Roth Distributions & Recharacterizations Flashcards
What are the requirements for a Roth IRA distribution to be qualified?
a. The Roth IRA owner must have met the five-year period with the Roth IRA from which the distribution is occurring and the distribution must be for one of the qualified reasons.
b. The Roth IRA owner must have met the five-year period with the Roth IRA from which the distribution isoccurring or the distribution must be for one of the qualified reasons.
c. The Roth IRA owner must have met the five-year period or the distribution must be for one of the qualifiedreasons.
d. The Roth IRA owner must have met the five-year period and the distribution must be for one of the qualified reasons.
d. The Roth IRA owner must have met the five-year period and the distribution must be for one of the qualified reasons.
What are the tax advantages of a qualified distribution?
a. If both the five-year period and the qualified reason requirements are met, the earnings portion of thedistribution will be tax-free; penalty-free only if the Roth IRA owner is age 59½ or older.
b. If both the five-year period and the qualified reason requirements are met, the earnings portion ofthe distribution will be tax-and penalty-free.
c. If either the five-year period or the qualified reason requirement is met, the earnings portion of the distributionwill be tax-and penalty-free.
d. If either the five-year period or the qualified reason requirement is met, the earnings portion of the distribution will be tax-free.
b. If both the five-year period and the qualified reason requirements are met, the earnings portion of the distribution will be tax-and penalty-free.
What is a nonqualified Roth IRA distribution?
a. Either the five-year period, one of the qualified reasons, or both, have not been met.
b. The Roth IRA owner has met the five-year period and the distribution occurred after the Roth IRA owner reachedage 59½.
c. The Roth IRA owner has met the five-year period and the distribution occurred after the Roth IRA owner became disabled.
d. The Roth IRA owner has met the five-year period and the distribution occurred after the Roth IRA owner passed away.
a. Either the five-year period, one of the qualified reasons, or both, have not been met.
Based on Roth IRA ordering rules, which type of assets are removed first?
a. Earnings
b. Conversion and retirement plan rollover contributions
c. Regular contributions
Regular contributions
Based on Roth IRA ordering rules, which type of assets are removed last?
a. Earnings
b. Conversion and retirement plan rollover contributions
c. Regular contributions
Earnings
What are the tax and penalty consequences for distributing regular contributions from a Roth IRA?
a. Regular contributions are distributed tax-free at any time, for any reason, and penalty-free if an exception applies.
b. Regular contributions are distributed tax-free at any time, for any reason, and penalty-free if the Roth IRA owner is age 59½ or older.
c. Regular contributions are distributed tax-and penalty-free at any time, for any reason.
d. Regular contributions are subject to income tax but are penalty-free if an exception applies.
c. Regular contributions are distributed tax-and penalty-free at any time, for any reason.
What are the tax and penalty consequences for distributing conversion and retirement plan rollover contributions from a Roth IRA?
a. Conversion and plan rollover contributions are distributed tax-free and penalty-free at any time, for any reason.
b. Conversion and retirement plan rollover contributions are distributed tax-free at any time, but are subject to the 10% early distribution penalty tax if withdrawn within five years of the conversion or retirement plan rollover, unless an exception applies.
c. Distributions of conversion and retirement plan rollover contributions are subject to income tax, but are penalty-free if an exception applies.
d. Conversion and retirement plan rollover contributions are distributed tax-free at any time, but are subject to the 10% early distribution penalty tax at any time, unless an exception applies.
b. Conversion and retirement plan rollover contributions are distributed tax-free at any time, but are subject to the 10% early distribution penalty tax if withdrawn within five years OF THE CONVERSION OR retirement plan ROLLOVER, unless an exception applies.
What are the tax and penalty consequences for distributing earnings from a Roth IRA?
a. Earnings are distributed tax-and penalty-free if the Roth IRA owner has a qualified distribution. Earnings are subject to income tax and the 10% early distribution penalty tax if the IRA owner has a nonqualified distribution, unless a penalty tax exception applies.
b. Earnings are distributed tax-and penalty-free at any time, for any reason.
c. Earnings are subject to income tax if the Roth IRA owner has a nonqualified distribution and are always penalty-free.
d. Earnings are distributed tax-free at any time, but are subject to the 10% early distribution penalty tax if the earnings are withdrawn within five years of the Roth IRA’s establishment, unless an exception applies.
