Frequently Asked Questions | IRAs
Roth IRA

The Roth IRA is an Individual Retirement Account, funded with after-tax (nondeductible) contributions. If the funds are left on deposit for a minimum of five years, the withdrawals are tax free if they begin after reaching age 59 1/2. In addition, tax-free withdrawals are permitted in the event of death, disability or for qualified first-home purchasers. Consult a professional tax advisor for more information.

The maximum amount per year is $5,500; however, income thresholds may reduce the amount you can contribute. In addition, if an individual has reached age 50 or older by the close of the taxable year, a catch-up contribution may be made of $1,000.

If you satisfy two conditions, you may make tax-free and penalty-free withdrawals from your Roth IRA. First, a Roth IRA must have been open for a minimum of five years. Second, the withdrawal must be made after the occurrence of one of the following:

  • You are over age 59 ½,
  • Funds are going to your beneficiary upon your death,
  • You have become disabled, or
  • You are using the funds for a first-time home purchase (lifetime limit is $10,000 per person).

Distributions that meet the above requirements are referred to as "qualified distributions." While you may take distributions from your Roth IRA at any time, distributions that are not qualified distributions are subject to taxes (and in some cases early distribution penalties) to the extent they exceed your aggregate contributions to Roth IRAs.

Unlike the Traditional IRA, there are no required minimum distributions at age 70 ½. Your dollars can continue to grow until you need them. There are special distribution requirements when these plans pass to your beneficiaries.

Traditional IRA

Traditional IRAs are Individual Retirement Accounts that allow individuals to deposit funds toward their retirement. Contributions to a Traditional IRA may be deductible, depending upon the individual income for a single taxpayer or combined income for married couples filing jointly. Consult your professional tax advisor for more information.

The requirements for contributing to a Traditional IRA are few. You can contribute if you are under age 70 ½, and you have earned income from employment. You can contribute up to a maximum of $5,500, and a catch-up contribution of $1,000 if you are age 50 or older.

If eligible, your spouse may be able to contribute the amounts listed above to his or her Traditional IRA as well.

Access to your Traditional IRA assets is always guaranteed. However, until age 59 ½ there is a 10 percent early distribution penalty unless you qualify for one of the following exemptions:

  • Disability
  • Qualifying medical expenses
  • Qualifying education expenses
  • Unemployment (under certain conditions)
  • Qualifying first home purchase
  • Death
  • Receipt of your Traditional IRA assets in equal payments over your life expectancy
  • IRS tax levy

Beginning in the year that a Traditional IRA holder turns age 70 ½, distributions from a Traditional IRA must begin. These distributions are generally based on the Traditional IRA account balance divided by the applicable distribution period. Since the purpose of Traditional IRAs is to provide for retirement - not to be a tax shelter - IRA holders who fail to take their required distributions are subject to penalty.

General

You may be able to receive a tax credit for making contributions for the 2016 tax year. The full credit is 50% of the first $2,000 of contributions. The full credit is available for joint filers who have joint modified adjusted gross income (MAGI) up to $37,000, heads of households with MAGI up to $27,750, or other filers with MAGI up to $18,500. Smaller tax credits are available for joint filers with MAGI up to $62,000, heads of households with MAGI up to $46,500 or other filers with MAGI up to $31,000.

Certain individuals may receive a nonrefundable tax credit (not to exceed $1,000) for regular, spousal, and catch-up contributions to Traditional or Roth IRAs. Eligible individuals determine their credit by multiplying the applicable percentage by their Traditional or Roth IRA contributions up to $2,000. Joint filer taxpayers with modified adjusted gross income above $62,000 for 2016 are not eligible.

Taxpayers calculate their credit amount using Form 8880, Credit for Qualified Retirement Savings Contributions, which they must file with their income tax returns.

Yes. Upon conversion, you will owe ordinary income taxes on your investment earnings and on deductible contributions you have made to your traditional IRA. This amount is taxable income in the year the money leaves the traditional IRA. Basically, you owe tax on any money that has not been taxed before. But you will have the opportunity to withdraw earnings made after the conversion, free of any taxes.

The answer is "Yes." There are specific rules that govern the process of converting funds from a Traditional IRA to a Roth IRA. Some of these rules include:

  • You must pay taxes on all the pre-tax dollars you convert.
  • The conversion must be completed within 60 days.
  • The amount of your distribution may be subject to tax penalties, especially if you do not roll over the entire amount of the distribution into a Roth IRA.

Our representative may suggest you seek advice from a competent tax advisor to confirm whether moving your funds is beneficial to you.

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