Assignment 2

Question 1

Allowable Deductible IRA Contribution

Answer 1

• $5,000 in 2008 (indexed in future years )
• Increases by $500 increments
• $5,500 in 2009 and 2010
• Catch‐up Contribution $1,000 (in 2008)

Question 2

IRA Contribution Deductibility Limit

Answer 2

• Single ‐‐taxpayers $52,000 ‐$62,000 in 2007

* Married taxpayers – $83,000 ‐ $103,000 in 2007

Question 3

Excess Contribution Excise Tax

Answer 3

• 6% excise tax in addition to current income taxation.

* Applied each year until the excess contribution is withdrawn from the IRA

Question 4

Roth IRA

Answer 4

• Same contribution limits as regular IRA
• Contributions are taxed in year of contribution
• Distribution (earnings and contributions) are
not taxed if “qualified”

Question 5

Conversion to Roth IRA

Answer 5

• Individual IRA owner can opt to transfer regular IRA to Roth IRA – converted amounts are taxed in year of conversion, no early
distribution penalty

Question 6

Deemed IRA

Answer 6

• Created by EGTRRA
• Employer‐sponsored plan can have IRA
accounts that accept voluntary contributions

Question 7

Tax Credit

Answer 7

• Encouragement for lower and middle
income employees to contribute to
retirement plan
• Tax credit claimed on individual’s tax return