Am I Eligible
to Have an IRA?
What is Compensation?
How Much Can I Contribute to My IRA?
Do I Pay Taxes on the Earnings of my IRA?
Do I Get a Tax Deduction for My Contribution?
What if I'm Not Eligible for a Deductible IRA
Contribution?
When Can I Withdraw Funds From My IRA Without Incurring
Any IRS Penalties?
How Are the Funds Taxed at Distribution?
What Happens to My IRA in the Event of My Death?
What Is a Spousal IRA?
How Do I Move Funds From One IRA to Another?
How Do I Move Funds From a Qualified Plan (QP)
or Tax-Sheltered annuity (TSA) to an IRA?
When Is the Contribution Deadline for Funding
an IRA?
How Do I Open an IRA?
Basic Rules for Determining IRA Deductibility
Am
I Eligible to Have an IRA?
If you are under age 70½
for the entire tax year and have compensation, you are eligible
to establish an IRA, even if you already participate in any type
of government plan, tax-sheltered annuity, simplified employee pension
(SEP) plan, Savings Incentive Match Plan for Employees of Small
Employers (SIMPLE), or qualified plan (pension or profit sharing)
established by an employer.
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What
is Compensation?
Compensation is the salary
or wages you receive as an employee. If you are self-employed, compensation
is your net income for personal services performed for the business.
All taxable alimony is considered compensation. Interest, dividends,
and most rental income is passive income and is not considered compensation.
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How
Much Can I Contribute to My IRA?
You may contribute any
amount up to 100 percent of your compensation or $5000, whichever
is less, to a a traditional IRA (or to both a traditional and a
Roth IRA).
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Do
I Pay Taxes on the Earnings of my IRA?
All earnings on your IRA
contributions (deductible and/or nondeductible) remain tax deferred
until you make withdrawals from the account.
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Do
I Get a Tax Deduction for My Contribution?
Deductibility of your
contribution is based on whether or not you or your spouse are an
active participant in an employer-maintained retirement plan. If
you are single and not an active participant, you are eligible for
a full $5,000 deduction no matter how large your income. If you
are not an active participant but your spouse is, you are still
eligible for a full deduction if you file jointly and your combined
modified adjusted gross income (MAGI) is below $150,000 or a partial
deduction if you joint MAGI is between $150,000 and $160,000. If
you are an active participant, the deductible amount is dependent
on your MAGI and income tax-filing status. You may be eligible for
the maximum deduction, a partial deduction, or no deduction.
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What
if I'm Not Eligible for a Deductible IRA Contribution?
You can still make nondeductible
contributions to your IRA. You may also be eligible for a Roth IRA.
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When
Can I Withdraw Funds From My IRA Without Incurring Any IRS Penalties?
You can withdraw funds
from your IRA without the 10 percent IRS premature-distribution
penalty any time after you reach age 59½. You can also avoid
the premature-distribution penalty before age 59½ if you become
disabled or die, if the distributions are part of certain periodic
payments, for medical expenses in excess of 7.5% of your adjusted
gross income, for health care insurance of you've been receiving
unemployment compensation for at least 12 weeks, for qualified higher
education expenses, or for a first-time home purchase. When you
reach age 70½, you must begin to take your minimum required
distributions or severe penalties will be imposed.
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How
Are the Funds Taxed at Distribution?
If you are over age 59½,
simply include the taxable portion of the amount withdrawn (generally,
deductible contributions and all earnings) as income. However, if
you are under age 59½ and do not meet one of the exceptions,
you must also pay a 10% IRS penalty for premature distribution.
The nondeductible portion of the distribution is not taxable when
withdrawn nor is it subject to the 10% premature-distribution penalty.
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What
Happens to My IRA in the Event of My Death?
Your named beneficiary(ies)
will receive the entire proceeds of the IRA. You beneficiary(ies)
will not be subject to the IRS 10% premature-distribution penalty.
The manner in which your beneficiary(ies) receives the funds is
determined by the election made by you or you beneficiary(ies) within
the guidelines of the law.
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What
Is a Spousal IRA?
The spousal IRA rules
allow a married person to make an IRA contribution for his/her spouse.
A couple can contribute up to 100% of their combined earned incomes
or $10,000, whichever is less. The amounts can be divided in any
manner between the two IRA's, as long as no more that $5,000 is
contributed to either IRA.
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How
Do I Move Funds From One IRA to Another?
There are two methods
you can use to move funds from one IRA to another: rollover and
transfer. For a rollover, you have 60 calendar days from the date
of receipt to roll over the distribution to another IRA. Rollovers
from IRAs may not occur more than once during a 12-month period
(this rule applies to each separate IRA you own). A transfer occurs
when the funds are moved from one IRA to another without you having
control or custody of the funds. There are no time or frequency
limits on the number of transfers permitted.
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How
Do I Move Funds From a Qualified Plan (QP) or Tax-Sheltered annuity
(TSA) to an IRA?
An eligible QP or TSA
distribution may be a direct rollover or a rollover into an IRA.
Generally, an eligible rollover distribution is any distribution
except one that is (1) one of a series of substantially equal periodic
payments over the single or joint life expectancy of the employee
and beneficiary or for a specified period of ten years or more and
(2) a required distribution for an employee age 70½ or older.
A rollover occurs when
funds distributed from your QP or TSA are paid directly to you then
subsequently rolled over to you into an IRA within 60 days.
A direct rollover is a
QP or TSA distribution that is sent directly from the plan administrator
(employer) to an IRA.
QP and TSA distributions
paid directly to you are subject to a mandatory 20% federal income
tax withholding at the time of distribution.
Funds moved to an IRA
via a direct rollover are not subject to withholding.
As with an IRA-to-IRA
rollover, a QP or TSA recipient has 60 calendar days from the date
of receipt to roll over the taxable portion of the distribution
to an IRA. The 12-month limitation does not apply to rollovers from
a QP or TSA into an IRA.
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When
Is the Contribution Deadline for Funding an IRA?
IRAs for the taxable year
can be opened and funded any time between January 1 and the date
your tax return is due for the year, excluding extensions. This
due date is normally April 15 of the following year.
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How
Do I Open an IRA?
Simply see any of our
IRA representatives. We will explain the nature of these accounts
in more detail and help you complete the simple forms necessary
to establish your IRA.
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Basic Rules for Determining IRA Deductibility
- If you are single and
are not an active participant in an employer-maintained
retirement plan, you are eligible for a full $5,000 deduction
no matter how large your income.
- If both you and your
spouse are active participants or if you are single and an active
participant, you may be eligible for either a full or partial
deduction depending on you modified adjusted gross income (MAGI).
- If you are not an active
participant but your spouse is and you file a joint federal income
tax return, you are eligible for a full $5,000 deduction if your
joint MAGI is less that $150,000. You qualify for a partial deduction
if your joint MAGI is between $150,000 and $160,000.
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