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Question 1Role knowledge and relevant financial foundations

A bank uses Form 5305-A to open a new Traditional IRA for a customer. What type of account does this IRS model agreement create?

  1. A Traditional IRA custodial account Correct answer.
  2. A Traditional IRA trust account
  3. A Roth IRA custodial account
  4. A SIMPLE IRA established by the employer

Explanation

Form 5305-A is the IRS model custodial account agreement for a Traditional IRA. Form 5305 is the trust version of the same agreement. Using the model form means the bank does not need a private letter ruling on the document.

Question 2Role knowledge and relevant financial foundations

Which IRS model form does a bank use to open a Roth IRA structured as a trust account?

  1. Form 5305
  2. Form 5305-R Correct answer.
  3. Form 5305-RA
  4. Form 5305-SA

Explanation

Form 5305-R is the IRS model trust agreement for a Roth IRA. Banks that prefer to act as custodian rather than trustee use Form 5305-RA, the custodial Roth equivalent.

Question 3Role knowledge and relevant financial foundations

An employer wants to adopt a SEP using a designated financial institution model. Which IRS form does the employer use to establish the plan?

  1. Form 5305-SIMPLE
  2. Form 5305-SEP Correct answer.
  3. Form 5305-SA
  4. Form 5304-SIMPLE

Explanation

Form 5305-SEP is the IRS model SEP plan adoption agreement that an employer signs to create a Simplified Employee Pension. Each participating employee then has an underlying Traditional IRA established with Form 5305 or 5305-A.

Question 4Role knowledge and relevant financial foundations

A new IRA owner wants the bank to act as trustee with full investment discretion using a customized non-model document. What disclosure timing rule applies?

  1. The bank must give the disclosure statement at least 7 days before account opening or refund all contributions on request within the 7-day revocation period Correct answer.
  2. The bank may deliver the disclosure statement up to 30 days after the first contribution
  3. The bank does not have to deliver a disclosure statement when using a customized document
  4. The disclosure statement is required only for Roth IRAs

Explanation

Treasury Regulation 1.408-6 requires a disclosure statement and a 7-day revocation period. The owner can revoke the account during that period and receive a full refund of contributions without adjustment for fees or losses.

Question 5Role knowledge and relevant financial foundations

An IRA owner names her three adult children as primary beneficiaries with no specified percentages. The plan document is silent on how to split the account. How should the bank pay the proceeds at death?

  1. Equally among the three children Correct answer.
  2. To the oldest child first
  3. To the children's mother as default
  4. To the IRA owner's estate

Explanation

When primary beneficiaries are named without percentages and the plan document is silent, the standard industry default and the typical model document language is to divide the account in equal shares per stirpes among the named primary beneficiaries.

Question 6Role knowledge and relevant financial foundations

An IRA owner divorces and forgets to update her beneficiary form, which still names her ex-spouse. She dies with no contingent beneficiary listed. Under the typical IRA plan document, who receives the IRA?

  1. The ex-spouse, because the beneficiary designation controls the IRA Correct answer.
  2. The owner's estate by default
  3. The owner's children, who become beneficiaries by operation of law
  4. The Department of Labor as escheat agent

Explanation

Unlike employer plans governed by ERISA, IRAs follow the named beneficiary on the bank's records. State revocation-on-divorce statutes generally do not automatically remove the ex-spouse from a federally regulated IRA either, so the ex-spouse takes the account.

Question 7Role knowledge and relevant financial foundations

A bank wants to amend its customized IRA plan agreement to incorporate SECURE 2.0 changes. What must the bank do for existing IRA owners?

  1. Provide an amended plan document or summary of amendments to each existing IRA owner Correct answer.
  2. Close and reopen each IRA under the new document
  3. Notify only owners who are currently taking RMDs
  4. No action is required because amendments take effect automatically

Explanation

When a financial institution amends its IRA agreement, it must give existing account owners an amended plan document or a written summary of the changes. This preserves the contractual notice required by Treasury Regulation 1.408-6.

