IRA Fundamentals
Transcript of IRA Fundamentals
IRA Fundamentals
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IRA Fundamentals
Learning Objectives
• Describe and list the tax benefits of an IRA
• Recognize types of annual contributions
• Explain contribution eligibility and thedeadline to make an annual contribution
• Identify the methods of moving assetsbetween IRAs and between employer-sponsored retirement plans and IRAs
• State the early distribution penalty taxexceptions
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IndividualRetirementArrangement
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Types of IRAs
TraditionalIRA Roth IRA SIMPLE IRA
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Traditional IRA Tax Advantages
Tax credit(possible)
Tax deduction(possible)
Tax-deferred earnings(always)
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Roth IRA Tax Advantages
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Tax credit(possible)
Tax-free earnings(possible)
Tax-deferred earnings(always)
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IRA Fundamentals
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Traditional IRA Contribution Eligibility
Regular Contribution• Has eligible
compensation
Spousal Contribution• Couple has eligible
compensation• Married, filing joint
federal tax return
Catch-Up Contribution• Eligible for regular or
spousal contribution• Has eligible
compensation to support additional contribution
• Attain age 50 before end of tax year
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Roth IRA Contribution Eligibility
Regular Contribution• Has eligible
compensation• MAGI within limits
Spousal Contribution• Couple has eligible
compensation• Married, filing joint
federal tax return• MAGI within limits
Catch-Up Contribution• Eligible for regular or
spousal contribution• Has eligible
compensation to support additional contribution
• Attain age 50 before end of tax year
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2021 MAGI Limits for Regular Roth IRA Contributions
Filing StatusMAGI for Full Contribution
MAGI for Partial Contribution
Ineligible for Roth Contribution
Single Up to $125,000 $125,000 up to $140,000 Over $140,000
Married, filing jointly Up to $198,000 $198,000 up to $208,000 Over $208,000
Married, filing separately N/A $0 up to $10,000 Over $10,000
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Limits for Regular Roth IRA Contributions
Traditional and Roth IRA Aggregate Annual RegularContribution Limits
Tax YearAnnual Regular
Contribution LimitCatch-Up Contribution for IRA
Owners Age 50 and Older
2021 $6,000 $1,000 ($7,000 total)
2022
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Annual and Regular Contribution Limits
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Current-year contributions
1/1 1/1
Current-year contributions
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Regular Contribution Deadline
Prior-year contributions
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IRA Distribution Taxation Overview
Income tax
Early distribution penalty tax
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Traditional IRA Distribution Stages
10% penalty tax(unless exception applies)
RMD
No penalty tax
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59½0 72
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Early Distribution Penalty Tax
Penalty Tax
Financial organization
cannot collect
Applies to taxable portion
Under age 59½
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Early Distribution Penalty Tax Exceptions
IRS levy
Higher education expenses
Disability
First-time homebuyer expenses
Death
Health insurance premiums following
unemployment
Substantially equal periodic
payments
Qualified reservist
distributions
Medical expenses
Age 59½
Qualified birth or
adoption**
*For distributions taken on or after December 28, 2019, and before December 27, 2020.**For distributions taken in 2020 or later.
Qualified disaster
distributions*
Coronavirus-Related Distributions (CRDs)
CARES Provision • Distributions up to $100,000 in aggregate to a qualified individual.
• CRDs – are exempt from early distribution penalties,– are taxed ratably over 3-year period (unless
opt out), and– may be repaid to retirement plan or IRA
over 3-year period.
Effective Date Distributions taken on or after January 1, 2020, and before December 31, 2020.
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IRA Fundamentals
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Qualified Disaster Distributions
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Individual sufferedeconomic loss
andPrinciple residence is in presidentially declared
disaster area
Individual sufferedeconomic loss
andPrinciple residence is in presidentially declared
disaster area
May repay amounts to an eligible retirement plan or IRA over a 3-year period
For disasters that began on or after December 28, 2019, and ended on or before December 27, 2020
Could distribute up to $100,000
Distribution had to be taken within 180 days of December 27, 2020
Taxed ratably overa 3-year period, unless an individual elects otherwise
Roth IRA Distribution Stages
10% penalty tax(unless exception applies)
No penalty tax
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59½0
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5-Year Period
January 1 of the earlier year for which the first Roth IRA contribution or conversion was made
5One 5-year period per IRA owner
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Qualified Reason
Disability Death 1st-time homebuyer expenses
Age 59½
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Nonqualified Distribution
5-year period Nonqualified distribution (subject to tax and penalty)
No qualified reason
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Contributory Basis
Conversions and Retirement Plan
Rollovers (by year)
Earnings
Roth IRA owners determine taxable portion of distribution using IRS Form 8606
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Ordering Rules
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IRA-to-IRA Portability
SIMPLE IRA
Traditional IRA
Roth IRA
SIMPLE IRA
Traditional IRA
Roth IRA
Transfer
Rollover
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Occurs between like IRAs(and Traditional and SIMPLE)No constructive receipt of assetsUnlimited number of transfersWithholding rules do not apply
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Basic Transfer
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Basic Rollover
Occurs between like IRAs(and Traditional and SIMPLE)Constructive receipt of assets60-day ruleOne-per-12-month ruleWithholding rules applyIrrevocable rollover designation
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One-Per-12-Month Rule
Cannot roll over more than one distribution per 12-month period
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One-Per-12-Month Rule Example
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1/1/20223/10/2021Distribution from IRA #1
3/31/2021Rollover
from IRA #1 to
IRA #2
9/9/2021Distribution from IRA #3 cannot be rolled over
3/10/2022IRA owner eligible for
rollover
1/1/2021
Employer-Sponsored
Retirement Plan
Rolling Over Employer-Sponsored Retirement Plan Assets to an IRA
SIMPLE IRA
Traditional IRA
Roth IRA
Direct Rollover
Indirect Rollover
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Rolling Over Designated Roth Account Assets to a Roth IRA
Roth IRADirect Rollover
Indirect Rollover
DesignatedRoth IRA
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Rolling Over IRA Assets to an Employer-Sponsored Retirement Plan
Traditional IRA (pretax assets
only)
SIMPLE IRA
Direct Rollover
Indirect Rollover
Employer-Sponsored
Retirement Plan
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Between retirement plan and IRAPlan administrator determines eligibilityNo constructive receiptNo 60-day ruleNo one-per-12-month ruleIrrevocable rollover designation
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Basic Direct Rollover
Between retirement plan and IRAIRA owner determines eligibilityConstructive receipt of assets60-day ruleNo one-per-12-month ruleIrrevocable rollover designation
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Basic Indirect Rollover
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Current Rollover Rules
Roth account assets
Allother
assets
No Roth assets
Roth IRATraditional IRA(including SEP plan
contributions)
SIMPLE IRA (after 2-year waiting
period)
EligibleRetirement Plans
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Questions?
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IRA Fundamentals
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