Module 5: Traditional and Roth IRA's

Question 1

What is included in IRA income eligibility?

Answer 1

• wages, salaries, commissions, tips, professional fees, bonuses, and other amount for personal service, plus any taxable alimony and maintenance payments received under a decree of divorce prior to 2019

Question 2

What is not included for income for IRA eligibility?

Answer 2

rental income, investment income, pension, annuity or deferred compensation income; housing costs that are excluded from income or feign earned income

Question 3

Who can contribute to a traditional IRA?

Answer 3

can receive contributions regardless of age as long as they have earned income.

Question 4

What is considered active participation for Traditional IRA deductibility?

Answer 4

• defined contribution plans
• SIMPLE
  SEP, Section 403b

Question 5

Phaseout ranges for deductibility of contributions when both are active participants

Answer 5

Single 66-76k
MFJ 105-125
MFS - 0-10k

Question 6

Phaseout ranges for deductibility of contributions when one is active

Answer 6

The active participant has the same phaseout rand (105-125) but the nonactive spouse has a new phaseout range (198-208)

Question 7

Who is considered a disqualified person for a prohibited transaction on an IRA?

Answer 7

spouse, ancestor, lineal descendant, and spouse of a lineal descendent

Question 8

What are the prohibited transactions?

Answer 8

• borrowing money from the IRA
• Selling property to the IRA
• receiving unreasonable compensation for managing the IRA
• Using the IRA as security for a loan
• Buying property for personal use with IRA funds

Question 9

What happens if there is a prohibited transaction?

Answer 9

The account will be treated as a withdrawal of the IRA as of the first day of the year. The indidvidual or beneficiary must include the FMV of all of the IRA assets in gross income for that year. Plus a 10% penalty on premature distributions.

Question 10

Using loans against IRA’s vs. Annuity IRAs.

Answer 10

With an annuity IRA, the entire contract is considered withdrawn.

With a regular IRA, only the amount that was collateralized is considered a distribution.

Question 11

What are investments that cannot be in a TIRA?

Answer 11

Collectibles, minus certain American eagle gold coins

• life insurance policies
• Notes or obligations
• S corp stock

Question 12

What makes someone an active participant?

Answer 12

• They contribute
• any defined benefit plan
• if money went into the plan AT ALL for a defined contribution plan

Question 13

Rollover IRA’s and Creditors

Answer 13

All amounts rolled into a rollover IRA are protected from the participants creditors while within the confines of the rollover IRA.

Question 14

Nonspouse Inherited IRA Distributions Rules

Answer 14

• must still generally begin distributions from the inherited IRA in the year FOLLOWING the death of the owner

Question 15

Surviving Spouse Inherited IRA Distribution Rules

Answer 15

• can move inherited money into a retirement account in her own name, and may defer until her 72 age
• can move money into an inherited account, and may defer until the spouse were to turn 72

Question 16

Stretch IRA

Answer 16

Stretches the period of tax-deferred earnings within an IRA beyond the lifetime of the owner who originally established it. Allows the owner’s beneficiaries to name their own beneficiary at the owner’s death.

Question 17

10% Penalty Exceptions for IRA’s

Answer 17

• 59.5
• Total and Permanent Disability
• Death
• Unreimbursed medical expenses > 10% of AGI
• Paying for qualified higher education costs for the taxpayer, spouse, child, or grandchild
• acquisition costs of a first home for a the participant, spouse, child, or grandchild ukp to 10k lifetime max
• pay health insurance premiums if the owner is unemployed
• As part of a substantially equal periodic payment of the life of the owner, or the owner and a designated benficiary

Question 18

Three methods to use for the equal period payment

Answer 18

• life expectancy method
• amortization method
• annuity method

Question 19

Life Expectancy Method

Answer 19

distributions are made over remaining life expectancy

Question 20

Amortization MEthod

Answer 20

the participants account balance marotizes over a period equal to the life expectancy of the participant with a reasonable rate of interest

Question 21

Annuity Method

Answer 21

The participants account can be divided by an annuity factor to determine a payment with a reasonable interest rate and reasonable mortality table

Question 22

Roth IRA contributions Phase-Out Range

Answer 22

Single: 125-140
MJF: 198-208
MFS: 0-10

Question 23

Which money is counted as the first money withdrawn from a Roth IRA?

Answer 23

It is always and without exception the contributions, and because contribution money cannot be income taxed when withdrawn, it cannot be subject to the 10% penalty for early withdrawals.

Question 24

What is the second money withdrawn for Roth IRA?

Answer 24

Conversions, starting with the oldest conversion. The withdrawal of conversion money is never subject to income tax, so it is likely not penalized However to protect against sham conversions, a withdrawal of converted money is subject to the 10% early withdrawal for 5 years.

Question 25

What is the third category of money withdrawn from a Roth IRA?

Answer 25

Earnings, and it’s important to see if it’s considered a qualified distribution.

Question 26

What is a qualified Roth Contribution?

Answer 26

When it meets both of the requirements:

• Holding period test
• Reason for withdrawal test

Question 27

Reason for Withdrawal Test (for a qualified distribution)

Answer 27

• 59.5
• owner dies
• disability
• payment is made to buy, build, or rebuild a first-time home for the owner, spouse, child, parent, direct ancestor, or grandchild (with a 10k lifetime cap)

Question 28

10% Roth Penalty Test

Answer 28

• Death
• Age 59.5 Test
• Disability
• First Time Home Buyer

Question 29

myRA Retirement Savings Account Features

Answer 29

• Payroll deduction
• Same contribution limits as Roth
• Required to roll to Roth after 15k or 30 years