Retirement Planning Flashcards
(34 cards)
A married couple, filing jointly, has modified AGI from earned income of $90,000 for the current year. Both are active participants in an employer-sponsored plan. They each make a $5,000 contribution to their respective IRAs. Their contributions are:
-Fully Deductible
-Partially Deductible
-Nondeductible
Fully Deductible
Their modified AGI is below the married filing jointly phase-out range and their contributions are fully deductible.
A married couple, filing jointly, has modified AGI from earned income of $130,000 for the current year. Both are active participants in an employer-sponsored plan. They each make a $5,000 contribution to their respective IRAs. Their contributions are:
-Fully Deductible
-Partially Deductible
-Nondeductible
Partially Deductible
Their modified AGI is within the phase-out range; therefore, their contributions would be partially deductible.
Your client Allison has a charitable intent, does not need the income from an upcoming IRA required minimum distribution (RMD), and is in the top marginal income tax rate. If she takes the RMD, she will lose nearly half to federal and state taxes. She does not need or want a payout for herself from any charitable contribution she chooses to make. Which of the following is an appropriate course of action for her?
-Qualified Charitable Distribution (QCD) directly to the charity.
-QCD to a Charitable Remainder Trust
-QCD to a Charitable Gift Annuity
Qualified Charitable Distribution (QCD) directly to the charity.
She has no desire for a payout from the QCD and she does not need the RMD income.
A husband and wife file a joint return for the current year. Their combined modified AGI is $200,000. All of their income is compensation income. The husband participates in an employer-sponsored plan; the wife does not. Both are in their 40’s. If each spouse made a the maximum allowed contribution for the current year to his/her Traditional IRA, what is the deductibility of each contribution?
-Both contributions are fully deductible
-The husband’s contribution is not deductible, but the wife’s contribution is fully deductible.
-Neither contribution is deductible.
The husband’s contribution is not deductible, but the wife’s contribution is fully deductible.
The couple’s married filing jointly AGI is too high to allow a deduction for the husband (participant) but not so high as to disallow a deduction for the wife (non-participant).
Deductible contributions may be made to which of the following? Select the most complete answer.
-A) Traditional Individual Retirement Account
-B) Roth IRA
-C) Traditional Individual Retirement Annuity
-D) Both A and B
-E) Both A and C
Both A and C
Bill establishes a Roth IRA in Year 1 with a $2,500 contribution and makes $2,500 contributions in each of the next two years, so that by the end of Year 3, Bill has $7,500 in principal in his account. Assuming Bill is age 39, he will have to pay taxes on a $3,000 withdrawal from his IRA.
-True. This would not be a qualified distribution because Bill is not 59½ years old.
-True. Unless Bill is using this money for the down payment on his first home, he will be taxed on the distribution.
-False. Bill does not have to be 59½, nor does he need to use the money for the first-time purchase of a home.
False. Bill does not have to be 59½, nor does he need to use the money for the first-time purchase of a home.
Contributions to Roth IRAs are taxed prior to the contribution. Therefore, distributions of principal are treated as a return of basis and not taxed.
A potential downside to the Roth IRA is that some individuals will not be able to make contributions due to the phase-out rules.
-True. The phase-out for AGI will exclude certain individuals from eligibility to make contributions.
-True. The phase-out rules eliminate only single taxpayers with an AGI above an indexed amount.
-False. The Roth IRA is not subject to the phase-out.
-False. While the phase-out rules may apply, they only limit the deductibility of contributions to a Roth IRA, not the ability to make contributions.
True. The phase-out for AGI will exclude certain individuals from eligibility to make contributions.
It is important to acknowledge that an individual converting a Traditional IRA into a Roth IRA may have a considerable tax bill to pay in the year of conversion.
-True
-False
True
Contributions to Roth IRAs are made with after-tax dollars. Therefore, the individual will recognize it as income and pay taxes on the amount of the conversion.
In the current year Maria, who is single, cannot contribute to a Roth IRA because her AGI is $325,000.
-True
-False
True
Her AGI is higher than the upper limit of the phase-out range.
Donald Hillary owns two Traditional IRAs and two Roth IRAs. Which of the following is permitted Donald within a 12-month period?
-Two Traditional IRA-to-Traditional IRA rollovers
-Two Roth IRA to Roth IRA rollovers
-One Roth IRA to Roth IRA rollover and one Traditional IRA to Traditional IRA rollover
-One Roth IRA to Roth IRA rollover and one Traditional IRA to Roth IRA rollover
One Roth IRA to Roth IRA rollover and one Traditional IRA to Roth IRA rollover
The Traditional IRA to Roth IRA rollover is taxable. Only one tax-free IRA-to-IRA rollover is permitted per taxpayer every 12 months.
Certain IRA rollovers are limited to one rollover per taxpayer per 12-month period. Which of the following, if any, is subject to this limit?
-IRA to 401(k) rollovers
-401(k) to IRA rollovers
-Traditional IRA to Roth IRA rollovers
-Direct transfers from one IRA to another IRA
-None of the above
None of the above
All of the above are either exceptions or exclusions.
Amelia is sole beneficiary of a decedent’s IRA. The decedent died during the current year. Which of these beneficiary types would give Amelia the best opportunity for continued tax-deferred growth?
-Entity
-Minor child of decedent
-Adult child of decedent
-Chronically ill or disabled
-Surviving spouse
Surviving spouse
A surviving spouse may rollover the decedent’s IRA into his or her IRA and take distributions over his or her lifetime OR choose to be treated as a beneficiary and take distributions over the decedent’s lifetime measured in the year of decedent’s death.
