Okay. In our last session, we started with Chapter 3. So I want to just back up and just
review just slightly and then I want to do a problem on our rental and then we will continue
on and hopefully be able to finish this chapter in this session, which I'm pretty sure we
should be able to finish this chapter. We started off Chapter 3, just to do a little
review before we work on a problem, is that we started off talking about our rental income,
and we began by talking about when -- what type of rental may you have. You may have
a rental that's considered, I'm sorry, primarily for personal purposes, where you have just
little incidental days and none of that income is going to be taxable to you and you can
take your mortgage and interest on your Schedule A. Or you may have a rental that is deemed
to be primarily rental use. In that case, it's really rental and you just have a couple
of personal days, not to exceed 14 days or 10% of the rental days. And in that instance,
you want to allocate your expenses between the rental and the personal days and then
you can deduct your expenses, including a loss on Schedule E.
And then you may have a rental that's considered primarily rental/personal split, kind of a
dual purpose. And in that instance, you still allocate the difference between the two, but
you cannot take a loss. You're not allowed to take a loss on that particular rental,
and in that instance, you can only deduct your expenses up to your income. So that's
-- we start it there. And so what I want to do just briefly is I want to do a problem
just to kind of -- we didn't get a chance to do that. So I want to do a problem.
And so if you look in the back of Chapter 3, and we're going to look at number 2, which
appears on Page 3-34. Okay. So let's look at that problem, number 2, which appears on
Page 3-34. And let's just do that quickly and then just so you kind of get an idea of
how that works. We have Shari, she runs her vacation home for six months and lives in
it for six months. During that year, her gross rental income during the year was $4,000.
The real estate taxes is 950. And then the interest on the home mortgage was 3,000. And
utilities and maintenance was 1800. And the depreciation was 4,500.
So with hers being 50/50, even without going to the calculations, that is going to be a
dual, a rental/personal split because her rented days equal her -- her rental days were
more than 15 days and her personal days were the greater of 14 or -- 14 days or 10%, so
we know that's going to be that split. So let's look at what we need to do for this
problem, and this is problem -- this is problem number 2, or question 2 that's on Page 3-34.
That's on Page 3-34. So they tell us that she had rental income
for the year of $4,000. So rental income was $4,000. And because this is a dual property,
then she is only going to be able to take expenses up to her income. She's only going
to be able to take expenses up to her income. And remember this is 50/50. So we have to
consider that as we allocate the expenses. So the expenses that she's able to deduct
or that they're able to deduct is we have to deduct them in that order. We first start
with the real estate taxes, and that's the first. And the real estate taxes were 950,
okay. And for the real estate taxes, because this was half personal, half rental, we can
only take half of them. So we're only going to take half of those.
And then also we're going to look at the rental portion for the interest, for the interest.
And the interest on the home was 3,000. And so we can only take half of those.
Okay. So when we're looking at they're telling us the order in which we have to take them
in, we started off with 4,000. She gets to deduct half of the taxes and then half of
the interest, and so that leaves her 2,025 of income in which she can deduct expenses
against. The next thing in order, they tell us to take the other items, the utilities,
maintenance, anything else that you may have before depreciation, and in this instance
she had utilities and maintenance expenses of $1,800. So we had utilities and maintenance
expenses of $1,800. Okay. But she's only going to get half of
that, once again, because half of it's personal, half of it's business. So we only want to
take half of that. And that gets us down to 1,125 left of income in which she can deduct
expenses against. And the depreciation, which is what's left, the depreciation on it is
$4,500. Okay. Technically she would be able to take half of that, which is -- which would
be 2,250. But we don't have enough income left to take that. So we're only going to
take what's left because we cannot take a loss.
We cannot take a loss. So net income ends up being zero. We deduct
it, depreciation of 1,125. We deducted utilities and maintenance of 900. Interest of 1500 and
we deducted taxes of 475. So those are expenses that we're allowed to deduct. Up to the income.
So you cannot take more than the income because that was a split.
