IRA Institute Review Flashcards
Which of the following occurs if an IRA owner engages in a prohibited transaction under IRC Sec. 4975?
a. the IRA owner pays a 15% penalty
b. The IRA owner is deemed to receive a distribution of the entire IRA on the first day of the year.
c. The IRA owner pays a 25% penalty
d. The IRA owner is deemed to receive a distribution of the prohibited amount from the IRA on the first day of the year.
b. The IRA owner is deemed to receive a distribution of the entire IRA on the first day of the year.
Which Internal Revenue Code section deals with Roth IRAs?
408A
What is the deadline to contribute to an IRA?
IRA owner’s tax filing deadline
Which of the following types of investments is not allowed in an IRA?
a. Publicly held stock
b. Tax-exempt bonds
c. Limited partnership of no relationship to IRA owner
d. Life insurance
d. Life insurance
Who may rely on a private letter ruling?
Only the individual to which the private letter ruling pertains
Traditional IRA contribution eligibility is dependent upon which of the following?
a. Modified adjusted gross income
b. Employment status
c. Active participation in a qualified retirement plan
d. Eligible compensation
Eligible compensation
When does the revocation period start on a new IRA?
Upon receipt of the disclosure statement
For purposes of making an IRA contribution, which of the following is considered eligible compensation?
a. Social Security income
b. Commissions
c. Child support
d. Pension plan payments
b. Commissions
Which of the following is written by Congress?
a. Internal Revenue Code
b. Treasury regulations
c. Revenue rulings
d. DOL advisory opinions
a. Internal Revenue Code
Which of the following is NOT a financial disclosure assumption when the investment growth can be predicted?
a. An annual $2,000 contribution is assumed for a regular contribution.
b. A $1,000 one-time contribution is assumed for a rollover deposit.
c. The IRA owner withdraws the balance at the end of the first five years and at age 60, 65, and 70.
d. The account’s projected value includes any withdrawal fees the financial organization could assess
a. An annual $2,000 contribution is assumed for a regular contribution.
Which of the following is NOT an IRS model Roth IRA document?
a. 5305
b. 5305-R
c. 5305-RA
d. 5305-RB
a. 5305
Which of the following individuals is NOT a disqualified person with respect to an IRA owner?
a. Parent
b. IRA custodian
c. Granddaughter
d. Nephew
d. Nephew
Clark participates in a 401(k) plan. His wife, Marsha, does not. Clark and Marsha file a joint tax return and have MAGI of $158,000. Which of the following statements is TRUE?
a. Both Clark and Marsha can make fully deductible Traditional IRA contributions.
b. Marsha cannot deduct her Traditional IRA contribution.
c. Clark is eligible to deduct his Traditional IRA contribution.
d. Marsha is eligible to deduct her Traditional IRA contribution.
d. Marsha is eligible to deduct her Traditional IRA contribution.
Marsha-spouse active-230k-240k phase out (fully deductible)
Clark-active-123k-143k phase out (not eligible to deduct any)
If an individual made a 2024 nondeductible Traditional IRA contribution, on which of the following IRS tax forms would he report the contribution?
Form 8606
Which of the following types of plans may NOT be rolled over to a Traditional IRA?
a. Section 125 cafeteria plan
b. 403(b) tax sheltered annuity
c. 401(k) plan
d. Governmental 457(b) plan
a. Section 125 cafeteria plan
On January 12, 2024, Janet took a $5,000 distribution from her Roth IRA at your organization. She rolled over the distribution to a new Roth IRA at X&Z Bank on February 10, 2024. When can these assets be distributed from X&Z Bank and rolled over to another Roth IRA?
January 12, 2025
Which IRS form does a financial organization use to report the annual amount of federal income tax withheld from all of its IRA distributions?
Form 945
What type of assets may be rolled over from a Roth IRA to a Roth 401(k) Plan?
a. Contributory basis
b. Conversions
c. Earnings
d. None of the above
d. None of the above
Cannot rollover to employer sponsored Roth.
A recipient of a military death gratuity payment may roll over the proceeds to which type of IRA?
Roth IRA
How much is an employer required to withhold on a direct rollover from a profit sharing plan to a Traditional IRA?
No withholding is required
Sarah rolled over her 403(b) balance to a Roth IRA on March 31, 2024. When may these assets be rolled over to another Roth IRA at a different financial organization?
At any time
T/F: Individuals must deplete the IRA over the substantially equal periodic payment period.
False
In what order are Roth IRA assets distributed?
Contributions, conversions, earnings
By what date must an IRA owner take her first required minimum distribution?
April 1 of the year following the year the individual attains age 73
T/F: First-time homebuyer expenses is a qualified distribution reason once the Roth IRA five-year period has been satisfied?
True
Andy was born July 15, 1953. What age will be used to determine his life expectancy factor when calculating his RMD for his first distribution year?