Question 8Role knowledge and relevant financial foundations

A customer wants to fund a Traditional IRA with appreciated stock she already owns in her individual brokerage account. What does IRC Section 408 allow?

  1. Annual IRA contributions must be made in cash; in-kind property contributions are not permitted except for rollovers Correct answer.
  2. She may contribute the stock at fair market value and use the gain as a deductible contribution
  3. She may contribute the stock and the basis becomes the IRA contribution amount
  4. She may contribute up to $7,000 of stock per year as long as she also contributes $1,000 in cash

Explanation

Section 408(a)(1) requires regular IRA contributions to be made in cash. The only time in-kind property is allowed is when it represents a rollover of the same property received from another retirement account.

Question 9Role knowledge and relevant financial foundations

A bank IRA administrator notices that an IRA application is missing a Social Security number. What is the appropriate next step?

  1. Hold the application and request the missing TIN before opening the account Correct answer.
  2. Open the account and report the missing TIN later on Form 5498
  3. Open the account using the customer's date of birth as a substitute
  4. Open the account and apply 24% backup withholding to all future activity

Explanation

A valid TIN is required to establish the IRA so the bank can satisfy IRS reporting on Forms 5498 and 1099-R. Best practice and bank policy is to hold the application until the customer supplies the missing TIN.

Question 10Role knowledge and relevant financial foundations

A 47-year-old single individual has $90,000 of taxable compensation in 2025. Assuming no other limits apply, what is the maximum regular Traditional IRA contribution she can make for 2025?

  1. $7,000 Correct answer.
  2. $8,000
  3. $6,500
  4. $23,000

Explanation

The 2025 regular IRA contribution limit is $7,000 for individuals under age 50. The additional $1,000 catch-up only applies to individuals age 50 or older, so this 47-year-old is capped at $7,000.

Question 11Role knowledge and relevant financial foundations

A 55-year-old IRA owner with sufficient earned income wants to make the maximum 2025 Traditional IRA contribution. What is her total annual limit?

  1. $7,000
  2. $8,000 Correct answer.
  3. $10,000
  4. $23,000

Explanation

The 2025 IRA contribution limit is $7,000 plus a $1,000 catch-up for individuals age 50 or older, totaling $8,000. The catch-up is not indexed annually under current law and remains at $1,000 for IRAs.

Question 12Role knowledge and relevant financial foundations

A married couple files jointly. The husband works and earns $150,000. The wife has no earned income. Can the wife contribute to her own Traditional IRA?

  1. Yes, using the spousal IRA rule based on the working spouse's compensation Correct answer.
  2. No, only individuals with personal earned income can contribute
  3. Yes, but only as a Roth IRA
  4. No, because joint filers can only contribute to one IRA

Explanation

The spousal IRA rule lets a non-working spouse contribute to her own IRA based on the working spouse's compensation, as long as the couple files jointly and combined contributions do not exceed combined compensation.

Question 13Role knowledge and relevant financial foundations

A self-employed business owner has $200,000 of net self-employment earnings in 2024 (after the deductible self-employment tax adjustment) and sponsors a SEP. What is the maximum 2024 SEP-IRA contribution she can make on her own behalf?

  1. Lesser of 25% of compensation or $69,000 Correct answer.
  2. Lesser of 20% of compensation or $69,000
  3. $23,000 plus a $7,500 catch-up
  4. $7,000 plus a $1,000 catch-up

Explanation

The SEP contribution limit for 2024 is the lesser of 25% of eligible compensation or $69,000. For a self-employed person, the effective rate works out closer to 20% of net earnings because of the self-employment tax adjustment, but the statutory limit is still 25% of compensation up to $69,000.

Question 14Role knowledge and relevant financial foundations

A 51-year-old participant in a SIMPLE IRA plan with 50 employees wants to maximize her 2024 elective deferral and catch-up contributions. What is her total maximum contribution?