Now, had this been a piece of property that was not a split and we could have taken or
had it been primarily rental, we could have taken all the applicable -- and let's just
say it was still 2,050, we could have taken all the applicable depreciation and, therefore,
we would have been able to take a loss of 1,250 -- 1,125.
So that is the difference between on our rental. So I just kind of wanted to back up and do
a problem together so that you kind of understand the calculations and how they work for this
when we're dealing with our rental. So that's where we started on -- in our last
session, started talking about our rental, and then we went over our passive loss rules,
we went over the real estate being a passive activity and the possibility of taking up
to a $25,000 loss there, and then we ended up by looking at our bad debts. So that's
where we want to start, basically where we left off there, where they're talking about
our bad debts, where they're talking about our bad debts.
So let's look at -- let's get you on the correct page that we're on and then we'll pick up
at that point. At the bottom of Page 3-8, we start bad debts. Basically when we're talking
about businesses, just briefly, we're really talking about uncollectible accounts receivables,
and we spoke about the -- the situation where it has to be a situation that you've taken
the income on it in order to be able to take the bad debt on it. Then we looked at business
bad debts, and basically debt from a trade or business is going to get an ordinary income
deduction and it's going to be taken against ordinary income on Schedule C. It's going
to be taken against ordinary income on Schedule C.
And so now we want to pick up at our non-business bad debt. These are our personal debts. And
so basically these particular debts, all these other bad -- and let me blow that up so you
can see that -- all these other bad debts, these are going to be taken or considered
short-term capital losses. They're going to be considered short-term capital losses. And
they're going to be limited to a $3,000 loss each year against ordinary income.
So the most loss that I can take and offset my regular income is going to be $3,000. If
I had more than that, any unused amount can be carried forward, okay. And this is all
done on Schedule D. It's going to be all done on Schedule D. It's going to be done on Schedule
D. So kind of like what I'm referring to, let
me get a little space, is that if I had this loss of $10,000, okay, kind of as an example,
let's say I had a loss of $10,000, and then I also had -- I can only take -- I'm sorry,
if I had a bad debt of $10,000, I can only take 3,000 of that. The other 7,000 is going
to have to be carried forward, okay. So that's the most I can take is the $3,000. The other
7,000 is going to have to be carried forward. Okay. That's our bad debt. In this class we
do not cover inventory, so we will not cover that as you're looking through your text.
And then they deal with net operating losses, which that is not covered in this basic income
tax class either. And so now I want to pick up and we want to deal with the rest of our
session, this particular class period, and we want to deal with retirements. We want
to deal with retirements. How do we deal with IRAs, individual retirement
accounts? And that starts on Page 315. So we want to pick up there and that's what we
want to cover and look at. Okay. IRAs, or individual retirement accounts,
there's two types. There are -- there's a traditional IRA and then there is a Roth IRA.
Okay. So we want to look at both of those. The traditional IRA and then the popular Roth
IRA. Traditional IRAs are deductible. You make deductible contributions, meaning when
I put money in, it is a deduction for me. But when I take money out, my distributions
are taxable. So you have deductible contributions and taxable distributions for a regular IRA.
Okay. For a Roth IRA, you have non-deductible contributions. So when I'm making contributions
to my Roth IRA, I cannot deduct them. And my distributions are not taxable. So I have
non-taxable distributions. Okay. So when we're looking at an IRA, we have if
it's traditional all my -- not all. We're looking at there's some limits. My contributions
are going to be deductible, meaning I get to deduct it from income, and my distributions
are going to be taxable. So when I begin to draw, there's a portion that's going to be
taxable. The Roth on the other hand, as I make contributions to it, they're not going
to be deductible, but my distributions will not be taxable. Okay.
And then the earnings on both of these, the earnings on both of these are not taxable.
So current earnings. So basically, as you leave the money in there and it earns money,
those current earnings are not taxable. So current earnings are not taxable.