73
Which of the following distribution reasons is NOT an exception to the 10 percent early distribution penalty tax for an IRA?
a. Health insurance premiums following unemployment
b. Divorce
c. IRS levy
d. Qualified reservist distribution
b. Divorce
Which IRS form must an IRA owner file to pay, or request a waiver of, the excess accumulation penalty tax?
Form 5329
What is the deadline to establish separate accounting so each eligible designated beneficiary can use his own single life expectancy?
December 31 of the year following the year of the IRA owner’s death
Eric died in 2023 at age 73. His wife Jean, age 68, was his Roth IRA beneficiary. She chose to take life expectancy payments over her own single life expectancy. Jean died at age 72, after naming her son Jonathan as her successor beneficiary. What payment options does Jonathan have?
Ten-year rule
Todd died in 2024 at age 45. His wife Dawn is his sole beneficiary and wants to leave the IRA as an inherited IRA and take life expectancy payments. When must Dawn take her first life expectancy payment?
By December 31 of the year Todd would have been 72 (YES, STILL AGE 72)
T/F: A nonspouse beneficiary may take a distribution from an inherited 401(k) plan and roll it over to an inherited Traditional IRA within 60 days.
False
When removing an excess contribution plus the net income attributable (NIA), in what year is the NIA taxable?
In the year the contribution was made
If an IRA owner rolls over an ineligible amount from a qualified retirement plan to an IRA, what are the consequences?
It is considered a regular IRA contribution for the year in which it is rolled over.
After an IRA owner’s tax return due date (plus extensions), under what circumstances may the IRA owner redesignate a current-year Traditional IRA contribution to a subsequent year?
Only contributions exceeding the annual contribution limit or 100 percent of the IRA owner’s earned income may be redesignated
Roger, age 67, just discovered that he made a 2022 excess contribution to his Roth IRA that he opened with your organization in 2022, and wants to correct it today. How should the correction be handled, what code and form will be used?
Remove excess, do nothing with NIA, and enter code T on Form 1099-R
Dave, age 73, would like to convert $6,000 from his Traditional IRA to a new Roth IRA at the same financial organization. Dave has not yet satisfied his 2024 RMD. What must Dave do to complete the conversion?
Distribute his RMD from the Traditional IRA, establish a Roth IRA, and then complete a direct conversion from his Traditional IRA to his Roth IRA.
T/F: Gerald, age 46, would like to indirectly convert all of the assets in his Traditional IRA to his Roth IRA. When completing the conversion, he must pay tax on all pretax assets in the Traditional IRA, but a conversion is an exception to the 10 percent early distribution penalty tax.
True
What is the one Roth IRA distribution option that is available to EVERY type of beneficiary upon a Roth IRA owner’s death?
Lump sum
T/F; Transfers to a SIMPLE IRA are reported on IRS Form 5498?
False
How many tax form correction forms will be needed for a correction of a death distribution reported in the decedent’s name and Tin.
This Form 1099-R correction will require a two-part correction method
Tom, age 30, opened a Roth IRA in 2020 and is taking a distribution today to pay for first-time homebuyer expenses. What code should the financial organization enter on Form 1099-R to report this distribution?
Code J
T/F: In the year of an IRA owner’s death,
Form 5498 is issued for the IRA owner and for each beneficiary with a December 31 balance.
True
T/F: IRAs may or may not be protected from creditors according to applicable state law.
True
T/F: IRA assets may be moved between a husband’s and wife’s IRAs when correcting an excess in the wife’s IRA by transferring it to the husband’s IRA
False
What is the 2024 SEP maximum employer contribution limit?
25 percent of compensation, up to $69,000
What is the maximum employee eligibility requirement for a SEP plan?
Age 21 and work during three out of the immediately preceding five years
What type of contribution allocation must be used on IRS Form 5305-SEP?
Pro rata
Which of the following is NOT true regarding an IRS levy?
a. The IRS sends a Final Notice of Intent to Levy at least 30 days before the levy.
b. The taxpayer fails to pay the tax.
c. The IRS assesses the tax and sends the taxpayer a Notice of Demand for Payment.
d. The Notice of Levy always applies to IRAs.
d. The Notice of Levy always applies to IRAs.
This type of trust takes effect upon the grantor’s death.
Testamentary trust
Which of the following is an IRS-approved method for allocating an employer discretionary SEP plan contribution?
a. Pro rata
b. Flat dollar
c. Social Security integration
d. All of the above
d. All of the above
Financial organizations must report SEP contributions on IRS form 5498 for which year?
The year in which the contribution is made.
T/F: A benefit of SEP plan earnings is that they may be distributed tax- and penalty-free
False
When determining whether an employer is eligible to offer a SIMPLE IRA plan, what is meant by the “100-employee limitation”?
An employer may not employ more than 100 employees in the prior calendar year who earned $5,000 or more.
