IRA Manual Overview Quiz

IRA Essentials

• This manual is designed for use with educational offerings from Ascensus.
• The publisher is not responsible for rendering legal or accounting services.
• The accuracy of the material is based on the law as of December 2024.
• Information in the manual is based on operational procedures of some financial organizations served by Ascensus. Procedures may vary for non-member organizations.
• Ascensus makes no statements about compliance with state or federal securities laws.

Table of Contents

• Introduction and Establishing IRAs (page 1)
• IRA Funding (page 25)
• IRA Distributions (page 39)
• IRA Portability (page 57)
• Job Aids (pages 3-6)
• Glossary (page 57)
• Exercise Master (page 79)

Introduction and Establishing IRAs

• Learning Objectives:
  • Identify tax advantages of Traditional and Roth IRAs.
  • Summarize IRA opening requirements.
  • Explain the difference between primary and contingent beneficiaries.
• Key Terms: Beneficiary, Disclosure Statement, Financial Disclosure, Individual Retirement Arrangement (IRA), Plan Agreement

Definition of an IRA

• An IRA is a domestic trust, custodial account, or annuity established for retirement.
• One owner per IRA.
• An IRA is a tax-advantaged savings tool to add to Social Security, personal savings, and wages.

Legislative History of IRAs

• IRA rules are a result of legislative changes over the years since enactment.
• Traditional IRAs were introduced in 1975.
• Roth IRAs were introduced in 1998.

Benefits to Financial Organizations

• Provide a source of stable long-term assets.
• Help build long-term relationships.
• Keep financial organizations competitive.

Benefits to IRA Owners

• Traditional IRA: Tax-deferred earnings, tax credit (possible), tax deduction (possible)
• Roth IRA: Tax-deferred earnings, tax credit (possible), tax-free earnings (possible)

IRA Tax Advantages

• Questions with multiple possible answers concerning IRA tax advantages.

Establishing an IRA

• The first step in establishing an IRA is providing relevant upfront information without giving specific tax advice. 
• Identify the type of IRA desired.
• Explain the rules but do not apply the rules to the individual's situation.
• Describe IRA investment options.
• To establish an IRA, a financial organization must provide a plan agreement, disclosure statement, and a financial disclosure.

IRA Application

• Financial organizations require the IRA owner to complete an application.
• The application typically requests legal name, taxpayer identification number, address, and date of birth.

Beneficiary Designation

• IRA owners may designate beneficiaries on an IRA application or separate form.
• This section addresses primary and contingent beneficiaries and their designation percentages.
• When an IRA owner dies before all primary beneficiaries, contingent beneficiaries receive the remaining IRA assets.

Spousal Consent

• Some states follow community or marital property laws affecting married individuals' property rights.
• These laws may have implications for beneficiary designation in an IRA.
• This section shows where the community property property laws are active.

Satisfying the IRA Documentation Requirements

• Traditional IRAs: Plan Agreement (Form 5305-A), Disclosure Statement (IRS Pub. 590-A & 590-B), Financial Disclosure
• Roth IRAs: Plan Agreement (Form 5305-RA), Disclosure Statement (IRS Pub. 590-A & 590-B), Financial Disclosure

Plan Agreement

• Details and requirements of the plan agreement in Traditional and Roth IRAs.
• Information provided to and retained by the IRA owner.

Disclosure Statement

• Includes a disclosure statement provided to the IRA owner which explains the rules in simple terms.
• It also explains the revocation period (7 days).

Financial Disclosure

• Explains the financial disclosure
• Financial disclosure projects the projected growth of IRA assets or provides a general description of the investments and fees.

IRA Funding

• Learning Objectives: Compare and contrast Traditional and Roth IRA eligibility requirements, explain the regular contribution limit, distinguish the contribution deadline for regular contributions and prior-year contributions, explain rules for prior-year contributions, and discuss regular contribution reporting deadlines.

IRA Regular Contribution Eligibility

• Listing of eligible and not eligible compensation sources.

Traditional IRA Contribution Eligibility Requirements

• Includes requirements for eligible compensation for Traditional IRA contributions.

Roth IRA Contribution Eligibility Requirements

• Lists of eligibility and income limits for Roth IRA contributions.

Spousal Contributions

• Lists of requirements for spousal contributions.

Regular Contribution Limit

• Details of regular contribution limit and catch-up contribution limit.

Regular Contribution Deadline

• Indicates guidelines for current-year vs. prior-year contributions and deadlines for each.

Reporting Regular IRA Contributions

• Reporting requirements for financial organizations to submit IRS Form 5498 to the IRS.

Account Statement

• Financial organizations must send IRA account statements to IRA owners.

Fair Market Value (FMV) Statement

• Financial organizations must send FMV (fair market value) statements annually.
• These statements list the IRA's balance from the previous year.

Running Review (Traditional IRA)

• Summarizes tax advantages and required documents.
• Includes contributions and deadlines.

Running Review (Roth IRA)

• Summarizes tax advantages and required documents.
• Includes contributions and deadlines.

IRA Distributions

• Learning Objectives: Identify federal income tax withholding, recognize exceptions to early distribution penalties, summarize distributions’ tax consequences, define RMDs and RBDs, and discuss reporting deadlines.
• Definitions: Basis, Distribution Period, Early Distribution Penalty Tax, Qualified Distribution, Required Beginning Date (RBD), Required Minimum Distribution (RMD), and Withholding.

Federal Income Tax Withholding

• Financial organizations must notify IRA owners about withholding options for IRA distributions that, in aggregate, total $200 or more annually.

State Income Withholding

• Information on state withholding requirements.

Early Distribution Penalty Tax

• Details regarding 10% penalty tax on IRA distributions before age 59 ½.
• Exceptions to penalty tax (death, disability, IRS levy, etc.)

Federal Income Tax Withholding and Early Distribution Penalty Tax

• Questions about early distribution penalty tax, withholding, and required forms.

Traditional IRA Distributions

• Explains the taxable portion of traditional IRA distributions.

Required Minimum Distributions (RMDs)

• Explains the rules regarding RMD requirements.
• Lists date of birth and deadline requirements.

RMD Statement

• Explains the annual RMD statement requirements and reporting deadlines.

Roth IRA Distributions

• Describes the requirements for qualified and nonqualified distributions.

Running Review (IRA Distributions)

• Summarizes tax advantages, required documents, and deadlines relating to IRA distributions for both Traditional and Roth IRAs.

Glossary

• A detailed glossary of key terms used throughout the manual.

Exercise Master

• Provides multiple-choice questions to test knowledge of IRA topics.

Job Aids

• Offers supplemental materials with more specific information on IRA topics.

Important Deadlines

• Includes deadlines for various reporting requirements (Form 1099-R, FMV statement, etc.)