Taxes & Retirement Plans

Qualified Plans and IRAs

• Qualified retirement plans allow tax-deferred growth and must meet ERISA and IRS standards. Examples include 401(k)s, profit-sharing plans, and defined benefit plans.
• Traditional IRA contributions may be tax-deductible depending on income and plan participation; earnings grow tax deferred and withdrawals are taxed as ordinary income.
• Roth IRA contributions are not deductible, but qualified withdrawals are tax free if distribution rules are met. This can be attractive for younger investors expecting higher future tax rates.

Distribution Rules

• Early withdrawals generally face a 10% penalty unless an exception applies. Required minimum distributions apply to many tax-deferred accounts beginning at the applicable required age under current tax law.
• Rollovers from qualified plans to IRAs should generally be completed as direct trustee-to-trustee transfers to avoid withholding and timing problems.
• Employer plan distributions paid to the participant may be subject to mandatory withholding if not directly rolled over.

Taxation Concepts

• Capital gains tax rates differ from ordinary income rates for many investors. Tax loss harvesting can offset gains, and excess losses may offset limited ordinary income with carryforwards.
• Cost basis matters for determining taxable gain or loss. In inherited assets, basis rules may differ from gifted assets and retirement accounts.

Series 7 focus

• Expect questions comparing traditional and Roth treatment, rollover mechanics, early distribution penalties, and suitability of tax-deferred products for clients based on age, bracket, and liquidity needs.