If an employer goes over the 100 employee limit in 2022, when is the last year the employer can maintain a SIMPLE IRA plan if the employee number does not decrease?
2024
Which of the following statements regarding SIMPLE IRA plans is FALSE?
a. SIMPLE IRA plans must be operated on a calendar year.
b. An employer has until its tax return due date, including extensions, to establish a SIMPLE IRA plan.
c. IRS Form 5304-SIMPLE is not for use with a designated financial institution.
d. An employer MUST make a contribution each year under a SIMPLE IRA plan.
An employer has until its tax return due date, including extensions, to establish a SIMPLE IRA plan. (establishment is Jan 1-Oct 1st)
Which of the following statements regarding SIMPLE IRA contributions is FALSE?
a. An employee may defer up to $16,000 for 2024.
b. Deferrals are subject to FICA and FUTA.
c. The SIMPLE IRA catch-up contribution limit is $3,500 for 2024.
d. An employee may not defer more than 25 percent of his compensation.
An employee may not defer more than 25 percent of his compensation. (lesser of 25% max or max $69k is for SEP)
If an employer chooses to make a matching contribution for its SIMPLE IRA plan, when can the employer match less than three percent?
An employer can match less than three percent (but not less than one percent) in any two of five years.
Stephanie, age 30, opened her SIMPLE IRA in 2023. On December 1, 2024, Stephanie takes a distribution from her SIMPLE IRA. What are the tax consequences of this distribution?
The distribution is taxable and subject to a 25 percent early distribution penalty tax
When can a SIMPLE IRA be rolled over to a Traditional IRA?
After two years from the original deposit date to the SIMPLE IRA.
On January 20, 2024, Sarah’s employer deposited a 2023 SIMPLE IRA matching contribution to Sarah’s SIMPLE IRA. How should the financial organization report this contribution on Form 5498?
As a SIMPLE contribution on a 2024 Form 5498
When is Form 1099-R due to the IRA owner?
January 31
When is Form 5498 due to the IRS?
May 31
Mark, age 51, begins taking substantially equal periodic payments this year, how long must the distribution continue for Mark to avoid the 10 percent early distribution penalty tax?
Until the Mark attains age 59½
Paul, age 38, and Linda, age 41, are married and file a joint federal tax return. Paul has no eligible compensation and does not participate in an employer-sponsored retirement plan. The couple has a MAGI of $246,000. Linda is an active participant in a profit sharing plan. What is the maximum amount that Paul can deduct as a Traditional IRA spousal contribution for 2024.
$0
Lori, age 55, indirectly converted her Traditional IRA to a Roth IRA. She elected to have federal income tax withheld. What is her deadline to replace the withholding in the IRA?
She has 60 days to make up the withholding.
If an investment generates UBTI for an IRA, where is the tax paid from?
The IRA
When receiving a nondeductible Traditional IRA contribution, what form must the financial organization submit to the IRS?
IRS Form 5498
What must be removed to correct an excess contribution after the tax-filing deadline?
The excess contribution
If an employer made a 2023 SIMPLE contribution on March 3, 2024, by what date must the financial organization report the contribution to the IRS on Form 5498?
May 31, 2025
A financial organization must file IRS Form 990-T to report this type of income.
UBTI of more than $1,000.00
The IRS distribution code used to report a qualified HSA funding distribution from each: Traditional or Roth IRA
Traditional IRA:
Code 1 (under age 59 1/2)
Code 7 (age 59 1/2 or older)
Roth IRA:
Code J, T, or Q
What types of accounts may receive rollovers of military death gratuity payments?
Roth IRAs and Coverdell ESAs
What are the methods of handling an excess contribution?
Before deadline:
1- Recharacterize+NIA or
2- Remove excess+NIA
After deadline (must be true excess), 6% penalty on amt for each year:
1- Carry Forward (redesignate)-must qualify for contribution
2- Remove Excess (No NIA)
What happens with an invalid rollover?
Becomes a current year contribution, and if ineligible, an excess contribution
Which type of Roth distribution is never subject to tax or penalty?
Qualified distribution
What distribution code should be used on Form 1099-R for the following situation:
Roth IRA, open for 6 years, IRA owner is age 55
Code J
What two types of investments are specifically prohibited by Traditional IRA plan Agreement Article III and Roth IRA plan agreement Article IV?
Life insurance and collectibles.
Which IRS Publications are written for the average taxpayer and generally are an adequate source for basic IRA information?
IRS Publications 590-A & 590-B
The movement of property from an employer-sponsored retirement plan to an IRA?
in-kind Rollover
What 3 factors determine Traditional IRA contribution deductibility?
a. Active participation in an employer-sponsored retirement plan
b. Employment status
c. Tax bracket
d. Tax filing status (joint/single)
e. Modified adjusted gross income
a- Active participation in an employer-sponsored retirement plan
d- tax filing status
e- modified adjusted gross income
