Chapter 5
TRADITIONAL IRA
LEARNING OBJECTIVES:
A. Have a basic understanding of the traditional IRA, including advantages,
disadvantages, and tax implications.
REVIEW:
This chapter begins with a general discussion of the traditional IRA, what it is,
when to use it, and advantages and disadvantages. A longer section on tax
implications follows discussing contributions, investments, loans, distribution and
rollover rules, and employer sponsored IRAs. After a brief section on learning
more, the chapter closes with a short question and answer section which covers
a few related topics.
CHAPTER OUTLINE:
A.
B.
C.
D.
E.
What Is It?
When Is It Indicated?
Advantages
Disadvantages
Tax Implications
1. Contribution Rules
2. Investments
3. Loans
4. Distribution and Rollover Rules
5. Employer Sponsored IRAs
E. Where Can I Find Out More About It?
F. Questions and Answers
G. Chapter Endnotes
FEATURED TOPIC:
1
Chapter 5
Traditional IRA
CFP® CERTIFICATION EXAMINATION TOPIC:
Topic 63: Other tax-advantaged retirement plans
A. Types and basic provisions (traditional IRA)
COMPETENCY:
Upon completion of this chapter, the student should be able to:
1. Have a basic understanding of the traditional IRA, including
advantages, disadvantages, and tax implications.
KEY WORDS:
traditional IRA, deduction limits, active participant, nondeductible IRA, rollover
DISCUSSION:
1. Discuss the advantages and disadvantages to using a traditional IRA,
including when it may be advantageous to use a nondeductible IRA.
2. Discuss the various situations in which the 10% federal penalty does
not apply to early IRA distributions.
QUESTIONS:
1. Which of the following represents both the age after which an individual may
no longer establish a traditional IRA and the trigger point for beginning
required distributions?
a.
b.
c.
d.
65
70½
72½
75
Chapter 5, p. 50
Chapter 5
2. For individuals who have attained age 50 before the close of the tax year,
what is the maximum dollar amount that may be contributed to a traditional
IRA in 2009?
a.
b.
c.
d.
$3,000
$4,000
$5,000
$6,000
Chapter 5, p. 50
3. Pam wants to use money from a traditional IRA for a down payment to
purchase a first home. How much can she withdraw from her IRA without
having to pay the federal early distribution penalty?
a.
b.
c.
d.
$10,000
$12,500
$15,000
$20,000
Chapter 5, p. 54
4. An employer can sponsor an IRA for employees. Which of the following are
types of programs that can be used for this purpose?
(1) Rollover IRA
(2) Deemed IRA
(3) SEP
(4) SIMPLE IRA
a.
b.
c.
d.
(1) and (3) only
(2) and (4) only
(1) (2) and (3) only
(2) (3) and (4) only
Chapter 5, p. 54
ANSWERS:
1. b
2. d
Chapter 5
3. a
4. d