Roth Individual Retirement Account

Question 1

Describe the 5 Year Waiting Period for a Roth to Roth Rollover

Answer 1

• The 5-year period used to determine qualified distributions doesn’t change if you roll over an amount from one Roth IRA to another Roth IRA,
• The 5-year period begins with the first tax year for which the contribution was made to the initial Roth IRA.

Question 2

What is the amount of insurance protection offered for Traditional and Roth IRA accounts by the Federal Deposit Insurance Corporation (FDIC)?

Answer 2

Up to $250K of account balances which are combined between both Traditional and Roth IRAs

Question 3

Explain the withdrawal of excess contributions.

Answer 3

• Any excess contribution that is withdrawn on or before the tax filing due date for the year is treated as an amount not contributed.
• However, this treatment only applies if any earnings on the contributions are also withdrawn.
• The earnings are considered earned and received in the year the excess contribution was made.

Question 4

Define Compensation for Contributions to an IRA

Answer 4

Compensation includes

• wages, salaries, tips, professional fees, bonuses, and other amounts received for providing personal services.
• It also includes commissions, self-employment income, nontaxable combat pay, military differential pay, and taxable alimony and separate maintenance payments.

Question 5

How long can a Roth IRA owner hold onto a Roth IRA?

Answer 5

The Roth IRA owner can maintain the Roth IRA indefinitely, there are no required minimum distributions (RMDs) during their lifetime.

Question 6

What sources of income can be used to contribute to a Roth IRA?

Answer 6

• Earned income
• Spousal IRA contributions
• Transfers
• Rollover contributions
• Conversions
• Money related to divorce
  
  • alimony
  • child support
  • a settlement

Question 7

What happens if you contribute too much in a given year?

Answer 7

A 6% excise tax applies to any excess contribution to a Roth IRA.

Question 8

When is it best to invest in a Roth IRA?

Answer 8

Roth IRAs are best when you think your taxes will be higher in retirement than they are right now.

Question 9

Describe the funding of a Roth IRA.

Answer 9

• Roth IRAs are funded with after-tax dollars from compensation
• The contributions are not tax-deductible.

Question 10

Which Employer’s Plan distributions can be rolled over into a Roth IRA?

Answer 10

You can roll over all or part of an eligible rollover distribution you receive from your (or your deceased spouse’s):

• Employer’s qualified pension
• Profit-sharing
• Stock bonus plan (including a 401(k) plan)
• Annuity plan
• Tax-sheltered annuity plan (section 403(b) plan)
• Governmental deferred compensation plan (section 457 plan).

Into a Roth IRA

Question 11

Define Compensation for Contributions to an IRA

Answer 11

Compensation includes

• wages, salaries, tips, professional fees, bonuses, and other amounts received for providing personal services.
• It also includes commissions, self-employment income, nontaxable combat pay, military differential pay, and taxable alimony and separate maintenance payments.

Question 12

Identify the 3 Conversion Methods

Answer 12

• Rollover. You can receive a distribution from a traditional IRA and roll it over (contribute it) to a Roth IRA within 60 days after the distribution.
• Trustee-to-trustee transfer. You can direct the trustee of the traditional IRA to transfer an amount from the traditional IRA to the trustee of the Roth IRA.
• Same trustee transfer. If the trustee of the traditional IRA also maintains the Roth IRA, you can direct the trustee to transfer an amount from the traditional IRA to the Roth IRA.

Question 13

Explain the Traditional to Roth Conversion process

Answer 13

The conversion is treated as a rollover, regardless of the conversion method used.

Question 14

Explain the Rollover Methods for an Employer Plan into a Roth IRA

Answer 14

• Rollover. You can receive a distribution from a qualified retirement plan and roll it over (contribute) to a Roth IRA within 60 days after the distribution. Since the distribution is paid directly to you, the payer generally must withhold 20% of it.
• Direct rollover option. Your employer’s qualified plan must give you the option to have any part of an eligible rollover distribution paid directly to a Roth IRA. Generally, no tax is withheld from any part of the designated distribution that is directly paid to the trustee of the Roth IRA.

Question 15

What sources of income cannot be used to contribute to a Roth IRA?

Answer 15

• Rental income or other profits for maintenance
• Interest income
• Pension or annuity income
• Stock dividends and capital gains

Question 16

Define

“Excise Tax”

Answer 16

• An excise tax is a legislated tax on specific goods or services at purchase such as fuel, tobacco, and alcohol.
• Excise taxes are intranational taxes imposed within a government infrastructure rather than international taxes imposed across country borders.
• A federal excise tax is usually collected from motor fuel sales, airline tickets, tobacco, and other goods and services.

Question 17

What is the MAGI cap at which point you can no longer contribute to a Roth-IRA?

Answer 17

For the year 2020 it is:

• $139,000 for single, head of household, or married filing separately and you didn’t live with your spouse at any time during the year

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• $206,000 for married filing jointly or qualifying widow(er)

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• $10,000 for married filing separately and you lived with your spouse at any time during the year.

Question 18

Describe the

Rollover Process from one Roth IRA to another Roth IRA

Answer 18

You can withdraw all or part of the assets from one Roth IRA tax-free, but only if you contribute them to another Roth IRA within 60 days.

Question 19

Explain the Rollover Process

by a Non-Spouse Beneficiary.

Answer 19

• If you are a designated beneficiary of a deceased employee (other than a surviving spouse), you can roll over all or part of an eligible rollover distribution into a Roth IRA.
• Keep in mind that you must make the rollover by a direct trustee-to-trustee transfer into an inherited Roth IRA.
• You will determine your required minimum distributions in years after you make the rollover since it will be based on whether the employee died before his or her required beginning date for taking distributions from the plan.

Question 20

By what date must contributions be made to a Roth IRA?

Answer 20

Contributions for the tax year must be made by the IRA owner’s tax-filing deadline, which is typically April 15th of the following year.

Tax-filing extensions do not apply!