  1. $19,500 Correct answer.
  2. $16,000
  3. $23,000
  4. $8,000

Explanation

For 2024, the SIMPLE IRA elective deferral limit is $16,000 plus a $3,500 age-50 catch-up, totaling $19,500. SECURE 2.0 created enhanced limits for plans with 25 or fewer employees, but at 50 employees this plan uses the standard limits.

Question 15Role knowledge and relevant financial foundations

Beginning in 2026, which catch-up contribution rule under SECURE 2.0 affects high-earning employer-plan participants?

  1. Catch-up contributions for participants age 50 or older whose prior-year wages from the same employer exceeded $145,000 indexed must be Roth Correct answer.
  2. Catch-up contributions are eliminated for participants age 50 or older
  3. Catch-up contributions become tax-deductible above the line for all participants
  4. Catch-up contributions can be made only to a Traditional IRA, never to a Roth IRA

Explanation

SECURE 2.0 Section 603 requires catch-up contributions for age 50-plus employer-plan participants whose prior-year FICA wages from the same employer exceeded $145,000 (indexed) to be made on a Roth basis. The rule was originally effective in 2024, was delayed by IRS Notice 2023-62, and is now effective in 2026.

Question 16Role knowledge and relevant financial foundations

An IRA owner contributes $7,000 to her Traditional IRA in 2025 but later realizes she only had $4,000 of earned income that year. What is the most efficient way to avoid the 6% excess contribution penalty?

  1. Withdraw the $3,000 excess plus attributable earnings by the tax-filing deadline including extensions Correct answer.
  2. Wait until the next year and apply the excess as a future-year contribution
  3. Pay the 6% excise tax indefinitely
  4. Convert the excess to a Roth IRA

Explanation

An excess contribution avoids the 6% excise tax under Section 4973 if the excess plus net income attributable is withdrawn by the federal tax-filing deadline including extensions. The earnings portion is taxable income in the contribution year.

Question 17Role knowledge and relevant financial foundations

An IRA owner converts $50,000 from her Traditional IRA to a Roth IRA in March 2025. In December 2025 the Roth IRA's value drops sharply and she wants to undo the conversion. What does current tax law allow?

  1. Recharacterization of conversions is no longer allowed; the 2017 Tax Cuts and Jobs Act repealed it for tax years after 2017 Correct answer.
  2. She has until October 15, 2026 to recharacterize the conversion
  3. She can recharacterize within 60 days of the conversion
  4. She can recharacterize only if the loss exceeds 20%

Explanation

The Tax Cuts and Jobs Act repealed recharacterization of Roth conversions effective for tax years after 2017. Recharacterization of regular contributions, however, is still allowed.

Question 18Role knowledge and relevant financial foundations

An IRA owner contributes $7,000 to her Traditional IRA in 2025, then realizes a Roth IRA would suit her better. What can she do before the tax-filing deadline?

  1. Recharacterize the regular contribution as a Roth contribution by the federal tax-filing deadline including extensions Correct answer.
  2. Nothing, because all recharacterizations were repealed in 2017
  3. Take a normal distribution and redeposit it as a Roth conversion
  4. Move the funds via a 60-day rollover to her Roth

Explanation

Recharacterization of a regular contribution remains permitted. By the federal tax-filing deadline including extensions, the trustee can move the contribution plus net income attributable from the Traditional to the Roth IRA, treating it as if it were originally made to the Roth.

Question 19Role knowledge and relevant financial foundations

A high-earning married couple wants to use the backdoor Roth strategy. The husband already has $200,000 of pre-tax money in a Traditional IRA. Why does the pro-rata rule matter for him?

