paying INCOME TAX on the distribution as well as 10% penalty tax if they are under age 55.

(60 day requirement is not applicable for direct transfers by a plan admin from TRADITIONAL TO ROTH account)

Answer 1

RMDs - TPs are required to start taking RMDs by April 1 of the year after the later of
1. The year the employee reaches age 73 or
2. The year the employee terminates employment with the plan sponsor
3. The RMD Requirements for traditional 401K plans do not apply to ROTH 401K Plans
4. The penalty for failure to take RMDs is 25%
5. The penalty amount is reduced to 10% if the failure to take the RMD is corrected in a timely manner

Question 2

ROTH IRA

Answer 2

Distributions:
Principal is nontaxable
Earnings are taxable

Question 3

IRA Limit $7000 under 50 or earned income (whichever is lesser)

SPOUSE can take per Other spouse’s income basis as well to max out 7k if her/his earned income is lesser than 7k

Answer 3

Over 50 $1000 catch up contributon

Question 4

TP and SP participates in employer sponsored plans. IRA phase out limits =
Filing status
Single - $77k-87k
MFJ - $123k - $143k

Answer 4

If one spouse is an active participant in an employer plan but other is, the deduction for the spouse WHO IS NOT an ACTIVE PARTICIPANT is phased out based on the :

MFJ - $230k-$240k

Question 5

ROTH IRA Phase outs

Answer 5

Single = 146k-161k
MFJ = 230K-240K
MFS - $0-$10k

Question 6

Qualified distribution from a Roth IRA : is made at least 5 years after the first day of the year in which the TP made his or her 1st contribution to the ROTH IRA and meets one of these requirements:

Answer 6

1. TP is age 591/2 or older
2. TP is disabled
3. TP is a 1st time homebuyer (has not owned a home for 2 years) and uses the distbn to purchase a home (max $10,000)
4. Distbn is made to a beneficiary after the TP’s death

Question 7

An annuity like an IRA, is a LT Tax-Advantaged account. The earnings in Annuity contract accumulate on a tax-deferred basis

2 types of annuity contracts

Answer 7

1. Immediate and 2. Deferred

Question 8

Calculate ratio for taxable amount for non-deductible traditional IRA

Answer 8

Withdrawal / Total balance

Question 9

Immediate annuity - single payment and TP receives income payments for a fixed period of time, or a lifetime.

Immediate annuities
-do not have an accumulation phase
-begins payouts immediately (within 30 days or 1 year)

Answer 9

Deferred annuity, like an IRA receives a series of payments (deposits) over time in exchange for a promised future benefit of income payments.

1. Accumulation phase
2. Distribution or payout phase

Question 10

Traditional account - when current rate is greater than future marginal tax rate, future low tax rate

Answer 10

Roth account = when current marginal tax rate is less than the future marginal tax rate, future is high

Question 11

ROTH IRA does not require RMDs

Answer 11

The total amount transferred from a traditional retirement account to a Roth retirement account is taxed as ordinary income in the year of the conversion.

Choice “A” is incorrect. There is no limit to the number of times a taxpayer can do a Roth conversion.

Choice “B” is incorrect. A Roth conversion is not subject to the annual cap or AGI restrictions that apply to direct Roth contributions.

Choice “D” is incorrect. A direct transfer from a traditional to a Roth retirement account is not subject to the 10 percent premature distribution penalty tax.

Question 12

Levi’s charitable contributions deduction for the donation of his pickup truck is limited to $500.

The pickup truck is ordinary income property because it is a personal use asset that has depreciated in value. The donor’s deduction for ordinary income property is generally the lesser of the property’s adjusted basis or fair market value (FMV) at the time it was donated. However, for the donation of a qualified vehicle that is subsequently sold by the charitable organization, the donor’s deduction is further limited. If the charitable organization sells the vehicle for $500 or less, the deduction is limited to the lesser of $500 or the FMV on the date of the contribution (assuming the FMV is less than the adjusted basis of the vehicle). In this case, the church sold the truck for $450, and the $750 FMV on the date of the contribution is less than Levi’s $18,000 adjusted basis in the truck, so his deduction is limited to $500.

VEHICLE - Lesser of $500 or FMV (ORDINARY INCOME PROPERTY OR DEPRECIATING ASSET)