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Employee Benefit > Traditional and Roth IRAs > Flashcards

Traditional and Roth IRAs Flashcards

1
Q

Who must IRAs be established with?

A

an approved custodian or trustee

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2
Q

You can make your full contribution up to and including the date of ___ of the following year and it will still count as the past year’s contribution

A

4/15

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3
Q

2 types of traditional IRAs

A
  1. tax-deductible

2. non tax-deductible

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4
Q

Tax sheltered retirement plans

A

These are retirement savings vehicles that qualify forfavorable tax treatment

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5
Q

Two favorable tax treatments are available for tax-sheltered retirement plans

A
  1. Contributions into the plan can be deducted from taxable income in the year they are contributed
  2. Sheltering of taxes on the investment income (dividends, interest, capital gains) from the funds in the plan until the funds are withdrawn
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6
Q

Unless certain requirements are met, what three bad things will happen when money is withdrawn from tax-sheltered retirement accounts?

A
  1. Taxes are due to the government
    (The TOTAL amount of withdrawals are taxed as ordinary income at your marginal tax rate)
  2. A 10% penalty is assessed
  3. Investment growth is severely reduced
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7
Q

Maximum defined contribution benefit plan has ___ dollar limit to the amount of benefits that are paid

A

no

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8
Q

Contributions to personal IRAs are limited to what?

A

earned income

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9
Q

What is considered earned income?

A 
Wages and Salaries
Commissions
Self-employment income
Alimony payments
Parents or grandparents can supply the contributions if the child has earned income
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10
Q

Is unearned income disqualified?

A

yes

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11
Q

What is considered unearned income?

A

Dividends
Interest
Rental payments, etc.
Capital Gains

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12
Q

Who makes the decisions as to how to invest the funds?

A

the account owner

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13
Q

What does the benefit at retirement depend upon?

A

the value of your investments at retirement

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14
Q

Allowable IRA Investments

A 
CDs and savings accounts 
Mutual funds
Annuities 
Real estate
Individual securities
Legal tender, such as U.S. gold and silver coins, purchased after 1/1/87
Precious metals are now allowed
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15
Q

Not Allowed IRA Investments

A

Life Insurance
Collectables (art, stamps, gems, antiques, etc)
A participant’s own note

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16
Q

You must begin taking Minimum Required Withdrawals (MRDs) by ____ of the calendar year following the year in which you reach age ____ and by December 31st of each year thereafter

A

April 1st ; 70 1/2

17
Q

What happens if your MRDs do NOT completely deplete your funds during your life expectancy?

A

will face 50% penalty on the amount you should have withdrawn per year

18
Q

What taxes will you pay on the amount of your withdrawals

A

ordinary income taxes

19
Q

No 10% penalty on withdrawals if you are ____ years or older

A

59 1/2

20
Q

Any withdrawals before the age of 59 ½ are subject to a 10% penalty with what exceptions? (7)

A
  1. Due to death or disability of the participant
  2. Withdrawals are made in the form of substantially equal periodic payments over the life of the participant or joint lives of the participant and beneficiary
  3. Payment of qualified, unreimbursed medical expenses in excess of 7.5 % of AGI
  4. Used to purchase medical insurance of an unemployed individual
  5. Used to pay up to $10,000 lifetime limit of expenses incurred by first-time (must not have owned a home during the last two years) homebuyers
  6. Used to pay qualified, higher education expensesof the taxpayer, the taxpayer’s spouse, or any child or grandchild of the taxpayer or taxpayer’s spouse
  7. Used to pay back taxes because of an IRS levy
21
Q

What kind of contributions are made to a non-deductible IRA?

A

After- tax

22
Q

Who would non-deductible IRAs be appropriate for?

A

individuals who have maxed out their tax-deductible contributions to tax-sheltered and tax-exempt retirement plans

23
Q

In a non-deductible IRA, investment earning grow ____

A

tax-deferred

24
Q

Non-deductible IRAs can be a bookkeeping and income tax reporting nightmare

A

yes

25
Q

Upon any distribution, Rollover IRA distributed funds are subject to ___ IRS income tax withholding

A

20%

26
Q

You can avoid IRS income tax withholding by doing what?

A

a trustee-to-trustee transfer

27
Q

Trustee-to-Trustee IRA Rollover (3)

A
  1. You must complete a transfer form
  2. The funds are transferred directly from one trustee to another–no 20% IRS withholding
  3. There are no limits as to the number of transfers as long as you meet the one transfer per account per year
28
Q

In a Roth IRA, are contributions tax-deductible?

A

no

29
Q

Do earnings in a Roth IRA grow tax-free?

A

yes

30
Q

As long as you have earned income, you can continue making contributions to a Roth IRA past the age of _____

A

70 1/2

31
Q

You can take losses in a Roth IRA Account but you must…..

A

close ALL of your Roth IRAs at the same time

32
Q

In a Roth IRA. do you have to begin taking Minimum Required Withdrawals (MRDs) by April 1st of the calendar year following the year in which you reach age 70½ ?

A

No

33
Q

You can withdraw your ________ from a Roth IRA at any time tax-free and penalty-free

A

CONTRIBUTIONS

34
Q

In a Roth IRA, Per the IRS, withdrawals are first made from _____ and then ______

A

contributions; earnings

35
Q

Qualified Roth IRA Distribution

A

are distributions where the earnings are not taxed as ordinary income and there is not a 10% penalty

36
Q

Qualified distributions must be made from Roth IRAs that have a ___ year holding period

A

5

37
Q

Non Qualfied Roth IRA Distributions

A

distributions that do not meet the previous qualified distribution requirements

38
Q

The earnings portion of a non-qualified distribution is taxable as ordinary income (but penalty free) if the funds are used for what? (7)

A
  • Due to death or disability of the participant
  • Withdrawals are made in the form of substantially equal periodic payments over the life of the participant or joint lives of the participant and beneficiary
  • Payment of qualified, unreimbursed medical expenses in excess of 7.5 % of AGI
  • Used to purchase medical insurance of an unemployed individual
  • Used to pay up to $10,000 (lifetime limit) of expenses incurred by first-time (must not have owned a home during the last two years) homebuyers
  • Used to pay qualified higher education expensesof the taxpayer, the taxpayer’s spouse, or any child or grandchild of the taxpayer or taxpayer’s spouse
  • Used to pay back taxes because of an IRS levy

Employee Benefit (13 decks)

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