Video: Individual Retirement Accounts

In this lesson, Nick Palazzolo, CPA, dives deep into the world of individual retirement accounts, breaking down the ins and outs of traditional and Roth IRAs, as well as non-deductible traditional IRAs. He elaborates on the tax advantages and unique characteristics of each type, including the tax treatment of contributions and distributions, and the specific conditions under which they grow. Nick illustrates how traditional IRAs offer tax-deferred contributions, while Roth IRAs allow for tax-free growth, and how non-deductible IRAs fit into the retirement planning landscape for those with higher incomes. Additionally, he clarifies the concept of earned income as it relates to contribution limits and provides practical examples to help demystify phase-out calculations. This lesson is essential for anyone looking to grasp the nuances of planning for retirement with an eye on tax implications.

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Video Transcript

Instructor: Nick Palazzolo

Nick Palazzolo is head instructor of ExamPrep.ai CPA Review. Nick's teaching style is engaging & upbeat, combining practical Big 4 tax & assurance expertise with years of 1-on-1 coaching. His lessons are concise and emphasize what you need to know to pass. Whether you're a recent grad or working full-time, we’re confident you can conquer your CPA exams with Nick’s review.

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Individual retirement accounts. Now we've got our traditional IRA, which you can think of like a 401k, but you're doing it yourself. You've got a Roth IRA and you've got non-deductible traditional IRAs. These are types of individual retirement accounts. You're doing it yourself. Now you can do these generally, even if you're contributing to a 401k. That provide different tax advantages to help individuals save for retirements. We've got a brief overview of each type, the differences between them. So traditional IRA, it's a type of IRA that allows individuals to make tax deductible contributions. So you are making a contribution, not paying tax on the money now, but you will pay tax on the money once you get that money out and you retire at the age of 59 and a half. Now income here is taxed as ordinary income throughout the entire exam. Classifications of income, super important to make sure you know that traditional IRA distributions are ordinary income. For Roth IRAs, contributions are made with after-tax dollars. So you get paid by your company, the money's in your account, you put it into your Roth IRA, meaning there's no upfront tax deduction. However, earnings grow tax-free and qualified distributions taken after 59 and a half are tax-free. Now for these, there's pros and cons to each. If you don't think you'll have a lot of money when you're older, put into a traditional, because if you think your tax rate will be lower when you're at 60 years old, which for some people it is, they're just getting social security, pension, they're not making the big bucks at that age, that's fine. For Roth, if you think you're going to be making crazy amounts of money, Boku dollars at that point, you're not going to

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Federal Taxation of Individuals: Filing Status, Gross Income, & Adjustments

Module: 3 Concepts, 54 Videos

Filing Status Overview

0:26

Introduction to Filing Status

4:27

Tax Filing Options

12:16

Married Filing Separately vs. Filing Jointly