IRA (Based) and Rollovers

Question 1

Methods of Rollover

Answer 1

1. “Traditional”
2. Direct Transfer

Question 2

Number of traditional rollovers allowed per year

Answer 2

1

Question 3

Number of direct transfers allowed per year

Answer 3

unlimited

Question 4

Mechanics of a traditional rollover

Answer 4

1. Vested balance is transferred from the plan administrator to the participant
2. Within 60 days, the participant needs to deposit the funds into an IRA or another plan
3. Mandatory 20% federal income tax withholding that must be replaced. If it is not, it is considered distributed and subject to income tax and possible 10% penalty.

Question 5

Mechanics of a direct transfer rollover

Answer 5

1. Plan trustee transfers rollover directly to an IRA or other plan
2. Participant does not take possession of the funds
3. No mandatory tax witholding applies

Question 6

Roth IRAs can be rolled to

Answer 6

Roth IRAs only, 1 per 12 month period

Question 7

A traditional IRA can only roll over to these accounts 1 time per 12 month period

Answer 7

1. Traditional IRA
2. Simple IRA
3. SEP IRA

Question 8

Most traditional plans can be rolled to a Roth IRA IF

Answer 8

it is included in income

Question 9

Most 457b’s can be the target of a transfer if

Answer 9

There are separate accounts for the assets

Question 10

In order to roll to or from a Simple IRA, the norm is a mandatory waiting period of

Answer 10

2 years

Question 11

The accounts that you can roll a designated Roth Account TO

Answer 11

1. Roth IRAs
2. Another Roth account. Any nontaxable amounts distributed muse be rolled over by direct trustee-to-trustee transfer.

Question 12

The accounts are you allowed to roll to a designated Roth Account

Answer 12

Must be an in-plan rollover included in income:
1. 457b
2. Pre-Tax Qualified Plans
3. 403b

Nontaxable amounts distributed must be rolled over by direct trustee-to-trustee transfer
4. Other Designated Roth Accounts

Question 13

Rules for inherited IRAs: Spouse beneficiary

Answer 13

Choice:
1. Treated as the owner - can defer RMDs until age 73
2. Treated as a beneficiary (drain in 10 years)

Question 14

Rules for inherited IRAs: Non-spouse beneficiary

Answer 14

10-year rule

Note: if the account was in RMD status at the time of death, the beneficiary must make annual RMDs in years 1-9 and have the account drained by the end of year 10

Question 15

Rules for inherited IRAs: Eligible designated beneficiary

Answer 15

1. Spouse
2. Chronically ill beneficiary
3. Disabled beneficiary
4. Minor child (under 21)
5. Individual not more than 10 years younger than the owner

Question 16

Roth IRA RMDs

Answer 16

1. Non during life
2. Non-spouses subject to RMDs
3. Spouses can become owner and forego RMDs

Question 17

Who does that 5 year rule apply to?

Answer 17

1. The Estate
2. Charities
3. Trust not Qualifying as a Designated Beneficiary

Question 18

Who does the 10 Year rule apply to?

Answer 18

1. Non-Spouse Beneficiaries
2. See-Thru Trusts
3. Successor Beneficiaries
4. Minors upon attaining age of maturity (21)

Question 19

For eligible designated beneficiaries, what are the rules for distributions?

Answer 19

Can be taken over life

Exception: minors

Question 20

If no beneficiaries are designated, who becomes the beneficiary?

Answer 20

The estate

Question 21

Distributions from a SIMPLE IRA are subject to a penalty of

Answer 21

25% within the first 2 years

Question 22

SIMPLE IRAs have many exceptions. One area that does not have an exception similar to Qualified Plans is

Answer 22

Separation from Service age 55+

Question 23

Some areas where QP do not offer exceptions that IRAs do

Answer 23

1. Education expenses
2. Health insurance premiums paid while unemployed
3. 1st time homebuyers up to $10k

Question 24

Section 72t

Answer 24

a series of substantially equal payments

Question 25

Roth IRA Qualified Distribution Requirements

Answer 25

1. 5 years after first taxable year of contribution
2. Distribution is in relation to:
   -owner’s death
   -owner’s disability
   -owner 1st home purchase (max $10,000)
   -on or after age 59.5

Question 26

Identify the order for which non-qualified Roth IRA distributions are made

Answer 26

1. Regular Roth Contributions
2. Roth Conversions
3. Account Earnings

Question 27

Tax treatment of Roth Contributions

Answer 27

no income tax or penalty EVER

Question 28

Tax Treatment of Roth Conversions

Answer 28

Distribution within 5 years of the conversion may be subject to a 10% penalty

Question 29

Tax treatment of Roth Earnings

Answer 29

Below age 59.5, 10% penalty

Question 30

SEP

Answer 30

Simplified Employee Pension

Question 31

Key advantage of a SEP

Answer 31

it is easy to set up and maintain

Question 32

key advantage of a SIMPLE IRA

Answer 32

it is a salary reduction plan with little paperwork

Question 33

who is eligible to set up a SEP?

Answer 33

any ER with 1+ EE

Question 34

who is eligible to set up a SIMPLE IRA?

Answer 34

any ER with 100 or fewer EEs that does not currently maintain another retirement plan

Question 35

what is the ER’s role in a SEP?

Answer 35

-no annual filing
-plan can be established and funded up to the due date of the ER’s tax return (including extensions)

Question 36

what is the ER’s role in a SIMPLE IRA?

Answer 36

-no annual filing
-bank or financial institution handles most of the paperwork

Question 37

Contributions to a SEP

Answer 37

-ER contributions
-up to 25% of covered comp, no more than $69,000

Question 38

Contributions to a SIMPLE IRA

Answer 38

-EE salary reduction contributions and ER contributions
-EE: $16,000. Catch up of $3,500 for 50+
-ER: Match contributions 100% for first 3% of comp; or contribute 2% of each eligible EE’s comp

Question 39

Options for a SEP

Answer 39

Not required every year

Question 40

Options for a SIMPLE IRA

Answer 40

ER must make matching contributions or 2% of comp

Question 41

Minimum EE coverage for a SEP

Answer 41

-21+
-employed 3 of the last 5 years
-comp of $750+

Question 42

Minimum EE coverage for a SIMPLE IRA

Answer 42

-$5,000 in comp in any prior 2 years
-reasonably expected to earn $5,000 this year

Question 43

Withdrawals for SEP

Answer 43

anytime (subject to tax and early withdrawal tax)

Question 44

Loans for SEP

Answer 44

not allowed

Question 45

Vesting for SEP

Answer 45

immediately 100% vested

Question 46

Withdrawals for a SIMPLE IRA

Answer 46

anytime
-subject to tax
-10% early withdrawal
-25% within the first 2 years of enrollment

Question 47

Loans for SIMPLE IRA

Answer 47

not allowed

Question 48

Vesting for SIMPLE IRA

Answer 48

100% vested immediately