20 Retirement Account

UTMA UGMA

-Donor may name himself custodian -no documentation of custodial status is required -not required to be legal guardian -SSN is needed from beneficiary because they pay the taxes -one account per kid funded with only cash and securities (not fixed annuities and insurance polices )(UTMA allows property)

404c safe harbor

-Offer only the following 1.broad index fund 2.medium term gov't fund 3.CE fund (3 alternatives withy quarterly changes) 1.Allow participants to exercise control over their investments 2.provide risk info a plan sponsor can shift investment risk to the EMPLPOYEE by complying with ERISA Section 404(c) rules.

Disclaiming an IRA

-you don't want IRA -passing on IRA to children and foundations

Withdrawals (RMDs) 1.An IRA owner(assume traditional) reaches 70.5 on Jan. 1 2014. 2.Client invests 25k in after tax dollars into his IRA currently worth 75k. If he were to withdraw 75k? 3.If the plan is covered

1.He must begin withdrawals by April 1st 2015 2.only 50k would be taxable 2. NO RMDs

AGI Adjusted gross income

1.On your 1040 2. ALL your income - whats deductible -Dedctible = Traditoanl IRA contrib. - Alimony - self employment tax - penalty on early withdrawal NOT MUNI inteterest

Which of the following phrases best describes a prudent investor?

A trustee who invests with reasonable care, skill, and caution. the Uniform Prudent Investor Act of 1994, requires reasonable care, skill, and caution.

401k loan must be paid back in 5 years with a reasonable int. rate.

I.The maximum allowable loan amount is the lesser of $50,000 or 50% of the participant's vested account balance. II.Unless the loan is taken out for the purpose of a mortgage on the participant's principal residence, repayment must be completed within 60 months of obtaining the loan. (5 years III.Payback of the loan will be through payroll deduction. IV.Default on the loan will result in the IRS treating the loan as a distribution.

What can you not invest in a IRA and Erisa

Ineligible investments -Cash value life -Term, whole, variable -Collectibles (BUT NOT SILVER EAGLES "special coins") Ineligible practices -Shorting -Options -Margin -covered calls

Rollover vs Transfer

Rollover = within 60 days Transfer = period is not defined

UTMA over UGMA

The property that may be transferred into an UGMA account is generally limited to cash and securities, while in an UTMA account, almost any kind of property—real or personal, tangible or intangible—can be transferred to the custodian. UTMA: cash, sec. and RE UGMA: Just cash and sec. UTMA: extended to age 25 UGMA: Must transfer when minor age of majority

Top heavy plan

more than 60% of the plan assets are held in the accounts of employees meeting the definition of KEY EMPLOYEE.

457 plan

plan for municipal employees as well as for independent contractors performing services for those entities. -nonqualified -deferred compensation -contributions do not need to be aggregated with other contributions

HSA

-in order for individual to open HSA, must have high deductible health plan HDHP -tax deductible -individual, employer or both may contribute

Economic Groth and Tax Releif REconcialiton Act 2001 (EGTRRA)

-individuals 50+ are allowed to make catch-up contributions to their IRAs above scheduled maximum amount 2006 1,000+

Member of the Family prohibited from using 40k RE

-spouse -ancestors(parents or grandparents) -children -grandchildren -spouses of children -adopted kid -NOT BROTHER and SISTER and you

407 of ERISA

-the plan may not acquire any security or personal property of the employer if it is 10% of the plan

Inheriting an IRA 1.Options if you are a spouse 2.Options if you are

1. -Roll over into spouse's IRA -Continue to own IRA as beneficiary 2. -Take cash now -Cash out in 5 years -Take out required minimum over own beneficiaries life expectancy -Take RMD based on the life expectancy of oldest beneficiary

NON Contributions for IRA

1. Cap gains 2. Interest and divs 3.Pension and annuity 4.Child Support passive income on DPPs

Contributions for IRA

1. Salary, tips 2. Comission and bonuses 3.Self employment 4.Alimony 5.Non taxable combat pay

Qualified Pension Plans

1.Cannot discriminate 2.Must be in writing 3.Updated Yearly 4.Must have a vesting schedule

Roll over A 50 year old has 100,000 company retirement plan and changes employers. Lump sum off 100k minus 20k for withholding.

1.Deposit 100k in IRA rollover account within 60 days 2.Anything not rolled over (including the 20k withholding) is subject to early redemption and ordinary income tax on his next income tax return.

One of your clients will be separating from his current employer and asks you for your suggestion as to what should be done with the assets in his contributory 401(k) plan. The plan documents indicate that plan assets must be distributed upon termination. Given the following choices, your recommendation would be to: A)open a rollover IRA and have the assets directly transferred B)reconsider the decision to separate C)take the distribution in cash and rollover the assets into an IRA within 60 days D)take the cash and put it into a managed account

A)open a rollover IRA and have the assets directly transferred Most would agree that the best plan is to preserve the tax deferral as long as possible. A direct transfer into a rollover IRA is preferable to taking the cash first because there is no 20% withholding so all the money goes to work immediately.

Mr. and Mrs. Walker are advisory clients of yours. Each of them is employed and covered by a qualified plan. Which of the following statements are CORRECT? I.Employees covered by a qualified plan are not eligible to open Roth IRAs. II.Employees covered by a qualified plan are eligible to open Roth IRAs. III.Distributions from a qualified plan may be rolled over into a Roth IRA. IV.Distributions from a qualified plan may not be rolled over into a Roth IRA.

II.Employees covered by a qualified plan are eligible to open Roth IRAs. III.Distributions from a qualified plan may be rolled over into a Roth IRA.

Qualified plans Unqualified plans

Qualified plans -Keogh plan -profit-sharing plan. -defined benefit plan Unqualified plans -deferred compensation (good retaining key employees) -Payroll deduction plan. -457

One of your clients has reached his company's mandatory retirement age of 67. He has been a participant in his employer's 401(k) plan and his account is valued at $400,000. The account is funded with mutual funds and company stock. The cost basis of the company stock is $25,000 and it is currently worth $125,000. If he were to use the net unrealized appreciation (NUA) approach when taking the distribution of the company stock, the tax treatment would be:

ordinary income on the $25,000 cost basis, long-term capital gain on the appreciation when sold. --Under IRS rules, if part of your retirement plan assets includes company stock, taking that as a distribution (not rolling it over into an IRA) subjects the cost basis to ordinary income tax and any unrealized appreciation is taxed as long-term capital gain when sold