Retirement Accounts

Retirement accounts offer tax advantages to encourage saving for retirement. Understanding the differences between account types, contribution limits, and distribution rules is essential for the Series 6 exam.

2025 Contribution Limits Summary

New for 2025: Under SECURE 2.0, participants ages 60-63 can make enhanced catch-up contributions of $11,250 (instead of $7,500) to 401(k)/403(b) plans.

Traditional IRA

Key Features

Deductibility Rules

Deductibility depends on whether you (or spouse) have a workplace retirement plan:

No workplace plan: Fully deductible regardless of income

With workplace plan (2025):

• Single: Phase-out $79,000 - $89,000 MAGI
• Married Filing Jointly: Phase-out $126,000 - $146,000 MAGI

Key Point: Even if contributions aren't deductible, you can still contribute to a traditional IRA (non-deductible contributions).

Roth IRA

Key Features

Roth IRA Income Limits (2025)

Qualified Roth Distributions

To be tax-free, Roth distributions must be:

1. From an account open at least 5 years, AND
2. Made after age 59½, OR due to death, disability, or first-time home purchase ($10,000 lifetime)

Exam Tip: Roth IRAs have NO RMDs during the owner's lifetime. This is a major advantage over traditional IRAs.

401(k) Plans

Employer-sponsored defined contribution plans:

Key Features

• Employee salary deferrals (pre-tax or Roth)
• Employer matching contributions possible
• Vesting schedule may apply to employer contributions
• Loans permitted (up to 50% of balance or $50,000)

Roth 401(k)

• After-tax contributions to 401(k)
• Tax-free qualified distributions
• New: No longer subject to RMDs (as of 2024)

403(b) Plans

Similar to 401(k) but for:

• Public schools and universities
• 501(c)(3) tax-exempt organizations
• Churches

Same contribution limits as 401(k).

SEP IRA (Simplified Employee Pension)

For self-employed individuals and small business owners:

Key Point: SEP contributions must be the SAME percentage for all eligible employees.

SIMPLE IRA (Savings Incentive Match Plan for Employees)

For small businesses with 100 or fewer employees:

SIMPLE IRA 2-Year Rule

During the first 2 years:

• Early withdrawal penalty is 25% (not 10%)
• Cannot transfer to non-SIMPLE IRA

Rollovers and Transfers

Direct Rollover (Trustee-to-Trustee)

• Assets move directly between custodians
• No withholding
• No time limit
• Preferred method

Indirect Rollover (60-Day)

• You receive the funds personally
• 20% mandatory withholding from employer plans
• Must redeposit within 60 days to avoid taxation
• Only ONE indirect rollover per 12 months (per account type)

Exam Tip: The 60-day rule and one-rollover-per-year rule are frequently tested. Direct rollovers avoid these issues.

Required Minimum Distributions (RMDs)

RMD Age

• Age 73 (for those born 1951-1959)
• Age 75 starting in 2033

RMD Rules

RMD Exceptions

• Roth IRAs: No RMDs during owner's lifetime
• Roth 401(k): No longer requires RMDs (as of 2024)
• Still working: Can delay workplace plan RMDs if still employed (except 5% owners)

Early Withdrawal Penalty (Before 59½)

Standard Penalty

10% additional tax on early distributions from retirement accounts

Exceptions to 10% Penalty

Key Exam Points

1. Traditional IRA - Tax-deferred growth, RMDs at 73, deductibility depends on income/plan
2. Roth IRA - Tax-free growth/withdrawals, NO RMDs, income limits apply
3. 401(k) 2025 limit - $23,500 ($31,000 with catch-up)
4. SEP IRA - Employer contributions only, up to $70,000 or 25%
5. SIMPLE IRA - 25% early withdrawal penalty in first 2 years
6. 60-day rollover rule - Must redeposit within 60 days
7. RMD age - 73 (75 starting 2033)
8. 10% penalty exceptions - Death, disability, SEPP, first-time home, education