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 - Technical - 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.

Chapter 2 - Roth IRAs

Chapter Learning Objectives

Introduction

Definition & Eligibility

Limits on Contributions

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

Section 529 Rollovers to Roth IRAs

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