Tax Treatment of Individual Retirement ArrangementsCode: 26-TAXIRA

36 pages
Course description and objectives:

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.

Learning Objectives

Upon completion of this course, you should be able to:

·        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.

Category: Taxation

CPE credit: 3 Hours

Program Level: Update

Prerequisites: None

Advance Preparation: None

Exam expiration date: Participants must submit exams for grading within one year from the date of purchase