  1. Each conversion is taxed pro rata based on the ratio of pre-tax to after-tax money across all his Traditional, SEP, and SIMPLE IRAs Correct answer.
  2. Conversions are ignored when over $145,000 of income exists
  3. The bank can choose which dollars convert first
  4. Pro-rata only applies to Roth distributions, not conversions

Explanation

Section 408(d)(2) treats all of an individual's Traditional, SEP, and SIMPLE IRAs as a single account for pro-rata calculations. Because most of his IRA money is pre-tax, almost all of his backdoor Roth conversion will be taxable, defeating the strategy.

Question 20Role knowledge and relevant financial foundations

A customer turned 73 in March 2026. Under SECURE 2.0, when must she take her first required minimum distribution?

  1. By April 1, 2027 Correct answer.
  2. By December 31, 2026
  3. By April 1, 2026
  4. She is not yet required to take an RMD

Explanation

Under SECURE 2.0 the RMD age is 73 for owners reaching that age in 2023 through 2032. The required beginning date for the first RMD is April 1 of the year following the year the owner reaches the RMD age, so an owner who turns 73 in 2026 has until April 1, 2027.

Question 21Role knowledge and relevant financial foundations

Beginning in what year does SECURE 2.0 raise the required minimum distribution age from 73 to 75?

  1. 2033 Correct answer.
  2. 2026
  3. 2030
  4. 2025

Explanation

SECURE 2.0 Section 107 raised the RMD age to 73 for individuals reaching that age in 2023, and raises it to 75 for individuals who reach age 74 after December 31, 2032, effectively making 75 the new RMD age beginning in 2033.

Question 22Role knowledge and relevant financial foundations

An IRA owner had a $400,000 December 31, 2025 balance. Her 2026 Uniform Lifetime Table factor is 26.5. Her sole spouse beneficiary is the same age. What is her 2026 RMD?

  1. Approximately $15,094 Correct answer.
  2. Approximately $26,500
  3. Approximately $4,000
  4. Approximately $40,000

Explanation

RMD = prior year-end balance divided by the Uniform Lifetime Table factor. $400,000 / 26.5 equals approximately $15,094. Because the spouse beneficiary is the same age, the Joint Life Table is not required.

Question 23Role knowledge and relevant financial foundations

An IRA owner is 75 and his sole beneficiary is his 60-year-old spouse. Which life expectancy table does he use to calculate his RMD?

  1. Joint Life and Last Survivor Table Correct answer.
  2. Uniform Lifetime Table
  3. Single Life Table
  4. Whichever produces the larger RMD

Explanation

When the IRA owner's sole beneficiary is a spouse more than 10 years younger, the owner uses the Joint Life and Last Survivor Table. The 15-year age gap qualifies, and the joint table produces a smaller RMD than the Uniform Lifetime Table.

Question 24Role knowledge and relevant financial foundations

An IRA owner who turned 73 in 2025 fails to take her 2025 RMD by December 31, 2025. Under SECURE 2.0, what is the standard excise tax on the missed amount?

  1. 25%, reducible to 10% if corrected within the correction window Correct answer.
  2. 50%
  3. 10%
  4. 6%

Explanation

SECURE 2.0 reduced the missed-RMD excise tax from 50% to 25%, and to 10% if the shortfall is corrected within the two-year correction window and a Form 5329 is filed.

Question 25Role knowledge and relevant financial foundations

An IRA owner takes a $20,000 distribution at age 55 and does not qualify for any 72(t) exception. What is the additional federal tax on the distribution?

  1. $2,000 (10% premature distribution penalty) Correct answer.
  2. $5,000 (25% missed RMD penalty)
  3. $1,200 (6% excess contribution penalty)
  4. $0 because she is over 50

Explanation

Section 72(t) imposes a 10% additional tax on distributions before age 59 1/2 unless an exception applies. 10% of $20,000 equals $2,000, in addition to ordinary income tax on the distribution.

Question 26Role knowledge and relevant financial foundations

Which Section 72(t) exception was added by SECURE 2.0 for victims of domestic abuse?