Earnings are distributed tax-and penalty-free if the Roth IRA owner has a qualified distribution.Earnings are subject to income tax and the 10% early distribution penalty tax if the IRA owner has a nonqualified distribution, unless a penalty tax exception applies.
Chris King’s Roth IRA balance is as follows.
$2,000 regular contribution for 2022
$2,000 regular contribution for 2023
$10,000 taxable conversion in 2023
$1,600 Roth IRA earnings
On July 20, 2024, Chris, age 75, took a complete distribution from his Roth IRA to pay for a vacation. What are the tax consequences of his distribution?
-2022 and 2023 regular contributions are distributed tax-and penalty-free
- 2023 conversion contribution is distributed tax-and penalty-free (OVER AGE 59 1/2,EVEN THOUGH 5 YEAR WAITING PERIOD HASN’T BEEN MET)
- earnings are subject to income tax but ARE penalty-free. (OVER AGE 59 1/2, NO EARLY WITHDRAWAL PENALTY)
Sandra Ray’s Roth IRA balance is as follows.
$2,000 regular contribution for 2018
$15,000 taxable conversion in 2019
$10,000 taxable conversion in 2020
$6,000 Roth IRA earnings
On March 31, 2024, Sandra, age 37, took a complete distribution from her Roth IRA to purchase a car. What are the income tax and penalty tax implications of her distribution?
-2018 regular contribution is distributed tax-and penalty-free
- 2019 conversion contribution is distributed tax-and penalty-free (5 YEARS SINCE CONVERSION, EVEN THOUGH NON QUALIFIED)
- 2020 conversion contribution is distributed tax-free but is subject to the early distribution penalty TAX (5 YEARS SINCE CONVERSION HAS NOT BEEN MET)
- earnings are subject to income tax and the early distribution penalty tax (NON QUALIFIED, NO EXCEPTION)
Vanessa Graves’ Roth IRA balance is as follows.
$2,000 regular contribution for 2021
$2,000 regular contribution for 2022
$2,000 regular contribution for 2023
$10,000 taxable conversion in 2023
$2,000 Roth IRA earnings
On September 15, 2024, Vanessa, age 45, took a complete distribution from her Roth IRA to pay for her child’s college tuition.What are the tax consequences of her distribution?
- 2021, 2022, and 2023 regular contributions are distributed tax-and penalty-free
- 2023 conversion contribution is distributed tax-and penalty-free (QUALIFIED REASON)
- earnings are subject to income tax (5 YEARS HAS NOT BEEN MET) but are penalty-free (QUALIFIED REASON) .
Sally Cooper’s Roth IRA balance is as follows.
$2,000 regular contribution for 2019
$2,000 regular contribution for 2023
$10,000 taxable conversion in 2023
$3,000 Roth IRA earnings
On March 2, 2024, Sally, age 48, took a complete distribution from her Roth IRA because of disability. What are the tax consequences of her distribution?
- 2019 and 2023 regular contributions are distributed tax-and penalty-free
- 2023 conversion contribution is distributed tax-and penalty-free (QUALIFIED REASON)
- earnings are distributed tax-and penalty-free (5 YEARS MET & QUALIFIED REASON).
Tim Hewitt’s Roth IRA balance is as follows.
$3,000 regular contribution for 2016
$10,000 taxable conversion in 2021
$75,000 taxable conversion in 2022
$8,000 Roth IRA earnings
On June 2, 2024, Tim, age 53, took a complete distribution from his Roth IRA to purchase a coffee shop. What are the tax consequences of his distribution?
- 2016 regular contribution is distributed tax-and penalty-free
- 2021 and 2022 conversion contributions are distributed tax-free but are subject to the early distribution penalty tax (LESS THAN 5 YEARS SINCE CONVERSION)
- earnings are subject to income tax and the early distribution penalty tax (NON QUALIFIED)
Rhonda Cain’s Roth IRA balance is as follows.
