Study guide
Retirement and tax questions reward memorized limits and clean rule application: IRA limits, RMDs, 1035 exchanges, and wash sales.
IRA Contribution Limits and Rules
2026 IRA limit: $7,500 plus $1,100 catch-up (50+) = $8,600, combined across all IRAs. Early withdrawal before 59½ incurs 10% penalty with exceptions. Roth qualified withdrawals are tax-free after 5 years and 59½.
Required Minimum Distributions
Traditional IRA RMDs begin at 73 (SECURE 2.0); Roth IRAs have no lifetime RMDs. First RMD delayable to April 1 following year, forcing two distributions that year. Missed RMD penalty: 25% excise tax, 10% if corrected.
Section 1035 Exchanges and Annuity Taxation
1035 exchanges defer gain tax-free regardless of issuer, but typically restart surrender charges. Rule 2330 requires principal suitability review; bonus credits alone don't establish suitability.
The Wash Sale Rule
IRC 1091 disallows loss if substantially identical securities (or options to acquire them) are bought within 30 days before/after sale. Disallowed loss adds to replacement basis. Calls trigger it; puts don't.
Cost Basis, Holding Periods and Gifted or Inherited Securities
FIFO is default; specific ID allowed. Gifted securities carry donor's basis for gains, but use lower FMV for losses. Inherited securities get stepped-up basis and automatic long-term treatment.
Key terms
- Combined IRA limit
- — $7,500 plus $1,100 catch-up (2026), aggregated across all IRAs.
- Required minimum distribution (RMD)
- — Mandatory traditional IRA withdrawal beginning at 73; none for Roth.
- Required beginning date
- — April 1 following year reaching RMD age; delaying forces two RMDs that year.
- Section 1035 exchange
- — Tax-free annuity exchange; restarts surrender period typically.
- Wash sale rule
- — Disallows loss for repurchase of substantially identical security within 61-day window.
- Substantially identical security
- — Same issuer stock/options qualify; different company stock doesn't.
- First-in, first-out (FIFO)
- — Default tax lot method absent specific identification.
- Stepped-up basis
- — Inherited security basis reset to date-of-death FMV; automatic long-term.
- Dual basis for gifts
- — Loss uses lower of donor basis or gift-date FMV; gain uses donor basis.
- Excise tax on missed RMD
- — 25% penalty on shortfall, 10% if timely corrected.
Exam tips
- IRA limit is ONE combined cap across all IRAs, not per-account.
- Roth IRAs have no lifetime RMDs; traditional IRAs start at 73.
- 1035 exchanges are tax-free across issuers but usually restart surrender charges.
- Wash sale window is 61 days; calls trigger it, puts don't.
- Inherited stock is always stepped-up and long-term; gifted stock has dual-basis rules.
- Missed RMD penalty (25%/10%) applies to the shortfall, not the whole balance.