  1. Up to $10,000 indexed, withdrawn within one year of the abuse, exempt from the 10% penalty Correct answer.
  2. Up to $5,000 if the victim files a police report
  3. Unlimited withdrawals if the IRA owner self-certifies
  4. No SECURE 2.0 domestic abuse exception exists

Explanation

SECURE 2.0 Section 314 created a domestic abuse exception of up to $10,000 (indexed for inflation) or 50% of the account, whichever is less, withdrawn within one year of the abuse. The owner self-certifies and may repay within three years.

Question 27Role knowledge and relevant financial foundations

Under SECURE 2.0, what is the maximum penalty-free withdrawal amount per year for an unforeseeable or immediate financial need that the owner self-certifies?

  1. $1,000 Correct answer.
  2. $5,000
  3. $10,000
  4. $22,000

Explanation

SECURE 2.0 Section 115 allows one penalty-free emergency personal expense withdrawal up to $1,000 per year, subject to repayment provisions. Until repaid or three years pass, no additional emergency withdrawal is allowed.

Question 28Role knowledge and relevant financial foundations

A first-time homebuyer wants to withdraw IRA funds penalty-free for a home purchase. What is the lifetime limit on this 72(t) exception?

  1. $10,000 lifetime Correct answer.
  2. $10,000 per year
  3. $22,000 lifetime
  4. $50,000 lifetime

Explanation

The first-time homebuyer exception under Section 72(t)(2)(F) allows up to $10,000 lifetime to be withdrawn penalty-free for qualified acquisition costs of a principal residence. The $10,000 is a per-IRA-owner lifetime cap, not annual.

Question 29Role knowledge and relevant financial foundations

A 56-year-old IRA owner wants to take penalty-free distributions before age 59 1/2 by using substantially equal periodic payments. Under Section 72(t)(2)(A)(iv), how long must the payments continue?

  1. Five years or until age 59 1/2, whichever is later Correct answer.
  2. Three years
  3. Until age 65
  4. Until the IRA is depleted

Explanation

SEPP under Section 72(t)(2)(A)(iv) must continue for at least five years or until the owner reaches age 59 1/2, whichever is later. Modifying the payments before then triggers retroactive 10% penalties plus interest on all payments taken to date.

Question 30Role knowledge and relevant financial foundations

A taxpayer who is on Medicare paid $30,000 in unreimbursed medical expenses last year. Her AGI was $200,000. How much of an early IRA distribution is exempt from the 10% penalty under the medical-expense exception?

  1. $15,000 Correct answer.
  2. $30,000
  3. $0
  4. $22,500

Explanation

The medical-expense exception under Section 72(t)(2)(B) exempts only the portion of unreimbursed medical expenses that exceeds 7.5% of AGI. 7.5% of $200,000 is $15,000, so $30,000 minus $15,000 equals $15,000 of penalty-exempt distribution.

Question 31Role knowledge and relevant financial foundations

A Roth IRA owner age 62 first established a Roth IRA in 2020. In 2026 she takes a $40,000 distribution including earnings. Is the distribution qualified?

  1. Yes, because she has met the five-year aging requirement and is over 59 1/2 Correct answer.
  2. No, because the five-year clock starts only at age 59 1/2
  3. Only if she rolls the funds over within 60 days
  4. Only if the funds are used for qualified higher education

Explanation

A qualified Roth distribution requires the five-year aging period (measured from the year of the first Roth contribution to any Roth IRA) plus a triggering event such as age 59 1/2, death, disability, or up to $10,000 first-time homebuyer use. She meets both, so the entire distribution is tax and penalty free.

Question 32Role knowledge and relevant financial foundations

A non-spouse beneficiary inherits a Traditional IRA in 2026 from an owner who died at age 80, after his required beginning date. The beneficiary is not an eligible designated beneficiary. Under the 2024 final regulations, how must the beneficiary distribute the account?

