Tax Treatment of Individual Retirement Arrangements

Course Description:

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 need 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:

Upon successful completion of this course, participants will be able to:

• Apply the rules governing eligibility for and contributions to traditional and Roth IRAs;
• Identify the requirements and benefits related to a spousal IRA.
• Apply the tax treatment rules concerning contributions to and distributions from traditional and Roth IRAs; and
• Distinguish between traditional and Roth IRA distribution rules.