Retirement Accounts

Can you invest in real estate in qualified plans?

- If it is for future use, and used by you - Real Estate can be used prior to retirement, but not for "related parties"

Coverdell vs 529

529 not means tested, more flexible BOTH: non deductible tax free withdrawls gift limits apply state taxes MAY apply 529 better Coverdell: federal income limits contribution limits 18-30 age limit. kid's $ at 18, must use by 30 or transfer to qual relative (No age limit on transferee) kid can blow on something other than education but will pay penalty can invest freely all qualified education 529: state (MSRB) NO income limits contrib limit set by state (but high) NO age limits. OWNER's money and OWNER can decide when to give to beneficiary, or change beneficiary to the qual relative limits on investments mainly for college but can use SOME for below college

Examples of qualified plans

IRA, 401(k), HR 10 (keogh), SEP, SIMPLE, 403 (b), profit-sharing plans, pension

Who is regulated by ERISA?

Only applies to private sector plans, and qualified plans. - Does not apply to government plans or public sector plans

Examples of Non-Qualified plans

Payroll deduction plans, deferred compensation plans, 457

Non-Qualified Plans

Retirement plans that do not meet the requirements of ERISA are known as non-qualified plans These plans often discriminate in favor of the highly paid employees and often have no vesting prior to retirement age The contributions paid in by employers are not tax deductible until the employee actually receives the funds

A QDRO is a judgment, decree, or order for a qualified retirement plan to pay child support, alimony, or marital property rights to a spouse, former spouse, child, or other dependent of a participant. The QDRO must contain certain specific information as stated in whose regulations?

The IRS states: - the participant and each alternate payee's name and last known mailing address - amount or percentage of the participant's benefits to be paid to each alternate payee

Traditional IRA vs Roth IRA

Traditional: - Tax deductible against ordinary income (Unless above income limits or covered by employer plan) - Anyone who has earned income can contribute - Contributions pre-tax ROTH: - Salary/earning limits (146k single/230k joint) - NO RMDs year after 73 - Contributions after-tax- w/draws tax free Both: - 10% tax on withdraws before 59 1/2 - Contribution limits are the same 7/6,500k or 1,000 for catch up

Define qualified plans (retirement)

qualify for preferential tax treatment- pre tax dollars used- must have IRS approval- vesting requirement- designed for employees and beneficiaries- not favor highly paid employees- contributions grow tax deferred

Who does the IRS consider immediate family?

the holder of the IRA; the holder's spouse; the holder or spouse's child, foster child, or adopted child; or the holder or spouse's grandchild. Nieces and nephews are not included.

All of the following statements concerning IRA contributions are true:

- contributions can be paid into this year's IRA from January 1 of this year until April 15 of next year - if you pay your tax on January 15, you can still deduct your IRA contribution, even if not made until April 15 - between January 1 and April 15, contributions may be made for the current year, the past year, or both - Contributions can be made to an IRA only until the first tax filing deadline (April 15), regardless of having filed an extension.

What is required in a qualified plans Investment Policy Statement (IPS)?

- investment parameters to be followed by the portfolio managers - the schedule for future needs of the plan - how the plan measures investment performance **Do not confuse with Summary plan document required by DOL- this tells you all about the chosen plan**

What are the requirements of plan fiduciaries under ERISA?

- must act solely in the interests of plan participants and beneficiaries, and they may not place the interests of other interested parties above those of the plan participants and beneficiaries - must diversify plan investments to minimize the risk of large losses - If they violate any of their fiduciary duties, they may be personally liable for large fines

An investment adviser representative recommending investments for an IRA should give primary consideration to

Risk

When can you take a distribution from any of his IRAs without imposition of a tax penalty?

as long as the distribution is used to make a payment of higher-education costs (tuition, fees, books, supplies, and equipment) for a member of his immediate family

In order to qualify for the safe harbor under 404(c), the portfolio selections must include:

at least 3 different asset classes, such as equity, debt, and cash equivalent. All equities or all debt won't qualify.