$50,000 taxable conversion in 2017
$75,000 taxable rollover from 401(k) plan in 2021
$7,000 Roth IRA earnings
On October 14, 2024, Rhonda, age 61, took a complete distribution from her Roth IRA to pay for some home repairs. What are the tax consequences of her distribution?
- 2017 conversion contribution is distributed tax-and penalty-free
- 2021 rollover contribution is distributed tax-and penalty-free (QUALIFIED REASON over 591/2)
- earnings are distributed tax-and penalty-free (QUALIFIED DISTRIBUTIONS 5 YEARS MET, OVER 59 1/2)
Which IRS reporting code is used to report a Roth IRA distribution when the IRA owner has met the five-year period at this financial organization and the distribution was for one of the following reasons: age 59½, death, or disability?
Q
Which IRS reporting code is used to report a Roth IRA early distribution?
J
Which IRS reporting code is used to report a Roth IRA distribution when the IRA owner has not met the five-year period at this financial organization and the distribution was for one of the following reasons: age 59½, death, or disability?
T
Max, age 34, made a $8,000 contribution to his Traditional IRA for 2024. Is this a true excess or a deemed excess?
True Excess
Mary, a 46-year-old single Roth IRA owner made a $7,000 contribution for 2024. She has earned income of $125,000 and modified adjusted gross income of $164,000. Is this a true excessor a deemed excess?
True Excess
Bobby, a 23-year-old single Traditional IRA owner made a $7,000 contribution for 2024. He has earned income of $5,000 and modified adjusted gross income of $15,000. Is this a true excess or a deemed excess?
True Excess - earned only $5k for the year, cannot contribute over earned income
Alice, an 84-year-old married Roth IRA owner made a $8,000 contribution for 2024. She has earned income of $68,000 and joint modified adjusted gross income of $91,000. Is this a true excess or a deemed excess?
Deemed Excess
On August 3, 2023, Maria deposited $6,000 in her IRA. On that day, the balance of her IRA, before the contribution, was $12,800. On August 29, 2024, Maria discovers she was ineligible for a 2023 IRAcontribution and decides to remove the $6,000 contribution underthe excess contribution rules. Consequently, she must distribute the $6,000 excess contribution plus the NIA. No other contributionsor distributions have been made.
On August 29, 2024, Maria’s IRA balance is $19,125. She will incur a$50 loss of investment penalty when she prematurely surrenders the IRA investment to distribute the excess. Maria filed her 2023 taxes timely. What is the adjusted opening balance?
$12,800 + $6,000 = $18,800
FMV before contribution + any contributions made
On August 3, 2023, Maria deposited $6,000 in her IRA. On that day,the balance of her IRA, before the contribution, was $12,800. On August 29, 2024, Maria discovers she was ineligible for a 2023 IRA contribution and decides to remove the $6,000 contribution under the excess contribution rules. Consequently, she must distribute the $6,000 excess contribution plus the NIA. No other contributions or distributions have been made.
On August 29, 2024, Maria’s IRA balance is $19,125. She will incur a$50 loss of investment penalty when she prematurely surrenders the IRA investment to distribute the excess. Maria filed her 2023 taxes timely. Applying the formula, what is the adjusted closing balance?
$19,125 + $0.00 = $19,125
Adjusted closing balance (balance before w/d + distributions) = 19,125
Minus fees - 50
On August 3, 2023, Maria deposited $6,000 in her IRA. On that day,the balance of her IRA, before the contribution, was $12,800. OnAugust 29, 2024, Maria discovers she was ineligible for a 2023 IRAcontribution and decides to remove the $6,000 contribution underthe excess contribution rules. Consequently, she must distributethe $6,000 excess contribution plus the NIA. No other contributionsor distributions have been made.
On August 29, 2024, Maria’s IRA balance is $19,125. She will incur a$50 loss of investment penalty when she prematurely surrenders the IRA investment to distribute the excess. Maria filed her 2023 taxes timely. Applying the formula, what is the total earnings?
$19,025 - $18,800 = $275 total earnings
Adjusted closing balance = 19,125 + 0 distributions
Minus fees - 50 = 19,075
Adjusted opening balance = 12,800 + 6000 = 18,800
