AFTR Retirement Accounts and Tax Treatment 2

Question 1

A taxpayer converts a traditional IRA to a Roth IRA. How is the converted amount treated for federal income tax purposes?

Accepted Answer

It is taxable as ordinary income in the year of conversion

Answer

The pre-tax amount converted from a traditional IRA to a Roth IRA is included in gross income as ordinary income in the year of conversion.

Question 2

Which of the following is NOT a qualifying exception to the 10% early distribution penalty from an IRA?

Accepted Answer

Purchase of a vacation home

Answer

The purchase of a vacation home does not qualify as an exception to the early distribution penalty; only a first-time home purchase up to $10,000 qualifies.

Question 3

What is the maximum annual employer contribution to a SEP-IRA for an employee in 2024, expressed as a percentage of compensation?

Accepted Answer

25%

Answer

SEP-IRA contributions are limited to 25% of an employee's compensation or $69,000 (2024 limit), whichever is less.

Question 4

Under the pro-rata rule, how are distributions from a traditional IRA that contains both deductible and nondeductible contributions taxed?

Accepted Answer

A proportional part of each distribution is taxable based on the ratio of pre-tax to total IRA funds

Answer

The pro-rata rule requires taxpayers to calculate the taxable portion of each distribution based on the ratio of pre-tax amounts to total IRA value across all traditional IRAs.

Question 5

A 73-year-old taxpayer fails to take their required minimum distribution. What excise tax applies to the shortfall under the SECURE 2.0 Act?

Accepted Answer

25%

Answer

SECURE 2.0 reduced the excise tax for failing to take RMDs from 50% to 25%, further reducible to 10% if corrected within a correction window.

AFTR - Annual Federal Tax Refresher Practice Test

AFTR - Annual Federal Tax Refresher Practice Test

AFTR Retirement Accounts and Tax Treatment 2