Difficulty: Easy

Average Score: 100%

Which client could deposit the available funds into a rollover individual retirement annuity (IRA)?

Rationale

An employee who resigns and receives $15,000 from a qualified plan could deposit the available funds into a rollover individual retirement annuity (IRA).

When an employee resigns from a job and receives funds from a qualified retirement plan, they have the option to roll over those funds into an IRA without incurring taxes or penalties. This process allows the individual to continue deferring taxes on their retirement savings.

A (A student who receives $20,000 as a life insurance death benefit) YOUR ANSWER

Life insurance death benefits are not considered qualified retirement funds and cannot be rolled over into an IRA. The funds received from a life insurance policy are typically tax-free and are meant for beneficiaries rather than retirement savings.

B (A self-employed person who has $5,000 to invest for retirement) YOUR ANSWER

While a self-employed person can certainly contribute to a retirement account, the $5,000 mentioned here does not represent funds from a qualified plan that can be rolled over. Contributions to retirement accounts must come from eligible sources to qualify for rollover provisions.

C (An employee who resigns and receives $15,000 from a qualified plan) CORRECT

Upon resignation, if an employee receives funds from a qualified retirement plan, they are eligible to roll over that amount into a rollover IRA. This action allows for the continued tax deferral of the retirement savings until withdrawal.

D (An individual who receives $10,000 from a lottery) YOUR ANSWER

Lottery winnings are not classified as retirement funds and cannot be rolled over into an IRA. These funds are subject to taxation as ordinary income and do not qualify for retirement account contributions.

Conclusion

The ability to deposit funds into a rollover IRA is specifically available to individuals receiving distributions from qualified retirement plans. Among the options presented, only the employee who resigns and receives $15,000 from a qualified plan qualifies for this rollover, allowing them to maintain the tax-advantaged status of their retirement savings. Other options involve funds that do not meet the criteria for a rollover, emphasizing the importance of understanding the sources of retirement contributions.

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