CSM 410 Exam 3
IRA Permitted Investments
- Cash, stocks, bonds, options (often limited by custodians), U.S. Gold, Silver, and Platinum Coins
Vesting Guidelines for Plans
-IRAs: Employees are 100% vested in their account balance at all times -SIMPLE IRA: Fully vested -SIMPLE 401(k): Fully vested -401(k): Vesting schedules allowed -403(b): Fully vested for all employee contributions. Employer contributions may be subject to standard vesting
Types of SIMPLEs
- SIMPLE IRA -SIMPLE 401(k)
What is a "qualified distribution" from a Roth IRA?
-A qualified distribution is a distribution from a Roth IRA that satisfies both of the following tests: a) The distribution must be made after a five-taxable-year-period (which begins January 1st of the taxable year for which the first regular contribution is made to any Roth IRA of the individual or, if earlier, January 1st of the taxable year in which the first conversion is made to any Roth IRA of the individual), and b) The distribution satisfies one of the following requirements (Made on or after the date on which the owner attains age 59 1/2, made to a beneficiary or estate of the owner on or after the date of the owner's death, is attributable to the owner being disabled, for the first time home purchase
Covered Employees under a SEP
-Attainment of age 21 or older, and -Performance of services for three of the last five years, and -Received compensation of at least $550 (2014) during the year
Rules for Establishing a SEP
-Complete a formal written agreement (form 5305-SEP) -Give eligible employees notice -Open a SEP-IRA account for each eligible employee
Countries where Social Security Benefits may not be mailed
-Cuba -North Korea
Deductibility of IRA Contributions
-If the taxpayer is not an active participant they may contribute to a deductible IRA to the lesser of the IRA contribution limit or earned income and does not have an income limitation for purposes of deducting his IRA contributions -Single active participants have an AGI phaseout of $60K-$70K -Married active participants have an AGI phaseout of $96k-$116k -If the taxpayer is not an active participant in a qualified plan, but taxpayer's spouse is an active participant in a qualified plan, the AGI phaseout is $181k-$191k
403(b) Investment Choices
-Insurance Annuity Contracts -Mutual funds
Taxation of Social Security Benefits
-People with substantial income in addition to Social Security benefits may be subject to federal income tax. The Social Security Administration is concerned with beneficiaries modified adjusted gross income (MAGI). For purposes of Social Security, MAGI is equal to the taxpayer's adjusted gross income plus tax exempt interest, including: Interest earned on savings bonds used for higher education, amounts excluded from the taxpayer's income for employer-provided adoption assistance, amounts deducted for interest paid on educational loans, amounts deducted as qualified tuition expense, income earned in a foreign country, a U.S. possession, or Puerto Rico, that is excluded from income
SIMPLE IRA
-Plan that utilizes an IRA account as the funding vehicle of the plan -Established utilizing an individual retirement amount (or an individual retirement annuity)
SIMPLE 401(k)
-Plan that utilizes an IRA account as the funding vehicle of the plan -Unlike SIMPLE IRA, plan loans are permitted
Rules for Roth IRA Distributions
-Qualified distributions are income-tax free -Qualified distributions are not subject to 10% early withdrawal penalty -Qualified Distribution: The distribution is made after a five taxable year period, AND the distribution is on account of the owner attaining age 59 1/2, the owners death, disability, or first time home purchase (maximum $10,000) -Nonqualified distributions are subject to the 10% penalty within five years of conversion
Categories of Benefits administered by Social Security
-Retirement Benefits -Disability Benefits -Family Benefits -Survivors' Benefits -Medicare -Supplemental Security Income (SSI) Benefits. SSI Benefits are not funded by Social Security taxes but are funded by general funds from the Treasury
Compare and Contrast a Traditional IRA to a Roth IRA
-Roth IRAs are very attractive because, although the contributions to a Roth IRA are not currently deductible, qualified distributions from Roth IRA accounts consist solely of non-taxable income. In other words, the tax deferred earnings may be distributed without ever being subjected to income tax. Additionally, Roth IRAs may be funded after the owner attains age of 70 1/2 and are not subject to the minimum distribution rules during the owners life -Roth IRAs and Traditional IRAs share many of the same features and characteristics. The contribution limitations that apply to traditional IRAs also share the same prohibited transaction rules, permitted investment rules, and definition of earned income
Meaning of SIMPLE
-Savings Incentive Match Plans for Employees -Retirement plans for small employers
Contribution rules of a SIMPLE
-Tax deductible -Tax-free growth -Employer contribution must be made by the due date of the employer's income tax return filing deadline (including extensions) -Employee deferral contributions are subject to payroll taxes
Rules for Traditional IRA Distributions
-Taxed as ordinary income except: Distributions of adjusted basis -Required minimum distributions: Same as RMDs for qualified plans -Subject to penalties if prior to age 591/2: Unless on account of an exception
Items included in earned income for IRA limits
-W-2 income -Schedule C net income -K-1 income from a partnership (or an LLC taxed as a partnership) where the partner is a material participant -Alimony
People who can receive payments from Social Security and under what circumstances
-Worker must be "fully insured" (40 quarters of coverage, 1 quarter of coverage = $1,200 for 2014 of earnings, maximum accrual of 4 quarters per year) -Currently Insured for Survivor's Benefit (6 quarters of coverage and out of the previous 13 quarters) -Beneficiaries (Participant worker, Participant's spouse, Participant's children, Dependent parents, Workers Divorced Spouse)