What is the difference between a designated beneficiary and a non-designated beneficiary?
-A designated beneficiary is named by the IRA owner while a non-designated beneficiary is not.
-Only a natural person can be a designated beneficiary.
-Only a non-designated beneficiary can take required minimum distributions over the beneficiary’s lifetime at the death of an IRA owner.
-None of the above
Only a natural person can be a designated beneficiary.
What is the difference between an eligible designated beneficiary and a non-eligible designated beneficiary?
-Non-eligible designated beneficiaries are invalid beneficiary designations and cannot take distributions from the decedent’s IRA.
-All eligible designated beneficiaries may roll the decedent’s IRA into their own IRA and assume ownership.
-All eligible designated beneficiaries are generally exempt from the 10-year rule.
-None of the above
All eligible designated beneficiaries are generally exempt from the 10-year rule.
Eligible designated beneficiaries are not subject to the 10-year rule.
An individual can borrow funds from his or her IRA.
-True
-False
False
IRA funds can be invested in antiques and a stamp collection.
-True
-False
False
How long can an original owner wait before beginning to receive distributions from a Traditional IRA? Assume the owner reached age 70½ after January 1, 2020.
-The calendar year upon attaining age 59½
-The calendar year upon attaining age 73
-April 1 following the calendar year in which the individual reaches age 73
-The calendar year upon attaining age 85
April 1 following the calendar year in which the individual reaches age 73
Michael, age 25, has total income of $3,000, including compensation from personal services of $2,500 and $500 in portfolio income. He contributes $3,000 to his IRA. Which of the following statements is true?
-He did not make an excess contribution to his IRA.
-His excess contribution is $500.
-His excess contribution is $1,000.
-He will need to withdraw the full $3,000 contribution from his IRA.
His excess contribution is $500.
Michael cannot exceed his earned income, which he has done by $500.
Sam is seeking your advice regarding whether he should convert his Traditional IRA to a Roth IRA. He expects his marginal income tax rate in retirement to be higher than his current marginal income tax rate. His modified AGI for the current year is $125,000. You recommend that he make this conversion so that distributions from the new Roth IRA will be received income tax-free at his retirement. Is this allowed by the IRS?
-Yes
-No
Yes
Roth IRA conversions can be made regardless of AGI level.
Susan is contemplating taking early retirement at age 55. Her retirement assets consist solely of a Traditional Individual Retirement Account with an approximate value of $500,000. Which of the following statements would constitute appropriate advice for Susan?
-She will never be subject to the 10% early distribution penalty because she has attained age 55.
-In order to avoid the 10% early distribution penalty, she will be able to take a series of equal periodic payments over her life expectancy.
-She should consider liquidating her Traditional Individual Retirement Account and use the proceeds to purchase an Individual Retirement Annuity.
In order to avoid the 10% early distribution penalty, she will be able to take a series of equal periodic payments over her life expectancy.
Distribution of a series of equal periodic payments may be started at any age and are exempt from the 10% penalty.
Robert, age 55, died yesterday. The sole beneficiary of Robert’s Traditional IRA is his wife Farrah. Farrah, age 50, wishes to delay distributions from Robert’s IRA as long as possible to continue the tax-deferred growth of the IRA. Which of the following advice most closely matches her needs?
-She should elect to be treated as the beneficiary of Robert’s IRA and spread IRA distributions over a 5-year period beginning immediately.
-She should elect to be treated as the beneficiary of Robert’s IRA and begin taking distributions in the year Robert would have reached age 73.
-She should rollover Robert’s IRA to her own IRA and begin taking distributions over her life expectancy beginning immediately.
-She should rollover Robert’s IRA to her own IRA and begin taking distributions over her life expectancy beginning as late as April 1 after the year in which she attains age 73.
She should rollover Robert’s IRA to her own IRA and begin taking distributions over her life expectancy beginning as late as April 1 after the year in which she attains age 73.
If Farrah makes a spousal rollover from Robert’s IRA to her IRA, minimum required distributions do not need to begin until April 1 of the year following her attainment of age 73. Distributions will be based upon her life expectancy at her age 73.
His advisor has told Brian that he must start taking distributions from his IRA next year because he will be reaching the required beginning date for distributions. Brian is the original owner of the IRA. Which type of IRA does Brian NOT have?
-Traditional IRA
-Roth IRA
Roth IRA
There is no required beginning date for distributions from a Roth IRA.
Wylie named his adult son Perry as the sole beneficiary of his Traditional IRA. Wylie died in the current year (before his required beginning date) and was not taking distributions at his death. Perry inherited his father’s Traditional IRA. What is the maximum length of time Perry has to distribute 100% of the inherited Traditional IRA?
-December 31 of the tenth year after the year of Wylie’s death.
-Perry’s remaining life expectancy
-Wylie’s life expectancy at death
-None of the above
December 31 of the tenth year after the year of Wylie’s death.
Perry is a designated beneficiary but not an eligible designated beneficiary. He is subject to the 10-year rule for inherited IRAs.
Ms. Georgina Lincoln deferred $10,000 into her 401(k) Plan in the current year. Her annual income is $100,000. She will pay Social Security and Medicare taxes on the $10,000 deferral, but she will exclude the $10,000 from her gross income in the current year.
-True
-False
True
