TAX- Retirement Plans Flashcards
What is a qualified retirement plan?
Income for contributions of salary to qualified pension plans are deferred until distributions are made from the pension
Earnings in the plan are not taxed until deducted
What is considered an early withdrawal?
Before of 59 1/2 year of age.
Trigger a penalty of 10%.
What is the most common type of retirement account?
Traditional IRAs
What is the maximum amount that can be contributed to a traditional IRA?
Lower of:
1) 2019: $6,000
2) Compensation for that year
Individuals over the age of 50 can contribution an extra 1000
For married couples, both spouses can contribute up to 12,000
In the situation that a married couple has one individual that works and the other does not work, what is the maximum amount they could contribute to a traditional IRA?
They can contribute up to the annual ceiling amount provided that at least one of them has earned enough compensation during the current year (12,000 for 2019)
How much can be deducted for a traditional IRA?
if the taxpayer is NOT a participant in a qualified pension plan, the IRA contribution can be deducted for AGI.
If they are an active participant in a qualified pension plan, they may not be able to deduct. It depends on the modified AGI.
For a married tax payer, if one person is a participant and the other is not a participant. Can you deduct?
The spouse who is not a participant, they can take the deduction.
The other spouse may not be able to deduct.
Do traditional IRAs grow tax free?
Yes, they grow tax free.
What is the difference between a traditional and Roth IRA?
Roth- they are never deductible.
The question for a Roth IRA is, are you even eligible to have a Roth IRA?
If you qualify for a Roth IRA, which is better?
the ROTH is always better.
The ROTH comes out tax free!! You don’t have to withdrawal at a certain age.
As long has you have had the IRA for five years
Can traditional IRAs be converted to Roth IRA? The same rules apply for converting 401K?
Yes, but the taxpayer must recognize a gain at the time of the conversion to the extent that the conversion exceeds the tax basis of the IRA.
If you’re close to retirement, it’s not worth it. 7-10 years away from retirement, then it probably is worth the money.
How do you get basis in a retirement plan?
Make nondeductible contributions to the plan
What are Keogh Plans?
Keogh plans are for self-employed tax payers.
Contributions are limited to lower of:
- Annual limit 56,000 2019
- 25% of earned income