  1. Annual RMDs in years 1 through 9 based on the beneficiary's single life expectancy, with full payout by the end of year 10 Correct answer.
  2. A single lump-sum payment by the end of year 10 with no annual RMDs
  3. Stretch payments based on the beneficiary's single life expectancy with no 10-year limit
  4. Required immediate full distribution within 60 days

Explanation

The 2024 Treasury final regulations confirmed that when an owner died on or after the required beginning date, a non-eligible designated beneficiary must take annual RMDs in years 1 through 9 using the Single Life Table and complete the full payout by December 31 of year 10.

Question 33Role knowledge and relevant financial foundations

Which beneficiary group qualifies as eligible designated beneficiaries (EDBs) under SECURE 1.0?

  1. Surviving spouse, disabled, chronically ill, individual not more than 10 years younger than the owner, and minor child of the owner until age 21 Correct answer.
  2. Any individual named on the beneficiary form
  3. Only the surviving spouse
  4. Only minor children regardless of age

Explanation

SECURE 1.0 created five EDB categories: surviving spouse, disabled individual, chronically ill individual, an individual not more than 10 years younger than the owner, and a minor child of the owner. EDBs may stretch distributions over their life expectancy until they age out (minor children switch to the 10-year rule at age 21).

Question 34Role knowledge and relevant financial foundations

A surviving spouse inherits her late husband's Traditional IRA at age 60. She wants the most flexibility for future planning. What is generally the most beneficial option?

  1. Treat the inherited IRA as her own by retitling or rolling over to a spousal IRA Correct answer.
  2. Take a lump sum distribution within 60 days
  3. Disclaim the IRA so the contingent beneficiary inherits
  4. Keep the IRA titled in her late husband's name and start RMDs immediately

Explanation

A surviving spouse uniquely has the option to treat the inherited IRA as her own. This restarts the rules as if she were the original owner: she names her own beneficiary, uses the Uniform Lifetime Table for RMDs, and delays the RBD until her own RMD age.

Question 35Role knowledge and relevant financial foundations

A 71-year-old IRA owner directs the bank to send $40,000 from her Traditional IRA directly to a qualified public charity in 2025. What is the federal tax treatment under the QCD rules?

  1. The $40,000 is excluded from gross income and counts toward her RMD up to the annual QCD limit Correct answer.
  2. The full $40,000 is taxable but deductible as a charitable contribution
  3. She is too young; QCD requires age 70 1/2
  4. QCDs were eliminated by SECURE 2.0

Explanation

A QCD requires the owner to be age 70 1/2 or older (she is 71) and must go directly from the IRA trustee to a qualified public charity. The QCD is excluded from gross income, counts toward the RMD if one is due, and is capped at $108,000 in 2025 (indexed annually).

Question 36Role knowledge and relevant financial foundations

An IRA owner takes a $30,000 distribution but does not elect any federal income tax withholding. What is the default federal withholding rate that the bank must apply?

  1. 10% unless the owner elects out or chooses a different rate Correct answer.
  2. 0% by default
  3. 20% mandatory
  4. 24% backup withholding

Explanation

Under Section 3405(b), nonperiodic distributions from IRAs are subject to a 10% default federal income tax withholding rate. The owner can elect a different rate or no withholding by filing Form W-4R.

Question 37Role knowledge and relevant financial foundations

An IRA owner takes a $10,000 distribution in 2025 and decides three weeks later to roll it back into the same IRA. She has not done another rollover in the past 12 months. Is the rollover allowed?

  1. Yes, she has 60 days from receipt to complete the indirect rollover Correct answer.
  2. No, she must wait at least 90 days before any rollover
  3. No, indirect rollovers between IRAs are no longer permitted
  4. Only if she rolls into a different IRA, not the same one

Explanation

Section 408(d)(3) allows an indirect rollover within 60 days of receipt. The owner is also limited to one indirect IRA-to-IRA rollover in any 12-month period, but she has not done another, so the rollover is allowed.