Okay. So let's begin to focus in on first starting
with our contributions to traditional IRAs, our contributions to traditional IRAs. First
of all, for those contributions to a Roth or a traditional IRA, you have until April
the 15th, in this case for a 2008 return, you would have until April the 15th of 2009
to make that contribution. So you're not tied by the end of the year. You have until April
the 15th in order to make that contribution. For a traditional IRA, the maximum contribution
amount is going to be the lesser of 100% of earned
income, meaning all my income, if that's the lesser number. The lesser of 100% of earned
income or $5,000, okay. And if you're married filing jointly, it could possibly be 10,000,
which it would be $5 apiece, and so you can take, if you can take that additional $5,000
for the spouse. Okay. We're going to look at when those rules apply. So if we can end
up taking that additional 5,000, technically you can get up to 10,000 on a return. And
then they have what they call some catch-up. They have what they call catch-up contributions.
You can make an additional thousand in catch-up contributions, and this is only for taxpayers
and spouses who are age 50 and over. Okay. So if you're 50 and over, I can even make
an additional, so it can be up to $6,000 per person for the -- for that purpose. Okay.
So there's a possibility that a portion or your contributions could not be tax -- I mean
not be deductible. Generally, the contributions to an IRA is deductible, but it depends on
whether you're already participating in a plan. It depends on a number of things as
to whether it's going to be deductible or non- -- end up being non-deductible.
So if we look on Page 3-16, and we look at the chart at the top of that page and we're
going to look at a couple examples as well when it comes to that. So there's a possibility
that this $5,000 that I can take, maybe all my $5,000 may not be deductible. Okay. So
let's look at the chart at the top of Page 3-16. That chart is titled 2008 AGI Phase-out
Ranges for Traditional IRAs. So we're talking about traditional IRAs. So they have a column
for the taxpayer and then they have a column for the phase-out range. So if you are single
and you're filing head of household and you're not a plan participant, so that means that
I am not participating in a plan at work, I'm not already in a retirement type plan,
there's no phase-out, so therefore, I can contribute the $5,000 and get the full $5,000
deduction. If I am single or head of household and I
am in an active plan, so I do also have a plan at work, if my income is between 53,000
and 63,000, there's a possibility that I will not get a portion. There's going to be a portion
of mine is phased out. If my income is over 63,000, I won't get to take the deduction
at all. Doesn't mean I can't make the contribution. It just means it's not going to be deductible.
If I'm married filing joint, and both are in -- both are in an active plan, meaning
me and my spouse both, and if our income's between 85,000 and 105, there's going to be
a phase-out of the amount of deductions we can get. If it's over 105, we're not going
to be able to get that deduction. And so I won't read the rest of the chart
to you, but that's how the chart works, okay. It also tells us, note, and we're going to
look at an example of this, because they have three good examples in this particular textbook.
It says when one spouse is an active participant in a retirement plan and the other is not,
so if we got one in, one out, two separate income limitations apply. One is going to
apply to the one who is not, the other one is going to apply to the one who is. The active
participant spouse may make a full deductible IRA contribution as long as the income is
not between 85,000 and 105, which is the phase-out range.
The spouse who had no active participant, the spouse who wasn't actively participating
in the plan, sorry, then they're going to get the full deduction, okay, unless joint
income is higher than 159 and 169. So even though we may use separate qualifications,
the income amount that we're going to use is going to be the joint, them combined together.
So even though we may end up doing that, okay. So that is your traditional one.
So let's write a note and then we'll look at the exercise. So but due
to income limitations, so it's going to be based off your income. That's what they're
looking at. Due to income limitations, okay, all of the 5,000, and I know it possibly could
be 6,000 or 10,000, all of the 5,000 maximum amount may not be deductible.
