Tax Treatment of Individual Retirement Arrangements - 2023 (Text Based)

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:

1. Apply the rules governing eligibility for and contributions to traditional and Roth IRAs;

2. Identify the requirements and benefits related to a spousal IRA;

3. Apply the tax treatment rules concerning contributions to and distributions from traditional and Roth IRAs; and

4. Distinguish between traditional and Roth IRA distribution rules.

5. Apply the rules governing eligibility and permitted contribution levels applicable to traditional IRAs;

6. Identify the requirements and benefits related to a spousal IRA;

7. List the rules governing the tax treatment of contributions to and distributions from a traditional IRA; and

8. Recognize the traditional IRA distribution rules.

9. Eligibility and permitted contribution levels applicable to Roth IRAs;

10. The tax treatment of contributions to and distributions from Roth IRAs.

Instructional Method: Self-Study

Review Date: 3/22/2023

Required Components: Written Materials

CPE Final Exam Required Passage Grade: 70%

Please Note: This course must be completed within 1 year of the date of receipt of this course for CPE Credit.

Field of Study: Taxes

Level of Knowledge: Beginner

Prerequisites: None

Advanced Knowledge: None

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