Quick Answer
Retirement accounts are the most heavily tested account type on the SIE exam. Traditional and Roth IRAs differ in tax treatment, contribution rules, and rollover deadlines. Employer-sponsored 401(k) and 403(b) plans shift investment risk to the employee, unlike defined benefit pensions, which place that risk on the employer. Required Minimum Distributions begin at age 73.
Retirement accounts are the most heavily tested account type on the SIE exam. You need to know the differences between Individual Retirement Accounts (IRAs), employer-sponsored plans, and the rules governing contributions, distributions, and Required Minimum Distributions (RMDs).
Individual Retirement Accounts (IRAs)
| Feature | Traditional IRA | Roth IRA |
|---|---|---|
| Contributions | May be tax-deductible (depends on income and employer plan) | NOT tax-deductible (after-tax contributions) |
| Growth | Tax-deferred | Tax-free |
| Withdrawals | Taxed as ordinary income | Tax-free (if qualified) |
| RMDs | Required beginning at age 73 | NOT required during owner's lifetime |
| Contribution limit (2026) | $7,500 ($8,600 if age 50+) | $7,500 ($8,600 if age 50+) |
| Early withdrawal penalty | 10% penalty before age 59 1/2 (exceptions apply) | Contributions can be withdrawn anytime; earnings penalized before 59 1/2 |
| Income limits | Deductibility phases out at certain income levels | Contribution eligibility phases out at higher incomes |
Income Limits (Phase-Outs)
- Traditional IRA deductibility: The deduction phases out at higher incomes only if the contributor (or their spouse) is covered by an employer-sponsored plan. The IRS sets the phase-out ranges (based on modified adjusted gross income) and indexes them each year. Above the range, you can still make a non-deductible contribution.
- Roth IRA eligibility: The ability to contribute phases out at higher incomes (again based on IRS modified adjusted gross income ranges, indexed annually). Roth conversions have no income limit.
Qualified Roth distribution requirements:
- Account has been open for at least 5 years, AND
- A qualifying event has occurred: the account holder is at least age 59 1/2, or the distribution follows death or disability, or it is a first-time home purchase (up to a $10,000 lifetime limit)
- Both the 5-year clock and a qualifying event must be met for earnings to be withdrawn tax-free (age 59 1/2 is by far the most commonly tested one)
Roth IRA Withdrawals: Contributions vs Earnings
The age 59 1/2 and 5-year rules apply to earnings, not contributions. Because Roth contributions go in with after-tax dollars (already taxed), they can be withdrawn at any time, at any age, without tax or penalty. The restrictions only apply to the growth on top of those contributions.
| Withdrawal | When you can take it tax/penalty-free |
|---|---|
| Contributions (your basis) | Any time, any age, no 5-year rule |
| Earnings (growth) | Age 59 1/2 AND account open 5+ years |
Exam Tip: Gotchas
The age 59 1/2 + 5-year rule applies to earnings only. Contributions can always be pulled back out tax-free and penalty-free at any age, because they were already taxed when contributed. "Roth withdrawals require age 59 1/2" is a common exam trap.
Contribution Rules
- Must have earned income to contribute to an IRA
- Spousal IRAs allow a working spouse to contribute on behalf of a non-working spouse (still requires one spouse to have earned income)
- Rollover - moving funds from one qualified plan to another:
- 60-day deadline for indirect rollovers (you receive the check and must deposit within 60 days)
- Only one indirect rollover per 12-month period
- RMDs cannot be rolled over: a required minimum distribution must be taken and taxed; it is not eligible for rollover by any method
- Direct transfer (trustee-to-trustee) - no limit on frequency, not reportable as a distribution
Exam Tip: Gotchas
Indirect rollovers have a strict 60-day deadline and are limited to one per 12-month period. Direct (trustee-to-trustee) transfers have no such limits. Neither method can be used to roll over a required minimum distribution; RMDs must be taken and taxed.
Employer-Sponsored Plans
| Plan Type | Key Characteristics |
|---|---|
| 401(k) | Employee salary deferrals + possible employer match; pre-tax contributions; $24,500 limit (2026), generally $32,500 if 50+, and $35,750 for ages 60-63 |
| 403(b) | Similar to 401(k) but for nonprofits, schools, and government entities |
| 457 plan | Deferred compensation for state/local government and some nonprofits; no 10% early withdrawal penalty |
| Defined benefit (pension) | Employer promises a specific retirement benefit based on salary and years of service; employer bears investment risk |
| Defined contribution | Employer and/or employee contribute; benefit depends on investment performance; employee bears investment risk |
Exam Tip: Gotchas
457 plans have NO 10% early withdrawal penalty. They are the only employer-sponsored plan with this exception.
Defined Benefit vs. Defined Contribution
| Feature | Defined Benefit | Defined Contribution |
|---|---|---|
| Promise | Specific retirement income | No guaranteed outcome |
| Investment risk | Employer bears the risk | Employee bears the risk |
| Benefit calculation | Based on salary, years of service, and a formula | Based on contributions and investment performance |
| Example | Traditional pension | 401(k), 403(b) |
Exam Tip: Gotchas
Defined benefit = EMPLOYER bears the investment risk. Defined contribution = EMPLOYEE bears the risk. The exam loves testing which party carries the risk.
Required Minimum Distributions (RMDs)
- Must begin by April 1 of the year following the year the account owner turns 73
- Applies to: Traditional IRAs, 401(k)s, 403(b)s, and other qualified plans
- Does NOT apply to Roth IRAs during the owner's lifetime
- Failure to take RMDs results in a 25% excise tax on the amount not distributed
Exam Tip: Gotchas
The RMD penalty was reduced from 50% to 25%; expect the exam to test the current 25% figure. Roth IRAs have NO RMDs during the owner's lifetime, while Traditional IRAs require them starting at age 73.
What Should You Check on Exam Day?
- Can you explain why the age 59 1/2 and 5-year rule applies only to Roth IRA earnings, not contributions?
- Do you know the 60-day deadline and one-per-12-month limit for indirect IRA rollovers?
- Can you state which employer-sponsored plan has no 10% early withdrawal penalty?
- Do you know which party bears the investment risk in a defined benefit plan versus a defined contribution plan?
- Can you state the age Required Minimum Distributions must begin, and the excise tax for missing one?