Okay. So let's start by looking at the example, the first example that's on Page 3-16. Let's
look at that example. Ed, age 31, is single and is covered by a retirement plan. If his
modified adjusted gross income is 59,000, Ed's maximum deductible traditional IRA that
he can deduct is $2,000. It's $2,000. And the way they got that, let me go ahead and
show that even though it's in the book. But Ed, he had income of 59,000, okay. He was
single. Okay. And he was also already covered by a retirement plan. So single, active plan
participant, I'm sorry, the range is 53,000 to 63,000. And so because he falls in the
middle of that, then he's going to get a portion of it. If his income was over here, then he
wouldn't get to deduct any of that, okay. So what we do is we take the upper limit,
which is 63,000, minus Ed's income, okay. And that gives us 4,000. So he is -- he has
4,000, as they say, left in the range to deal with. And so that's how you kind of determine
how much or how do we -- how much we're going to give him, the phase-out. And then we divided
by 10,000. The 10,000 comes from 53,000 and 63,000, there's 10,000 in the range. So there's
$10,000 in the range and that's how they get the $10,000.
So we take 4,000 divided by 10,000, and then we multiply it by 5,000. You multiply it by
5,000. So that represents the allowed deduction portion. So he's going to end up getting a
$2,000 IRA deduction. Okay. Now, he can contribute the full 5,000,
nothing says that he can't. He can contribute the full 5,000, but he's only going to get
a deduction for the 2,000. So 40% ends up he's getting -- he's able to get a 40% deduction.
Okay. Let's also look at the example that's at the
top of Page 3-17. This is when you have two different people. I like this example as well.
Paul and Lucy are married and both 36 years old. Lucy is covered by a plan and earns $57,000.
So we got Lucy. So I'm visual, I have to see these things. She's covered -- she's covered
by a plan and she earns $57,000. Paul is not covered. So Paul is our not covered person,
okay. Paul is not covered by a retirement plan. He earns 57,000. So we have her, Lucy's
57,000, and we have Paul's 50,000. So their total income is 107,000.
So we're looking at the charts, that's what we want to look at is the 107. Lucy cannot
make a deductible contribution because if we look, married filing jointly and we have
one active participant, okay. When we have one active participant, then the active participant
spouse, if you look at the top of Page 3-16, the active participating spouse, the phase-out
range is between 85,000 and 105,000. So given that, if Lucy makes a $5,000 contribution,
it is not deductible. Okay. So Lucy cannot deduct hers because it falls on the outer
range. It falls on the outer range. Okay. If you look for the not active participating
spouse, the range for Paul is going to be between 159, so it's higher, and 169. So since
their income is not in the range or the phase-out range, that means Paul gets to make a $5,000
deduction and it's going to be deductible. Okay. So in this case, one spouse's is not
deductible and the other spouse's is. So because one is a participant and one is not, we look
at two different line items on the chart and two different qualifications. So it's very
well that one could be and one could not. Okay.
Now, one thing we want to pick up there and talk about is we want to talk about the Roth
IRA. So even though in this case Lucy could not make a deductible contribution to a traditional
IRA, there's a possibility that she could make a contribution, because remember they're
not deductible anyway in a Roth IRA, so she may choose to make a contribution to a Roth
IRA. Okay. So if we look at the Roth IRA, they begin
to talk about that and a Roth IRA, as far as the contribution amounts, they are the
same as the traditional IRA. So they're going to be the same as the traditional IRA, and
so these rules are going to apply. So they apply for a traditional IRA and they are also
the same for a Roth IRA. So same. So the contributions are going to be same.
Now, the difference is, is that the phase-out, a little different. If we look at the bottom
of Page 3-15, so you want to look on Page 3-15 for the phase-out. Okay. 2008 phase-out
ranges for Roth IRAs. And with the Roth IRA, if you are an active plan participant or not,
versus not doesn't matter. So that's not what we're looking at here.
We're just simply looking at income amounts. So single or head of household, the phase-out
range is between 101 and 116, and for married filing jointly the phase-out range is between
159 and 169. Okay. So it doesn't matter if you're an active plan
participant or not. So let's look at an example. They have an example that I want to look at
and kind of walk you through on Page 3-16. And it's the last one that deals with the
Roth. It says Ann, who is 36, would like to contribute 5,000 to her Roth IRA. However,
her AGI is 110. So we got Ann. She's got AGI of 110. So when we look at our AGI phase-out
range for a -- and she's single, so the range is between 101 and 116 for a single person.
