3.6 Retirement Plans (IRAs & 401k)
Retirement vehicles offer tax-advantaged compounding. The SIE emphasizes tax differences between Traditional (tax-deferred) and Roth (tax-free) accounts.
Key FINRA Exam Takeaways
- Traditional IRA: Pre-tax contributions (if income eligible), tax-deferred growth, ordinary income on withdrawal, RMDs start at age 73 (SECURE 2.0).
- Roth IRA: After-tax contributions, tax-free growth and qualified withdrawals, NO lifetime RMDs.
- Qualified Roth Distribution: Account open ≥ 5 years AND age 59½, death, or disability.
- Early withdrawal penalty: 10% IRS penalty on taxable distributions before age 59½.
- 401(k) Plan: Qualified employer-sponsored defined contribution plan governed by ERISA.
Interactive Knowledge Checkpoint • Section 3.6
Which of the following retirement accounts allows tax-free distributions in retirement and has NO mandatory lifetime Required Minimum Distributions (RMDs)?