Retirement plans

What is the penalty for early withdraw?

10%

What is the penalty for missing and RMD?

50% of the amount missed

What is the penalty for not taking the required minimum distribution (RMD) for the year?

50% of the amount short of what should have been taken

Is life insurance & collectibles (e.g., antiques, gems, rare coins, works of art, stamps allowed in IRAs?

NO annuities are

If the contributor has an employer sponsored plan and makes over the limit, they can still have an IRA but it won't be...

deductible

A ? is when a customer withdraws and takes possession of IRA assets and then returns the assets back to an IRA (or other qualified account) within 60 calendar days.

rollover A person is allowed to perform one rollover per rolling year, not per IRA and not per calendar year.

There is no RMD rule for ? IRAs. Account holders can leave the money in their accounts until they die.

roth

After reaching age 72, RMDs must be taken each year. Failure to do so results in a...

50% penalty

There are no tax or penalties on distributions from Roth IRAs if taken after age ? and account has been open for ? years

59 ½, 5 years

Contributions (deposits) to an IRA can be made up to which of the following dates?

April 15 of the year following the year the contribution is for

Which of the following are true of Traditional IRAs but not Roth IRAs? I. Contributions may be deductible. II. Contributions are always deductible. III. There is a 50% penalty for failing to take the minimum required distribution (RMD). IV. There are income limits for making contributions.

I and III -Contributions may be deductible. -There is a 50% penalty for failing to take the minimum required distribution (RMD).

Contribution is a deposit into the ? Account, not you personal account; this means you do not have that $7,000 as spending money

IRA (individual retirement account, different from pension where employer determines retirement income)

What are the three components of total return?

Interest, capital gain, dividends

What is a big advantage Roth IRAs have over traditional IRAs?

Normally distributions are tax free

Roth IRA is considered tax deferred but NEVER...

Pays taxes

Everything that is pre tax (traditional) has an ?

RMD (required minimum distribution) - start at age 72 They are required to withdrawal to generate taxes (this is not fun for the customer, but they used to think that rich people sheltered money from taxes)

Who is the roth IRA suitable for?

Roth IRAs are considered a good way to save for retirement for those who are younger (more years of growth that may be tax free) and those in lower income tax brackets

What is true of nonqualified plans...

The plan may discriminate

True or false: No extensions are available for contributions even if an extension is granted for filing the taxes.

True

True or false: Rollovers have a time limit of 60 calendar days, not 2 months.

True

The sponsor is the employer who has promised the ? benefit plan to the employee.

defined

Called RMDs, these distributions are required beginning in the year the account owner turns 72 and annually by December 31 thereafter. The amount of the RMD is based on the account values as of the end of the

previous year

Which of the following are true of nonqualified plans...

-Contributions are not tax deductible -Plan does not need IRS approval

Distributions before age 59 1⁄2 are subject to a ?% penalty, as well as regular income tax. (traditional)

10

Contributions are ?

Annual

Tax deferral means that while you own the product you...

Don't pay taxes of any kind

Everything that is after tax (Roth) does NOT have an

RMD (required minimum distribution)

For a distribution to be qualified

The account holder must have held a Roth IRA for at least five years before the distribution and the account holder must be age 591⁄2 or older.

Defined benefit plans (traditional pension plans)

The plan will determine a benefit that retirees receive based on years of service, age, and salary at the time of retirement. The plan will replace a portion of the preretirement income.

Who is responsible for meeting the desired returns on a defined benefit plan?

The sponsor

Income limits on traditional IRAs impact deductibility not...

contributions

If a customer moves money from an employer plan—such as a 401(k)—to an IRA, this is sometimes called a

direct rollover Be careful; this activity is actually a transfer and not a rollover.

Distributions (withdrawal) do not need to begin until the year after the participant turns...

72

Contributions are deductible on ? IRAs

traditional

A 72-year-old customer has a $30,000 required minimum distribution (RMD) calculated to be taken from an IRA. If the customer is in the 20% income tax bracket and only withdraws $25,000 from the account, how much in taxes and penalties will be owed?