So her number falls in between that range, means that it's phased out. Just like with
the other one, if it's over 116, that means she gets no deduction. If it's -- if her AGI
is less than 101, that means she would get the full deduction. Okay.
So she wants to make a $5,000 contribution, and what we want to do is a similar calculation
when we did the phase-out before. We want to take the upper limit of 116 and subtract
from it her income, the 110. And when we do that, we get $6,000. Then we
want to divide that $6,000 by 15,000, similar to what we did on here, 101 to 116. There's
a $15,000 range. So that's how we get our bottom number.
And so then we want to multiply that times our $5,000 and it just happens to be 2,000.
That's because that comes up to be 40% again. So that's how she would determine for her
Roth IRA how much of her contribution she can make, how much of her contribution she
can make. And that is at the bottom of Page 3-15.
So if you go back to Lucy, if we go back to our example up here, remember, they had -- let
me show you this. Remember, Lucy $5,000, not deductible. Their total AGI was 107, and so
if we look at the married filing jointly range, theirs would be 159 to 169. So she would be
able to make that full $5,000 contribution to an IRA. So she would be able to make the
full $5,000 contribution to an IRA, which would be good. Which would be good.
Okay. So let's continue. Now, those deal with the
contributions to an IRA, are contributions to an IRA. We want to look at now how do we
handle the distributions, the money that comes out? How do we handle the money that comes
out of an IRA? So when we talk about distributions, we're talking about withdrawals. When we talk
about distributions, we're talking about withdrawals that we take out or that are coming out. Okay.
For a traditional IRA, those withdrawals are taxable as ordinary income. So basically they're
taxed at your regular ordinary income rate, okay. They could very well be subject to a
10% penalty and you can't take them out -- or to keep you from being subject to that penalty
along at 59 and a half. Okay. Now, there are some situations that you can
take it out penalty-free before you're 59 and a half, and so those you want to look
at. So for penalty-free withdrawals that you make before you're 59 and a half, we want
to look at Page 3-17 for those. We want to look at Page 3-17, at the bottom. If you're
disabled, they give us a couple of them. Using a special level payment option, if you're
using the withdrawal for medical expenses in excess of 7.5% of your AGI, if the recipients
have at least 12 weeks of unemployment compensation. So this is very important as our economy finds
ourself in a situation where we have -- may have a number of people unemployed and to
the extent that they're paying medical insurance premiums for their dependents. So keep that
in mind. Paying the cost of higher education, including
tuition, fees, books, room and board for the taxpayer's, their spouse, children, or grandchildren.
So if you're using it for that purpose. Or a withdrawal of up to $10,000 for first-time
home buyers. So you could also use that as well for first-time home buyers.
So you can very well take it out penalty-free before you reach the 59 and a half. You're
still going to have to pay ordinary income tax on it. So you didn't alleviate that. But
what you do is you alleviate the penalty. Okay. And one last note on those is that those
withdrawals, you can't make them before 59 and a half, but you have to begin to make
them by the time you reach 70 and a half. So minimum annual distributions are going
to be required at 70 and a half. I think I said 79, but 70 and a half. So can't make
it before 59 and a half. If you -- and if you reach 70 and a half and you haven't started
withdrawing money out of those IRAs, you need to make those minimum annual distributions,
and there's some charts and some calculations that goes along with that, what's considered
-- what IRS considers to be minimum. Okay. Next, what about our withdrawals or
our distributions from a Roth IRA? These withdrawals are tax-free and they're tax-free after five
years, okay. If not, if it's not a five-year, let's look at one through four that's going
to be on Page 3-18. So let's look at that. 3-18. Okay. For your Roth. For your Roth here,
it tells us that you have a five-year holding period on your Roth if any of the following
requirements are satisfied. So hold it for five years, you can withdraw if these items
are done. The distribution is made on or after, which you're 59 and a half, so we still have
that age limit on there. The difference is, is that you only have a five-year waiting.
