Tax Treatment of Individual Retirement Arrangements (Course Id 428)

Taxes - Taxes for Course Id 428

Federal tax policy is designed to accomplish numerous goals, from funding government to encouraging socially-beneficial actions such as saving for retirement. ERISA, the Employee Retirement Income Security Act, was created principally to meet the latter objective.

ERISA created an individual retirement arrangement—usually referred to simply as an IRA—to encourage taxpayers who were not participants in an employer-sponsored qualified retirement plan to save money to fund their future retirement needs. That was the initial legislative action. In order to participate, you needed to be employed and not a participant in a pension, profit-sharing or other qualified plan.  

These early ERISA provisions offering tax benefits to individuals funding IRAs have been extended in subsequent legislative actions to:

• Unemployed spouses;
• Qualified retirement plan participants; and
• Taxpayers preferring tax-free distributions instead of deductible contributions.

Early expansion of the IRA provisions added a spousal IRA that is designed to provide retirement assistance to uncompensated homemakers. It was also expanded to allow employees who are covered under an employer-sponsored qualified pension or profit-sharing plan to contribute to an IRA.

Since that earlier ERISA expansion related to IRAs, new IRAs have been added, including Roth IRAs that offer tax-free qualified distributions rather than deductible contributions. In order to differentiate the newer Roth IRA from its earlier cousin, the original IRA is now referred to as a “traditional” IRA.

NASBA QAS - Text - NASBA Registry - IRS Enrolled Agents - Registered Tax Return Preparers - 428

Course Learning Objectives

• Apply the rules governing eligibility for and contributions to traditional and Roth IRAs;
  
• Identify the requirements and benefits related to a spousal IRA;
  
• Apply the tax treatment rules concerning contributions to and distributions from traditional and Roth IRAs; and
  
• Distinguish between traditional and Roth IRA distribution rules.

Chapter 1
Traditional IRAs

• Apply the rules governing eligibility and permitted contribution levels applicable to traditional IRAs;
  
• Identify the requirements and benefits related to a spousal IRA;
  
• List the rules governing the tax treatment of contributions to and distributions from a traditional IRA; and
  
• Recognize the traditional IRA distribution rules.

Chapter 2
Roth IRAs

• Eligibility and permitted contribution levels applicable to Roth IRAs;
  
• The tax treatment of contributions to and distributions from Roth IRAs; and
  
• Roth IRA distributions.

Course Learning Objectives

Introduction

Chapter 1 - Traditional IRAs

Introduction

Chapter Learning Objectives

Traditional IRA Eligibility Rules

Earned Income

Limits on Contributions

Traditional IRA Tax Considerations

Traditional IRA Contributions

Tax Treatment of Contributions by Active Participants

Tax Credits

Traditional IRA Accumulations

Traditional IRA Rollovers

Eligible Rollover Distributions

Rollover of Qualified Birth or Adoption Distributions

Providing Permanent Rules for Qualified Federally-Declared Disasters

Distributions Ineligible for Rollover

Direct and Indirect Rollovers

Indirect Rollovers Subject to Timing and Frequency Limitations

EGTRRA Permits Rollover of After-Tax Contributions

Traditional IRA Distributions

Premature Distributions

Premature Distributions Avoiding Tax Penalty

Repaying Qualified Birth or Adoption and Other Permitted Distributions

Pro-Rata Distribution of Non-Deductible Contributions

Required Distributions during Owner�s Lifetime

Required Minimum Distribution Amount

IRA Qualified Charitable Distribution Changes

Charitable Split-Interest Entities

IRA Charitable Distribution Rules

Required Distributions at Owner�s Death

Death Before an Owner�s Required Beginning Date Before 2020

Life Expectancy Rule

Five-Year Rule

Surviving Spouse�s Election

Owner� Death After 2019

IRS Proposed Regulations � February 2022

IRS Notice 2022-53

IRS Notice 2023-54

Eligible Designated Beneficiaries Not Limited to 10-Year Rule

SECURE Act 2.0 � Surviving Spouse Beneficiaries

Uniform Lifetime vs. Single Lifetime Table

Revised Life Expectancy � Beneficiaries� RMD Transition Rules

Summary

Review Quiz

Chapter 2 - Roth IRAs

Introduction

Chapter Learning Objectives

Definition & Eligibility

Limits on Contributions

Transfer of Limited �529 funds to Roth IRAs

Roth IRA Tax Considerations

Qualified Distributions Tax-Free

Non-Qualified Distributions Receive FIFO Tax Treatment

Non-Qualified Gain Distributions Before 59 � Subject to Tax Penalty

No Required Lifetime Distributions

Roth IRA Conversions & Transfers

Roth IRA Death Benefit Distributions � Death Before 2020

Life Expectancy Rule

Five-Year Rule

Roth IRA Owner�s Death Occurring After 2019

Eligible Designated Beneficiaries Not Limited to 10-Year Rule

Summary

Review Quiz

Glossary