Question 38Role knowledge and relevant financial foundations

Which IRS form does an IRA trustee or custodian file to report the prior year's IRA contributions, rollovers, conversions, and fair market value?

  1. Form 5498 Correct answer.
  2. Form 1099-R
  3. Form 5329
  4. Form 8606

Explanation

Form 5498 is the IRA contribution information return that the trustee or custodian files with the IRS and provides to the IRA owner. It reports regular and rollover contributions, conversions, recharacterizations, fair market value at year end, and RMD status.

Question 39Role knowledge and relevant financial foundations

When is Form 5498 due to the IRS for the prior tax year?

  1. May 31 following the year being reported Correct answer.
  2. January 31 following the year being reported
  3. April 15 following the year being reported
  4. March 1 following the year being reported

Explanation

Form 5498 must be filed with the IRS and a copy provided to the participant by May 31 following the year reported. The May 31 deadline accommodates contributions made by the April 15 prior-year deadline.

Question 40Role knowledge and relevant financial foundations

A 60-year-old IRA owner takes a normal distribution of $25,000 from her Traditional IRA. What distribution code should appear in Box 7 of Form 1099-R?

  1. Code 7 (Normal distribution) Correct answer.
  2. Code 1 (Early distribution, no known exception)
  3. Code 2 (Early distribution, exception applies)
  4. Code G (Direct rollover)

Explanation

Code 7 indicates a normal distribution to an IRA owner who is age 59 1/2 or older. Box 7 codes drive how the IRS treats the distribution and whether the 10% additional tax applies, so the trustee must select the right one.

Question 41Role knowledge and relevant financial foundations

A 45-year-old IRA owner becomes permanently disabled and takes a distribution. The trustee receives proper documentation of the disability. What Form 1099-R distribution code applies?

  1. Code 3 (Disability) Correct answer.
  2. Code 1 (Early distribution, no known exception)
  3. Code 7 (Normal distribution)
  4. Code 4 (Death)

Explanation

Code 3 is used when the trustee has documented evidence that the distribution is due to total and permanent disability under Section 72(m)(7). The owner is not subject to the 10% premature distribution penalty.

Question 42Role knowledge and relevant financial foundations

An IRA owner makes a $7,000 nondeductible Traditional IRA contribution for 2025. What form must she file with her federal return to track the nondeductible basis?

  1. Form 8606 Correct answer.
  2. Form 5498
  3. Form 5329
  4. Schedule B

Explanation

Form 8606 is filed by the IRA owner to report nondeductible contributions, conversions, and distributions of basis. The form establishes basis in the IRA so that future pro-rata distributions are not double-taxed.

Question 43Role knowledge and relevant financial foundations

An IRA owner contributes $9,000 to her Traditional IRA in 2025, exceeding the $8,000 age-50 limit. She does not correct the excess. What form does she use to report and pay the 6% excise tax?

  1. Form 5329 Correct answer.
  2. Form 5498
  3. Form 1099-R
  4. Form 8606

Explanation

Form 5329 is the IRA owner's return for additional taxes on qualified plans, including the 6% excess contribution tax under Section 4973. The form is attached to her Form 1040 for the year of the excess.

Question 44Role knowledge and relevant financial foundations

An IRA owner converts $30,000 from a Traditional IRA to a Roth IRA. What Box 7 distribution code does the trustee report on Form 1099-R for the converted amount?

  1. Code 2 (Early distribution, exception applies) for owners under 59 1/2 or Code 7 for owners 59 1/2 or older, with the IRA/SEP/SIMPLE box checked Correct answer.
  2. Code G (Direct rollover)
  3. Code 4 (Death)
  4. Code N (Recharacterization)

Explanation

Roth conversions are reported with Code 2 if the owner is under 59 1/2 (no penalty applies even though it is reportable as taxable income) or Code 7 if 59 1/2 or older. The IRA/SEP/SIMPLE box is checked because the distribution came from a Traditional, SEP, or SIMPLE IRA.

