Individual Retirement Accounts (IRAs) and Workplace Plans

Vocabulary flashcards covering Traditional IRAs, Roth IRAs, contribution limits, rules for workplace plans, divorce division orders, and beneficiary options.

Traditional IRA

A non-qualified retirement plan where contributions are often tax-deductible against earned income and distributions are typically fully taxable as ordinary income.

Roth IRA

A retirement account created in the 1990s where contributions are made after-tax (non-deductible), assets grow tax-sheltered, and qualified distributions in retirement are tax-free.

Spousal IRA

An IRA contribution arrangement permitting a working spouse with earned income to contribute to an account on behalf of a non-working spouse.

Catch-up provision

A rule allowing investors age $50$ or older to make an additional annual contribution of $1,100$ to their IRA.

Covered by a qualified workplace plan

A status indicating an investor has access to an employer-sponsored qualified retirement plan, such as a 401(k), which impacts traditional IRA contribution deductibility.

Prohibited IRA investments

Investment activities forbidden within an IRA, specifically short sales, margin trading, and selling uncovered (naked) options.

Five-year aging period

A requirement for tax-free Roth IRA earnings distributions stating that at least $5$ years must elapse starting from the first day of the tax year of the owner's first contribution.

Required minimum distributions (RMDs)

Mandatory annual retirement account withdrawals beginning at age $73$, from which Roth IRAs and Roth 401(k)s are exempt.

Roth 401(k)

An employer-sponsored qualified workplace plan governed by ERISA featuring after-tax contributions, tax-sheltered growth, tax-free qualified distributions, and no RMDs.

Qualified Domestic Relations Order (QDRO)

A court order signed by a judge and compliant with ERISA used to divide qualified retirement plan assets during a divorce.

Transfer incident to divorce order

A legal process used to divide non-qualified retirement accounts such as traditional and Roth IRAs during a divorce, which is not required to comply with ERISA.

Eligible designated beneficiary

A non-spouse IRA beneficiary who is a minor child of the decedent, permanently disabled, chronically ill, or not more than $10$ years younger than the decedent.

Designated beneficiary

A non-spouse IRA beneficiary who does not meet the specific qualifying criteria of an eligible designated beneficiary.