The distributions is made to a beneficiary or a -- after a participant's death. So if
it's being distributed because it's a death of an individual, of the individual, the participant
becomes disabled, or the distribution is used to pay for qualified first-time home buyer
expenses. So once again, you can use it for a home buyer expense.
They have an example here on this page I want to look at. Bob establishes a Roth IRA at
the age of 50 and contributions -- and contributes the maximum each year for 10 years. The account
is now worth 61,000 consisting of 35,000 of non-deductible contributions. So that means
he put 35,000 of his own money, so it's not deductible, and 26,000 of earnings that have
not been taxed. So over those 10 years, $26,000 of earnings. Okay.
Get back to where -- Bob may withdrawal the 61,000 tax-free from the Roth IRA because
he is over 59 and a half, because he started at 50, now he's 60 and has met the five-year
holding period requirements. So he's met those. And the thing about that
is that it grew tax-free, so he's not having to pay tax on $26,000 worth of earnings, which
is huge! If he would have put that same amount of money in a traditional IRA, he would have
got the deductions for those contributions, but he would have paid tax on those withdrawals,
on that earnings piece. He would have had to pay tax on that.
Okay. So basically let's say that I didn't meet
that. Let's say that I'm not 59 and a half and I withdraw that money, okay. So the taxable
situation with that one, so it's going to be taxable if the requirements are not met.
So it's going to be taxable if the requirements are not met. And basically the way it works,
the return of capital, meaning my portion that I put in that I didn't get a deduction
for, I'm going to get it back tax-free. I'm not going to have to worry about still paying
tax on that. But the earnings is going to be taxable to me. The earnings is going to
be taxable to me. So I lose that tax-free part of the earnings. I'm going to lose that
tax-free part of the earnings. If we keep looking back at that example on
Page 3-18, they give us another example. Assume the same facts in the above except that Bob
is only the age 56 and he receives distribution of $10,000. Remember, he contributed starting
at 50 and so now he's 56 and he receives a $10,000 distribution. He has put in some money.
In that instance, after ten years he had put in 35,000 and had earnings of 26.
So situation is that now he's 56 and he receives a distribution of 10,000. Assumes that his
adjusted basis for the Roth is 12,000, meaning contributions made of 2,000 for 6 years. So
let's assume he made $2,000 contributions for 6 years, okay. The distribution is tax-free
and his adjusted basis is reduced to $2,000. So because he had put in 12, he got a distribution
of 10, all that's tax-free. That's just like getting his money back. That's getting his
money back. So that would be tax-free.
Okay. A couple things I want to point out before we move away from our Roth, if you
turn to Page 3-17 in your book, they talk about taxpayers transferring Roth -- traditional
accounts to Roth. It tells us taxpayers with AGI not more than 100,000 may benefit from
the rule allowing conversions of regular IRAs into Roth IRAs. Okay. Although that conversion
is going to be subject to current income taxes, because remember, those distributions from
a traditional IRA are going to be taxable, taxpayers with certain factors in favor such
as many years to retirement, may mean they have a lot more years of retirement to go,
a low current tax break, it may be currently I'm in a very low tax bracket maybe because
of children, because of my mortgage on my home, so I have a pretty low tax bracket to
where a lot of times when people retire, they have no more mortgage deduction, the children
are gone, it's sometimes -- even though their income is lower, but sometimes their tax bracket
is higher due to the fact they don't have as many deductions anymore, and so they go
on say, you know, due to low current tax bracket or high expected tax bracket at retirement,
may wish to make the conversion, because then, when they begin to take their money out of
the Roth, that money is not going to be taxable to them when they're at the higher rate. Okay.
