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1.
When does your five-taxable-year period for Roth IRAs start?
On Jan. 1 of the tax year when you make your first contribution or conversion to a Roth IRA.
2.
Which type of tax-advantaged account offers the potential for tax-exempt distributions?
A Roth IRA. A Roth IRA offers tax-free distributions, as long as certain rules are met. The downside is that Roth IRAs must be funded with after-tax dollars.
3.
The idea behind creating a class of "qualified dividends" is to prevent _______.
Double taxation. The idea behind making some dividends qualified is to reduce double taxation -- that is, taxation of the same profits at both the corporate and shareholder levels.
4.
If you should have both large capital gains and large capital losses, what would be the most effective way to reduce taxes on the gains?
Realize both the gain and the loss in the same year. If you did this, the losses would offset the gains. If you did either of the other two approaches, you would either be stuck with a tax bill or you might have to stretch out your losses over many years.
5.
What does "stepped-up basis" mean?
An investment's basis changes to that of the market value on the day of your death. Stepped-up basis is most commonly known in estate planning, where if you die, the basis will step up to that of the day of your death. Whoever inherits the stock will thus enjoy less tax on it.
