Retirement Homework Chapter 9 Essay

Submitted By bsolomo14
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Pages: 5

1) The contribution limit for an IRA in 2013 is $5,500 for both Roth and traditional IRAs with an additional deferral of $1,000 for 2013 for persons age 50 or older. The catch-up is $1,000 for people 50 and over (page 487).
3) Individuals who do not have any earned income may still be eligible to establish an IRA if their spouse has sufficient earned income. An IRA for a spouse who has no earned income is generally referred to as a spousal IRA and can be established provided the other spouse has sufficient earned income. The necessary level of earned income is equal to the total amount that is to be contributed to both IRAs. Spousal IRAs can be established up to the contribution limit for the year in question; so $5,500 for year 2013 as mentioned in question 1. The catch-up contribution is also available for those individuals age 50 and over. (page 491)
6) An individual who is not an active participant does not have an income limitation for purposes of deducting his IRA contributions. Therefore, if an individual earns a substantial amount of income such as 1 million and is not an active participant of a qualified retirement plan, then the individual may fully deduct a contribution, within the contribution limit, to his traditional IRA account (page 494)
9) An active participant is an employee who has benefitted under one of the following plans through a contribution or accrued benefit:
Qualified plan
Annuity plan
Tax sheltered annuity (403(b) plan)
Certain government plans (does not include 457 plans, certain armed forces reserve members and volunteer firefighters may not be considered active participants)
Simplified employee pension plans (SEPs)
Simple retirement accounts (SIMPLEs)
11) The government wants taxpayers to keep their money in their IRAs until retirement by imposing a 10% penalty for distributions prior to age 59.5. However there are specific exceptions to this.
For both qualified plans and IRAs the exceptions to the penalty are: death, attainment of age 59.5, disability, substantially equal periodic payments, medical expenses that exceed 10% of AGI, rollover, because of an IRS tax levy, and certain distributions to qualified military reservists called to active duty
Exceptions to only qualified plans are: Qualified Domestic Relations Order (QDRO), attainment of age 55 and separation from service, public safety employee who separates from service after age 50, dividend pass through from ESOP
Exceptions only to IRAs: higher education expenses, first time home purchase up to $10,000, payment of health insurance premiums by unemployed
13) Roth IRAs are very attractive because, although the contributions to a Roth IRA are not deductible, qualified distributions (defined below) from Roth IRA accounts consist solely of tax-free 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 the age of 70.5 and are not subject to the required minimum distribution rules during the owner’s life. Roth IRAs and traditional IRAs share many of the same features and characteristics. The same contribution limitations that apply to traditional IRAs also apply to Roth IRAs, and this limit is an aggregate limit that includes contributions to both types of IRAs. Roth IRAs and traditional IRAs also share the prohibited transaction rules, the permitted investment rules, and the definition of earned income.

Traditional IRA
Roth IRA
Earned Income
Contributions CANNOT be made beyond 70.5
Contributions CAN be made beyond 70.5
Investment Choices
Minimum Distribution rules
During life and after death
Only after death
Prohibited transactions

X means the same. Page 507
Contribution AGI Phaseout limit
Married Filing Jointly
Married Filing Separate
Page 508
18) A qualified distribution is a distribution from a Roth IRA