Unit 1.7: Retirement Accounts

Question 1

Individual Retirement Plans

Answer 1

Traditional Ira
Roth IRA

Question 2

Traditional IRA

Answer 2

Contributions: 100% earned income up to allowable maximum

-spousal option for non-working spouse - up to allowable maximum for each account

-contribution may or may not be deductible

-earnings grow tax-deferred

-premature withdrawal - 10% penalty before age 59 1/2

-Required Minimum Distribution (RMD) - after you reach age 73 (50% penalty after age 73)

Question 3

Traditional IRA: is my contribution deductible??

Answer 3

1. Are you “covered” by a retirement plan at work? -even if they aren’t participating, if it is available.

No, not covered by retirement plan –> ALWAYS DEDUCT

Yes, covered by retirement plan –> income limitations apply

Question 4

2023 IRA Contribution Limits

< age 50
age 50 +

Answer 4

$6,500

$7,500 (1,000 catch up)
*combined limit for Traditional + Roth

Question 5

Combined limit for Traditional + Roth

Answer 5

client can put 2,000 for traditional ira
client can contribute 4,500 for Roth IRA

Question 6

How many months do you have to make your contribution

Answer 6

15 1/2 months
January 2022 - April 2023

There is an overlap

Question 7

Traditional IRAs: \

-Transfers (directly from one qualified plan to another)

-Rollover

Answer 7

Investor takes possesstion of assets
60 days - one per 12 month period

Question 8

Traditional IRA: Rollover

Answer 8

Mandatory 20% tax withholding

60 days to rollover to the ENTIRE AMOUNT (means you have find that 20% that you withhold)

Question 9

Traditional IRA: Trustee to Trustee Transfer (Direct Transfer)

Answer 9

Unlimited amount of times a year
way better than a rollover

Question 10

Investment Restrictions in IRAs

Answer 10

-no margin
-no short sales
-options: *ONLY COVERED CALLS
-no tangibles (exeptions: us minted gold/silver
-**NO MUNI BONDS:

Question 11

Test question: why can you not have municipal bonds in an IRA

Answer 11

it is inappropriate to put a tax-free investment into a tax-sheltered IRA acct. always makes more sense to use higher coupon taxable corporate bond that the IRA would then shelter from taxation on each years growth

Question 12

IRS Rule 72-t

Question 13

Roth IRA

Answer 13

-after-tax dollars contributions
earnings limitation phase out

tax-free withdrawal (if 2 conditions are met)
-after funds in acc for at least 5 years AND
-591/2

NO RMD

Question 14

How does a direct rollover differ from a transfer?

Answer 14

Direct rollover involves two diff types of plans
(ex: moving funds from a 401k plan to an IRA)

Whereas a transfer would be one plan
(ex: IRA at one firm transferred to IRA at a different firm)

Question 15

How often can an IRA be rolled over to another IRA?

Answer 15

Once every 12 months

Question 16

What is the annual contribution limit of a Coverdell ESA (Educational Savings Accounts)

Answer 16

2,000

Question 17

Coverdell ESA

Answer 17

Contributions can be made by parent or other adult ; total for one child is $2,000

Contributions are NOT tax deductible, but all earnings are TAX-DEFERRED

Distributions are tax-free IF TAKEN BY AGE 30 & USED FOR ELIGIBLE EDUCATION EXPENSES

if accumulated value in the acct is not used by age 30, the funds must distributed and subject to INCOME tax @ 10% penalty on earnings ORRRRRR Rolled over into a different Coverdell ESA for another family member

Question 18

Exeption on age for Coverdell ESA

Answer 18

Special Needs Bene - this individual needs additional time to complete his educatoin.