Keep in mind when I make the conversion, now I'm going to have to go ahead and pay tax
on that. It says also taxpayers with negative taxable income due to large personal deductions
may wish to convert enough of their regular IRAs to Roth IRAs to bring taxable income
to zero. So instead of it being negative, maybe they'll make a contribution to bring
it to zero. This way the conversion can be done with no tax cost since deductions which
would otherwise be lost because of the negative are offset now by the IRA income.
So they can use that IRA income to bring up their income so, therefore, instead of having
negative taxable income, they can at least have a zero taxable income.
Then it goes on to tell us for the years 2010 and beyond, the rule that require taxpayers
to have 100,000 or less AGI for this conversion that I just read from a regular IRA to a Roth
IRA accounts has been eliminated. So for the tax years 2010 and beyond, okay, that $100,000
limitation is gone. So Congress expects that many high income taxpayers will take the advantage
of this opportunity to pay income tax due upfront on those conversions.
So excellent opportunity to consider, just something to consider as you begin to look
at your Roth, maybe setting up a Roth versus a traditional. So just know there are some
IRS benefits out there for that purpose. There's some IRS benefits out there for that purpose.
Okay. On Page 3-19, they talk about a KEOGH plan or a simplified employee pension plan,
okay. These plans are plans that mostly we're looking at self-employed people setting up
plans, okay, for retirement for their purposes, so we're talking about a KEOGH plan, we're
looking at self-employed people. So if I'm self-employed, I want to set up this tax deferred
plan, so tax deferred retirement plan. Okay. So we're looking at self-employed tax
deferred retirement plan. Okay. And they call these KEOGH plans, okay. Now, for these plans,
the contributions are going to be limited to, meaning the amount
that me as a self-employed person can put in there is going to be limited to the lesser
of 20% of my net earned income or $46,000. Okay.
So my contributions are going to be -- going to be limited to the lesser of either 20%
of my net earned income or $46,000. Okay. They have also what they call SEP plans. SEP
plans. Okay. And these are like simplified employee pension plans, or they're IRAs as
well. They're IRAs as well. The contributions into these plans are going to be the same,
the same as our KEOGH plans, and so 20% of net earned income and $46,000, okay. Now,
we want to be careful. We're going to have some penalties as well with these plans. So
to avoid penalties, you want to make sure that your distributions from these plans are
not before 59 and a half, and you want to make sure you're making minimum distributions
at 70 and a half. So those same type rules apply when we're
dealing with those particular plans as well. Those same type rules apply when we're dealing
with those particular plans. So you want to make sure that you're not taking out before
59 and a half and that at 70 and a half you make sure you're making minimum distributions,
minimum distributions from those plans. Okay. We have about five minutes left. And
so I just kind of want to touch on, we still in our beginning of our next session will
have a little bit left to cover in here on 3.8, they talk about qualified retirement
plans, including 401(k)s, which are also important plans. So I want to look at that. So let me
just kind of briefly introduce the 401(k)s. Basically employers, this is where employers
is going to receive deductions for any contributions they make that are made on behalf of the employee,
okay. And as long as it is a qualified plan, it's got to be a qualified plan, so when we're
looking at those rules and those qualified plan rules are on Page 3-20, okay, and so
as we look at that, we're going to be looking at a -- a defined contribution plan versus
a defined benefit plan when we look at 401(k)s and then we're going to look at how much can
I contribute to a 401(k). A lot of times some employers will match those contributions,
and that's what I mean by the deductions that they can get.
And so what we'll do is we just have like a page or two of Chapter 3 and then we're
going to go ahead and pick up with Chapter 5. We're going to look at itemized deductions.
We will look at itemized deductions, Schedule A deductions. So we'll wrap up these last
two pages in Chapter 3, not cover Chapter 4, and then we're going to pick up Chapter
5, which deals with itemized deductions. So make sure you're reading chapters and make
sure you're doing multiple choice questions at the end of the chapter. You should be working
on your multiple choice questions for Chapter 3 and, therefore, ready to turn those in when
we complete the chapter. That's it. (Music.)