24211_ch18_final_p001-014

Participation in a profit sharing rather than a

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Unformatted text preview: a profit-sharing rather than a pension plan may encourage employee productivity. (See p. 18-11.) A taxpayer who works in the home rather than in the market place for a wage or salary has no "earned income" on which to base a contribution to an IRA. Therefore, retirement protection for such taxpayer may be provided by reference to the "earned income" of that taxpayer's spouse by means of a spousal IRA. (See Examples 19, 20 and 21, p. 18-40 and 219(c).) If a lump-sum distribution out of a qualified plan is not rolled over into an IRA, the distribution is subject to current taxation. Formerly, a rollover would prevent utilization of five-year forward averaging when the money is distributed out of the IRA. [See pp. 18-7 and 18-8, and 402(a)(5) and 408(d)(1).] a. Traditional as well as Roth IRA contributions are allowable up to $5,000 per year per person in 2011. Under certain circumstances, traditional IRAs can be deductible while Roth IRAs are never deductible. Distributions from Roth IRAs are not taxable if certain qualification requirements are met. Traditional IRAs are always taxable when distributed to the extent they exceed any basis. In addition, taxpayers are not required to begin taking mandatory distributions at the age of 70 with a Roth IRA like they are with a traditional IRA. ((See pp. 18-22 and 18-26.) A Roth IRA may be preferred for certain retired persons who do not wish to take a mandatory withdrawal at the age of 70. In addition, the Roth IRA might be better suited for a young couple that wants to begin putting money aside yet needs access to the original contribution if the case arises (i.e., to buy a new house or family emergency). A traditional IRA might be wise for someone that is entitled to a deduction for the $5,000. In this manner, they can use a tax refund they receive from the deduction to help fund the IRA. (See p. 18-29.) An educational IRA allows a taxpayer to make a nondeductible contribution of up to $2,000 per year for each beneficiary under the age of 18....
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This note was uploaded on 02/05/2012 for the course ACCT 110 taught by Professor Smith during the Spring '11 term at Adrian College.

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