CTC Retirement & Deferred Compensation Flashcards

A 'backdoor Roth IRA' strategy is used by high-income earners to circumvent Roth IRA income limits by:

Answer: Making a non-deductible Traditional IRA contribution then converting it to Roth

The backdoor Roth involves making a non-deductible contribution to a Traditional IRA (no income limit) and then converting the account to a Roth IRA, paying tax only on any pre-tax funds mixed in (pro-rata rule).

For a self-employed individual, the maximum annual deductible contribution to a SEP-IRA in 2024 is the lesser of 25% of net self-employment income or:

Answer: $69,000

The 2024 SEP-IRA contribution limit is the lesser of 25% of compensation or $69,000, up from $66,000 in 2023.

Which strategy allows a business owner to take a current deduction for a contribution to a charitable remainder trust (CRT) while also deferring capital gains on appreciated assets?

Answer: Donate the appreciated asset directly to a CRT, claim a partial charitable deduction, defer capital gains on the trust's sale of the asset

Contributing appreciated assets to a CRT allows the donor to take a partial charitable deduction, avoid immediate capital gains tax when the trust sells the asset, and receive an income stream from the trust.

What is the primary risk of the 'pro-rata rule' when executing a backdoor Roth IRA conversion?

Answer: Pre-tax IRA balances make the conversion partially taxable

The pro-rata rule requires that conversions be treated as coming proportionally from all IRA accounts; if the owner holds pre-tax IRA funds, a portion of the conversion will be taxable.

A tax coach recommends a Qualified Longevity Annuity Contract (QLAC) to a retirement client primarily because it:

Answer: Defers RMDs on the amount used to purchase the annuity until age 85

A QLAC allows retirement account owners to use a portion of their IRA or 401(k) to purchase a deferred annuity that begins at up to age 85, removing that balance from RMD calculations until payouts begin.

Under SECURE 2.0 Act provisions, employer matching contributions to a 401(k) may now be directed to:

Answer: A designated Roth account within the 401(k) plan

SECURE 2.0 allows employers to offer employees the option to receive employer matching or non-elective contributions as Roth (after-tax) contributions to their designated Roth account within the 401(k) plan.