$8,500 Failure to meet the required minimum distribution (RMD) results in a 50% penalty tax on the shortfall. In this case, taking only $25,000 when $30,000 should have been taken leaves $5,000 exposed to the 50% penalty tax. $5,000 × 50% equals $2,500. Note that the IRS will force the distribution of the RMD shortfall ($5,000). In addition to the penalty, the ordinary income tax on the amount withdrawn must also be paid (20% × $30,000 = $6,000). Total tax liability on this withdrawal equals $8,500 ($2,500 penalty tax plus $6,000 ordinary income tax).

Annuities, are in most cases acceptable investments appropriate for...

IRAs

Because nonqualified plans' contributions are not deductible, they do not require...

IRS approval

Qualified plans require...

IRS approval & contributions are tax deductible

Who benefits most from a defined benefit plan?

Older employees (Because the older employee has fewer years left to work, the contribution made by the company will be higher)

Defined contribution plans

These, among other DC plans, are more popular today because the investing risk is carried by the employee (401k)

Which of the following retirement plans does not require minimum distributions once the participant has reached age 72?

Traditional IRA

If you are over 59 1/2 (you are now allowed to withdraw (make a distribution) from your IRA account without pentalty, but once it comes out of you IRA account is it taxable?

Yes •Traditional IRA account is pre tax, meaning it will not be taxed ever, but once it is withdrawn it is now taxable.

Is a non qualified annuity tax deferred?

Yes ALL abilities are tax deferred

Are Roth and traditional both tax deferred?

Yes •tax deferred mean you do not have to pay taxes until later

Nonqualified plans: Can it discriminate? Is it taxable?

Yes (does not need to be offered to all qualified employees) Distributions above the cost basis are taxable

Tax deferred

You pay taxes on the accumulate money you have earned In your IRA • have more money to pay taxes on; not necessarily a good thing • could do traditional IRA, which is pre tax • pre tax means you NEVER pay taxes

Catch up

allows people aged 50 or older to make additional contributions to their 401(k)

After reaching age 72, RMDs must be taken...

each year

The first RMD may be delayed to April 1 of the year after the account holder turns 701⁄2. If the RMD is delayed this way, there will need to be a second distribution in that year by December 31.

know

Each of the following investments and practices are deemed ineligible for an IRA or any other retirement plan...

life insurance, margin account trading, collectible fine art

Distributions may begin without penalty after age 59 1⁄2 and are generally added to ? income for tax purposes. (traditional)

ordinary

Distributions of the cost basisare always tax free. Qualified distribution of income or gains in the account are also tax free. Nonqualified distribution of income or gains from the account are taxed as ordinary income and subject to a 10% penalty.

roth

Required minimum distributions (RMDs) for IRAs must begin by

the year after the participant turns 72

No contributions are allowed starting with the year the account holder turns 70 1⁄2 for ? IRA

traditional

There is no limit to the number of times a customer may do a

transfer of IRA assets from one IRA account to another

Which of the following are true of qualified plans...

-Contributions are tax deductible -Plan needs IRS approval (If you want to deduct taxes you are going to need IRS approval)

Certain investment practices are also considered inappropriate for IRAs or any other retirement plan:

-Short sales of stock -Speculative option strategies -Tax-exempt municipal securities -Margin account trading

There is a ?% penalty is for early withdrawal. There is a ?% penalty is for failure to make the minimum required distribution for the year. Contribution of more than the maximum amount in a year carries a ?% penalty.

10%,50%,6%

You can put how much into an IRA at 58 years old (over 50)

$6,000 (catch up 1,000)

Qualified plan: Is it taxable? Can it discriminate?

Yes qualified plans are taxable, no it cannot discriminate

How are Roth and traditional taxes different when withdrawing from the Ira account?

• traditional is taxed at ORDINARY income tax rates • the idea is that you are in a Lower tax bracket bc you are Retired and therefore will not have to pay as much taxes

For IRA's there is a penalty for early withdrawal prior to age...

59½

What is the penalty, if any, for overcontribution to an IRA?

6%