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Frequently Asked Questions

IRA FAQs

Roth IRA:

Traditional IRA:

General:

Roth IRA

What is a 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.

How much can I contribute to my Roth IRA?

The maximum amount per year is $6,000; 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.

When can I withdraw my Roth IRA assets?

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.

Am I ever required to take funds from my Roth IRA?

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

Traditional IRA

What is a 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.

How much can I contribute to my Traditional IRA?

The requirements for contributing to a Traditional IRA are few. You can contribute at any age as long as you have earned income from employment. You can contribute up to a maximum of $6,000, 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.

When can I withdraw my Traditional IRA assets?

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

Am I ever required to distribute assets from my Traditional IRA?

The IRS requires that all Traditional IRA holders begin taking required minimum distributions based on their required beginning date. The SECURE Act, which took effect on January 1, 2020, made a change to when required minimum distributions must
begin. If an IRA holder turns 70½ in 2020 or later, they now can wait until age 72 to begin taking required minimum distributions. If an IRA holder turned 70½ by the end of 2019, then required minimum distributions cannot be delayed under
the new rule. 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

Can I get any tax credits for making IRA contributions?

You may be able to receive a tax credit for making contributions for the 2020 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 $39,000, heads of households with MAGI up to $29,250, or other filers with MAGI up to $19,500. Smaller tax credits are available for joint filers with MAGI up to $65,000, heads of households with MAGI up to $48,750 or other filers with MAGI up
to $32,500.

What is the Saver's Credit, and how does it work?

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 $65,000 for 2020 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.

If I convert a Traditional IRA to a Roth IRA, do I owe any taxes?

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.

Can I move money from my Traditional IRA to my Roth IRA?

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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