Question 45Role knowledge and relevant financial foundations

An IRA owner takes a $50,000 distribution and rolls it over within 60 days. How does the trustee report the distribution side of this transaction on Form 1099-R?

  1. Report the gross distribution in Box 1 with the appropriate code (typically 7 or 1) and any tax withheld in Box 4 Correct answer.
  2. Do not issue a 1099-R because the funds were rolled over
  3. Report only the taxable portion after the 60-day rollover
  4. Issue a Form 5498 instead of a 1099-R

Explanation

The distributing trustee must always issue a 1099-R for the gross distribution and any withholding. The receiving trustee separately reports the rollover contribution on Form 5498. The IRA owner reconciles the rollover treatment on his Form 1040.

Question 46Role knowledge and relevant financial foundations

When is Form 1099-R for the prior year required to be furnished to the IRA owner?

  1. By January 31 Correct answer.
  2. By February 28
  3. By April 15
  4. By May 31

Explanation

Form 1099-R must be furnished to the recipient by January 31 following the year of the distribution. The IRS filing deadline is February 28 (paper) or March 31 (electronic).

Question 47Role knowledge and relevant financial foundations

Which of the following is true about an IRA owner's Roth contribution eligibility for 2025?

  1. Roth contributions are phased out at higher modified adjusted gross income levels and disallowed entirely above the upper threshold Correct answer.
  2. Anyone with earned income can contribute regardless of income
  3. Only individuals under age 30 can contribute to a Roth
  4. Roth contributions can only be made through an employer plan

Explanation

Roth IRA regular contributions are subject to MAGI phase-outs that vary by filing status. Above the upper threshold, no direct Roth contribution is allowed, although a backdoor Roth conversion remains available.

Question 48Role knowledge and relevant financial foundations

Which of the following statements about the SECURE Act elimination of the Traditional IRA contribution age cap is correct?

  1. Beginning in 2020, individuals of any age with earned compensation may contribute to a Traditional IRA Correct answer.
  2. Only individuals under age 70 1/2 may contribute to a Traditional IRA
  3. Only individuals under age 73 may contribute to a Traditional IRA
  4. Roth contributions, but not Traditional contributions, have no upper age limit

Explanation

SECURE 1.0 repealed the prior 70 1/2 age cap on Traditional IRA contributions starting with the 2020 tax year. As long as the individual has earned compensation, age does not bar the contribution.

Question 49Role knowledge and relevant financial foundations

An employer wants to adopt a SEP plan. Which of the following is true about SEP eligibility for the participating employees?

  1. All employees age 21 or older who have worked for the employer in 3 of the last 5 years and earned at least the IRS minimum compensation must be covered Correct answer.
  2. Only full-time employees must be covered
  3. Only employees who elect coverage need a SEP IRA
  4. Only employees who have been with the employer for 10 years must be covered

Explanation

Section 408(k) requires the employer to cover every employee who is at least age 21, has worked for the employer in any 3 of the last 5 years, and earned at least the IRS minimum compensation amount for the year (indexed). Employer contributions are made directly to each eligible employee's SEP IRA.

Question 50Role knowledge and relevant financial foundations

An employer with 18 employees wants to adopt a SIMPLE IRA. Which statement about employer matching is correct?

  1. The employer can match dollar-for-dollar up to 3% of compensation, or make a 2% nonelective contribution to all eligible employees Correct answer.
  2. The employer can choose not to make any contribution
  3. The employer must match at 6% of compensation for every employee
  4. Matching is prohibited in a SIMPLE IRA

Explanation

Section 408(p) requires the SIMPLE IRA employer to either match elective deferrals dollar-for-dollar up to 3% of compensation (with limited reduction options) or make a 2% nonelective contribution to all eligible employees. SECURE 2.0 added an optional enhanced employer contribution for some plans.