Unit 18 Flashcards
Retirement Plans
Qualified plan
An employer-sponsored plan, such as a pension, 401(k), or 403(b), where the contributions are made with pre-tax dollars and earnings in the account grow without any tax (tax-deferred) until the funds are withdrawn.
Nonqualified plan
An employer-sponsored plan, such as a deferred compensation plan, where there are no tax advantages other than that the payout is not received until sometime later when the individual should be in a lower tax bracket. Another advantage is that the employer can discriminate between employees.
What date was alimony (divorce money) decreed not compensation toward IRAs
December 31, 2018
What is Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) responsible for
Catch-up provisions
Can you make an IRA contribution over the limit in one year if you received an extension on taxes
No
How much tax are annual IRA contributions exceeding the maximum allowed are subject to
6%
Items deducted from Adjusted Gross Income (AGI) (4)
- Traditional IRA contribution
- Alimony paid as part of a pre-January 1, 2019, divorce decree;
- Self-employment tax
- Penalties paid on early withdrawal from a savings account
What is not included in AGI
Tax-exempt income from municipal securities
Ineligible IRA investments (5)
Collectibles, life insurance contracts, Tax-free municipal bonds, municipal bond funds, and municipal bond UITs
Who is not included in the prohibited persons category
Sibling
Who uses SEP IRAs
Small businesses
When withdrawals are not subject to 10% tax before 59 1/2
- Death
- Disability
- First-time purchase of a primary residence ($10,000 lifetime maximum)
- Qualified higher education expenses for immediate family members (including grandchildren, but not nieces or nephews);
- Certain medical expenses
- Up to $5,000 during the first year after a child is born; or
up to $5,000 during the first year after an eligible person is adopted
How much penalty is incurred if someone doesn’t meet minimum Internal Revenue Code (IRC) distribution requirements?
50% on amounts falling short of the requirement
Does the age 73 requirement apply to a Roth
No
When you can postpone distributions to using a qualified plan
April 1 of the calendar year following your retirement
Should you assume questions are about traditional IRAs unless stated otherwise
Yes
If someone takes possession of funds from a company plan and puts it into an IRA, when must they complete rollover
Within 60 calendar days of withdrawing
Benefit of Trustee to Trustee Transfers when rolling over to an IRA
No 20% withholding
Difference between rollover and transfer
Rollover just moves money from a 401k to an IRA within the same company vs transferring an IRA here to an IRA there
Two options for spousal beneficiary whose partner died
- Rollover amount of the inheritance into the spouse’s own IRA
- Continue to own the IRA as the beneficiary
Two options for nonspousal beneficiary
- Take cash now (subject to tax at the end of the period)
- Cash out the IRA by the tenth year after the account owner’s death
3 things employee must fall into to be eligible for a Keogh plan
Full time, tenured (one year or more), adult
What Keogh Plans are designed for
Self-employed individuals
What one must have in a Roth 401k plan
Two accounts, since the employer match is taxed
What funds are in use when contribution limit has to be aggregated
401(k) and 403(b)
What investment policy statement consists of
- The schedule for future needs of the plan
- How the plan measures investment performance
- Investment parameters to be followed by the portfolio managers
What plan is known as municipal fund security
Section 529 plans
Definition of prudent inveestor
A trustee who invests with reasonable care, skill, and caution
Advantages of 529 plan
No age or income limit
Very high contribution limits
Can change beneficiary easily
Requirements of qualified pension plans (4)
- They must not discriminate.
- They must have a vesting schedule.
- They must be in writing.
- Every year the employer must update the current status of all accounts.
When fund managers can write uncovered calls
NEVER!
When contribution limit has to be aggregated
If client is using a 403b and 401k
What Noncontributory means
Employee made no contributions
Maximum allowable loan amount from a 401k
The lesser of $50,000 or 50% of the participant’s vested account balance
Can qualified distributions from a 401(k) plan be rolled over into a life insurance policy
No
In the case of 529 plans and ESA Coverdells, what are contributions to the program is treated as when it comes to gift status
“Completed gifts”
What tax inherited IRA’s are subject to
Income tax
What type of tax qualified education expenses are always free of
Federal tax
What level maximum contribution levels are determined
State
Coverdell ESA Contribution Limit until 18th bday
$2000 per year per child
Similarities between 529 and Coverdell ESA (3)
- Can’t deduct contributions from taxes
- Tax free withdrawals
- Gift limits apply
Advantages of Coverdell ESA plan
Invest in anything you want
Can use for all qualified education routes
Disadvantages of Coverdell ESA plan
Lower contribution limit (2000)
Must use by age 30
At 18, money becomes kid’s to use on whatever they want
Disadvantage of 529 plan
Limits on what can be invested in (mostly mutual funds)
Who regulates 529 plan
Individual states
Who regulates Coverdell plan
Federal gov
