Traditional IRA

C is correct. Robert earns $175,000 and is covered by his employer's 401(k) plan. The 2026 deductibility phase-out range for single filers covered by an employer plan is $81,000-$91,000. Since Robert's income of $175,000 far exceeds $91,000, he receives NO tax deduction for Traditional IRA contributions. However, he would make non-deductible contributions, paying taxes now but also paying taxes again on distributions in retirement (double taxation on the contribution amount, though earnings grow tax-deferred). A Roth IRA would be more appropriate because he also pays taxes now but all qualified distributions are completely tax-free. While his income also exceeds Roth IRA contribution limits ($153,000-$168,000 for 2026), he could use a "backdoor Roth" conversion strategy.

A is incorrect because Robert gets NO deduction ($0 tax savings, not $2,240) due to his high income and employer plan coverage. B contains correct reasoning (Roth advantages), but it doesn't identify the key issue: he can't deduct Traditional IRA contributions, making a Roth IRA (via backdoor conversion) more suitable. D is false because Roth IRAs have NO required minimum distributions during the owner's lifetime, while Traditional IRAs require RMDs starting at age 73.

D is correct. Under the SECURE 2.0 Act, Traditional IRA owners must begin taking required minimum distributions (RMDs) at age 73. The RMD age increased from 72 to 73 for individuals who reach age 72 after December 31, 2022. The age will increase again to 75 in 2033.

A (age 59½) is incorrect because this is the age at which the 10% early withdrawal penalty no longer applies, not the RMD age. Individuals can begin penalty-free withdrawals at 59½ but are not required to take distributions until 73. B (age 70½) is incorrect because this was the RMD age before the SECURE Act of 2019, which raised it to 72. This is outdated information. C (age 72) is incorrect because while this was the RMD age from 2020-2022 (after the original SECURE Act), the SECURE 2.0 Act raised it to 73 effective 2023.

B is correct. Maria can contribute the maximum of $7,500 for 2026 (she is under age 50, so no catch-up contribution). Because she is not covered by an employer plan, her entire contribution is fully deductible regardless of her income level. Her tax savings equals: $7,500 × 22% (her marginal tax bracket) = $1,650.

A ($1,500) is incorrect because it uses the 20% tax rate instead of Maria's actual 22% marginal bracket ($7,500 × 20% = $1,500). Maria is in the 22% bracket, so her tax savings must be calculated at 22%. C ($1,892) is incorrect because it uses the catch-up contribution limit of $8,600 ($8,600 × 22% = $1,892), but Maria is only 32 years old and does not qualify for catch-up contributions until age 50. D ($2,400) is incorrect because it appears to use an incorrect calculation, possibly using a higher tax bracket or incorrect contribution amount.

C is correct (the EXCEPT answer). Traditional IRA owners do NOT have to stop making contributions when RMDs begin. The SECURE Act (2019) eliminated the previous age 70½ contribution cutoff. Individuals can now contribute to Traditional IRAs at any age as long as they have earned income. This means someone age 73 or older can simultaneously take required minimum distributions AND continue making new contributions if they are still working and earning income.

A is accurate: Traditional IRA contribution deductibility depends on two factors: (1) whether the individual (or spouse) is covered by an employer retirement plan, and (2) modified adjusted gross income (MAGI). Those not covered by employer plans can always deduct contributions regardless of income. Those covered by employer plans face income-based phase-out ranges where deductibility is reduced or eliminated. B is accurate: All Traditional IRA distributions are taxed as ordinary income (not capital gains) in the year received, including both the original contributions and all accumulated earnings. Any previously non-deductible contributions create basis and are not taxed again, but this is tracked separately. D is accurate: The 10% early withdrawal penalty applies to distributions before age 59½, with exceptions including disability, death, first-time home purchase (up to $10,000 lifetime), qualified higher education expenses, and substantial medical expenses exceeding 7.5% of AGI.

A is correct. Only statements 1 and 2 are accurate.

Statement 1 is TRUE: Under SECURE 2.0, Traditional IRA owners must begin taking RMDs at age 73. Thomas is 74, so he should have begun RMDs when he turned 73.

Statement 2 is TRUE: The RMD is calculated by dividing the account balance on December 31 of the prior year by the life expectancy factor. For 2026: $850,000 ÷ 25.5 = $33,333 (approximately). This is the minimum amount Thomas must withdraw in 2026.

Statement 3 is FALSE: Under SECURE 2.0 (effective 2023), the penalty for failing to take an RMD was reduced from 50% to 25% of the amount not withdrawn. If the error is corrected within 2 years, the penalty is further reduced to 10%. The 50% penalty is outdated information from before 2023.

Statement 4 is FALSE: While converting a Traditional IRA to a Roth IRA eliminates future RMD requirements (Roth IRAs have no lifetime RMDs), Thomas cannot use conversion to avoid his current year RMD. IRS rules require that the RMD for the year must be taken before any conversion can occur. He must take his $33,333 RMD first, pay taxes on it, and only then can he convert any remaining balance to a Roth IRA. The conversion itself is also a taxable event on the amount converted.