Part 2: Chapter 11 - Individual Retirement Accounts Flashcards
(46 cards)
What is an IRA used by and for?
Is it an investment?
Used by employed peopled to save tax-free or tax deferred for retirement.
No, it is simply a “container” for stock, bonds, and mutual funds, etc.
What can an IRA be used to invest in?
What can it NOT be used to invest in?
What is NOT advisable to invest in? Why?
Stocks
Bonds
Mutual Funds
Government issued precious metals
Real Estate
Collectibles
Life insurance
Muni bonds and Muni bond funds
Because IRA earnings are ALREADY tax-deferred / free.
When an IRA owner of IRA dies, how are the following managed for each of the below entities:
1) Who becomes the owner of the FUNDS?
2) How are distributions TAXED?
- Spouse
- Non-spouse
- Trust
Spouse
- Funds go to the spouse and they can treat it as their own.
- Distributions taxed as ordinary income.
Non-Spouse
- Can’t be the owner and funds must be withdrawn.
- Distribution taxed as ordinary income
Trust
- Funds must be withdrawn over time based on the oldest beneficiary’s age.
- Distribution taxed as ordinary income
What abolished the Stretch IRA?
What is now allowed?
Secure Act of 2019
Funds must be withdrawn within 10 years.
What are the two primary advantages of an IRA?
Tax deductions
Tax deferral on earnings
IRAs are designed for who?
People with earned income.
What’s a spousal IRA?
Whose name is this IRA opened in?
Can they be opened as a Traditional or ROTH IRA, or both?
Can funds be transferred from the IRA of one spouse to another?
For individuals with a non-working spouse.
The non-working spouse
Traditional IRA
No
What are the AGI limitations (single and married) for Traditional and ROTH IRAs?
What are the IRA contribution limits (standard and catch-up)?
To whom does the catch-up provision apply?
Is there an age limit on contributing to an IRA?
Traditional
- $83,000
- $136,000
ROTH
- $153,000
- $228,000
$6,500
$7,500
Individuals 50 years or older.
No, not as long as the person is earning income.
Contributions to an IRA are limited to what?
What happens to contributions above these limits?
100% of income up to specified limits based on AGI.
They’re subject to a 6% excise tax if NOT removed from the account.
What types of income are income can NOT be contributed to an IRA?
Pension
Alimony
Annuities
Deferred Comp
How are tax deductions to an IRA handled for individuals ACTIVE / NOT ACTIVE in a work retirement plan?
What individuals are considered ACTIVE for the following:
- Defined Benefit
- Defined Contribution
ACTIVE: deductions are allowed up the limits based on AGI
NOT ACTIVE: 100% of deductions are allowed
Defined Benefit: if a person is eligible.
Defined Contribution: if a person is contributing.
Until when are taxes on IRA earnings deferred?
Withdrawal
When are distributions from an IRA:
- Allowed to begin
- Mandatory
What does the Mandatory withdrawal age NOT apply to?
What is the penalty and howe is it applied for funds not withdrawn?
Allowed: 59 1/2
Mandatory: by April 1st of the calendar year of a person turning 73
ROTH
25% of the distributions NOT taken
What are some exemptions that allow for penalty-free withdrawals from an IRA before age 59 1/2?
Death
Terminal Illness
Higher Education
Medical Expenses
Child adoption
1st Time Homebuyer
How long does a person have to rollover funds from a retirement plan tax-free?
How often can they do this?
60-days
Every 12-months
What are THREE ways a ROTH differs from a Traditional IRA?
Can’t deduct contributions
Contribution dollars can be withdrawn at NAY time with NO penalty
Contributions AND earnings are withdrawn tax-free at retirement.
Are there age limitations on individuals making:
- Contributions to an IRA?
- Withdrawals from an IRA?
What about RMDs on a ROTH IRA when the owner dies?
Contributions: not if they have earned income.
Withdrawals:
- Traditional - by April 1 after age 73
- ROTH - no requirements
Beneficiary must take RMDs
What stipulations provide for tax-free withdrawals from a ROTH IRA?
1) 5-year holding period
AND
2) One of the following:
- Owner is 59 1/2 years old
- Death or Disability of owner
- First time homebuyer
Are these rollovers allowed:
- ROTH to ROTH
- Traditional to ROTH
ROTH to ROTH: allowed
Traditional to ROTH: allowed with taxes
What does a SEP stand for?
How are these managed for a SEP:
- Taxes for employer contributions
- Contribution amounts
- Employee vesting
What THREE items make employees eligible?
Simplified Employee Pension
- Taxes for employer contributions are deductible
- Contribution amounts can vary
- 100%
- 21 years old +
- Employed 3 years of the past 5
- $600+ in wages in current tax year
What does a SIMPLE plan stand for?
What is a major difference between a SEP and SIMPLE plan?
What are the TWO types of SIMPLE employer contributions?
What makes an employee eligible for a SIMPLE?
Savings Incentive Match Plan for Employees
Employers must have less than 100 employees for a SIMPLE.
- Matching up to 3%
- Non-elective up to 2%
At least $5,000 in income the past 2 years and expected to make $5,000 in the upcoming year.
What does ERISA stand for?
What does ERISA do?
What are examples of Qualified plans?
What is NOT considered a Qualified plan?
Are contributions to a Qualified Plan subject to social security, Medicare, and unemployment taxes?
Employee Retirement Income Savings Act
Establish guidelines and federal standards for Qualified retirement savings plans.
401k
Profit Sharing
IRA
Yes
Were IRAs created by ERISA?
What are the basic rules and guidelines outlined by ERISA?
Yes
Disclosures
Standards
Accountability (of fiduciaries)
Remedies
Guarantees
What’s a test to determine if an investment is appropriate for qualified plan?
Can covered calls and options be included in a qualified plan?
- When is this allowed / not allowed?
The amount of risk involved.
Yes.
- If the plan’s guidelines allow it.
