Support better retirement outcomes by understanding IRA rules

When clients face limits, phaseouts or required distributions, they rely on you for precise advice. Missteps such as excess contributions or missed RMDs can trigger penalties and create tax headaches. By understanding traditional and Roth IRA rules, you’ll help clients maximize savings, avoid costly errors and strategically time withdrawals for long-term financial security.

Below, you’ll find a few of the top questions from a recent webinar on the topic and their corresponding answers. If you choose to attend the on-demand version of this webinar, you can access the full recording and the entire list of Q&As.   

Q: If a Roth IRA distribution is taken before the five-year holding period is met, are penalties applied to the contribution, the distribution or both? What is the penalty amount?

A: Contributions can be withdrawn tax-and penalty-free, but earnings withdrawn before age 59½ and before the five-year period are subject to income tax and a 10% penalty [§408A(d)(2)(B), §72(t)].

Q: I’ve observed many tax preparers allowing IRA contributions after April 15 if the return is on extension. Can you clarify whether an extension applies to the contribution deadline?

A: An IRA contribution must be made by the regular tax filing deadline (April 15), and a filing extension does not extend this deadline [§219(f)(3)].

Q: What is the difference between a nondeductible IRA and a brokerage account? They seem to function similarly in terms of basis.

A: A nondeductible IRA grows tax-deferred and has basis tracked on Form 8606, Nondeductible IRAs, while a brokerage account is taxed annually and tracks basis per asset.

Q: Can a small corporation maintain both a savings incentive match plan for employees (SIMPLE) IRA and a simplified employee pension (SEP) plan?

A: No, a business cannot maintain both a SIMPLE IRA and another qualified retirement plan like a SEP in the same year [§408(p)(2)(D)].