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What is a Traditional IRA?
An Individual Retirement Account Am I eligible for a Traditional IRA?
To be eligible for a Traditional IRA, individual retirement account, you need to be younger than age 70 1/2 for the entire year, and have earned income (or your spouse has earned income). What is earned Income?
Earned income is the salary or wages you receive as an employee. If you are self-employed, earned income is your net income for personal services performed for the business. All taxable alimony is considered earned income. How much can I contribute to my IRA?
You may contribute any amount up to 100% of your earned income or $5,000 for 2008, whichever is less, to a Traditional IRA (or aggregrated between a Traditional and a Roth IRA). The Economic Growth and Tax Relief Reconciliation Act (EGTRRA) of 2001 increases the contribution limit as follows: | Tax Year | Contribution Limit | | 2008 | $5,000 | | 2009 and thereafter | $5,000 + cost-of-living adjustment (COLA) |
To make up for lost retirement savings, EGTRRA also added "catch-up" contribution ability for individuals who have attained age 50 or older by the end of their taxable year. The chart below shows these additional amounts: | Tax Year | Catch-up Amount | | 2008 and thereafter | $1,000 |
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 withdrawls from the account. Do I Get a Tax Deduction for My Contribution?
Deductibility of your contribution is based on whether you or your spouse are an active participant in an employer-sponsored retirement plan. If you are an active participant, the deductible amount is dependent on your modified adjusted gross income (MAGI) and income tax-filing status. You may be eligible for the maximum deduction, a partial deduction, or no deduction. Your tax professional can help you determine your actual deduction. 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. How Are the Funds Taxed at Distribution?
You must include the taxable portion of the amount withdrawn (deductible contributions and all earnings) as income on your tax return. If you are younger than age 59 1/2, and do not meet one of the exceptions, you must also pay a 10 percent penalty tax for premature distribution. The portion of a distribution attributable to nondeductible contributions is not taxable when withdrawn, nor is it subject to the 10 percent premature-distribution penalty tax. What Happens to My IRA in the Event of My Death?
Your named beneficiary(ies) will receive the entire proceeds of the IRA. Your beneficiary(ies) will not be subject to the 10 percent premature-distribution penalty tax. Distributions to your beneficiary(ies) will be made in accordance with the required minimum distribution rules and your IRA agreement. What is a Spousal IRA?
The spousal IRA rules allow a married person to make an IRA contribution for his/her spouse. A married couple can contribute up to 100 percent of their combined earned incomes or $10,000 for 2008, whichever is less. The amounts can be divided in any manner between the two spouses' IRAs if no more than $5,000 is contributed to either IRA. These amounts will increase each year as shown earlier. Catch-up contributions are available for spousal IRA arrangements and would increase the allowable contribution amounts. 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 following 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. How Do I Move Funds From a Qualified Plan (QP), Tax-Sheltered Annuity (TSA), or IRC Section 457(b) Deferred Compensation Plan (457 Plan) to an IRA?
An eligible QP, TSA, or 457 plan 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) part of a series of substantially equal periodic payments over your single life expectancy or joint life expectancy of you and your beneficiary or for a specified period of ten years or more, (2) a required minimum distribution for an employee, age 70 1/2 or older, or (3) any hardship distribution. A rollover occurs when funds distributed from your QP, TSA, or 457 plan are paid directly to you, then subsequently rolled over by you into an IRA within 60 days. A direct rollover is a QP, TSA, or 457 plan distribution that is made payable to an IRA by the plan administrator/employer to an IRA. QP, TSA, and 457 plan distributions paid to you are subject to a mandatory 20 percent 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, QP, TSA, 457 plan recipient has 60 calendar days following the date of receipt to roll over any portion of the distribution to an IRA. The 12-month limitation does not apply to rollovers from a QP, TSA, or 457 plan into an IRA. Is there a contribution deadline for funding an IRA?
IRAs for a taxable year can be opened and funded any time between the first day of a tax year and the date a tax return is due for that year, excluding extensions. For most taxpayers, this due date is April 15 of the following year. Are There Other Tax Advantages to Establishing an IRA?
EGTRRA added a unique tax credit for certain taxpayers who contribute to an IRA and /or an employer's salary deferral plan. See your tax professional for more information. How Do I Open an IRA?
See any of our Client Service Representatives. We will explain the nature of these accounts in more detail and help you complete the forms necessary to establish your IRA. Top Return to CDs & IRAs
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