IRA Q&A

Traditional IRAs - The Retirement Plan for Everyone


Today, more than ever before, one of the greatest challenges facing American workers is assuring their financial security in retirement. With uncertainty over the adequacy of Social Security to meet the needs of future retirees, Americans now and in the future will be forced to rely more heavily on their own resources to support their retirement lifestyle.

At the same time, the world of employer-based pensions is changing, too. Much less common today is the employer-sponsored defined benefit plan, the kind of plan that assures former employees of a dependable income throughout their retirement years. The pension world is changing to one in which employees must make the decision to save for retirement. And, even when an employer plan is available, employees may be required to make most or all of the contributions.

How can I begin to save for retirement?

Individual retirement accounts—IRAs—are one of the most viable answers to the question of how to assure a secure retirement.

Traditional IRAs offer:

  • Independence, and can be opened and funded without any employer participation;
  • Immediate tax benefits, with contributions and/or earnings tax-deferred until retirement;
  • Accessibility, with funds always available, something not generally true of employer plans; and
  • Flexibility, because there is no minimum contribution in any year, and you choose your own investments and financial organization.

Who can contribute, and how much?


The requirements for contributing to a traditional IRA are few. You can contribute if:

  • You are under age 70½; and
  • You have earned income from employment.

You can contribute up to:

  • A maximum of $5,000 for 2010; and
  • An additional catch-up contribution of $1,000 for 2010 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.)

Are all Traditional IRA contributions tax deductible?


One of the immediate benefits of contributing to a traditional IRA is the tax deduction many receive on their income taxes. Traditional IRA contributors receive a 100 percent deduction on their annual contribution if:

  • They are not an active participant under an employer's retirement plan; or (if they are)
  • During 2010, earn between $89,000 and $109,000 if married and filing jointly, or between $56,000 and $66,000 if filing singly.

For those who are participants in an employer-sponsored retirement plan, traditional IRA deductibility is gradually phased out above these income levels.

Should I contribute if I can't take a deduction?


Yes! There are significant benefits to making a traditional IRA contribution even if it is not currently tax deductible. A nondeductible contribution:

  • Grows tax-deferred, with earnings sheltered from taxation until withdrawn;
  • Has already been taxed, and will not be taxed again; and
  • Whether deductible or nondeductible—is a step closer to a secure retirement.

Quite simply, no taxable, non-IRA investment of the same type will generate nearly the same earnings over a lifetime of saving as nondeductible traditional IRA contributions will. (The Roth IRA may be even more beneficial.)

Am I eligible to take a tax credit for my IRA contributions?

If you are an eligible individual and fall within certain income limitations, you may be eligible for a tax credit of up to 50 percent of your retirement savings contributions that do not exceed $2,000. An eligible individual is defined as someone who is:

  • At least 18 years of age as of the close of the taxable year;
  • Not eligible to be claimed a dependent of another taxpayer; and
  • Not a full-time student.

Please see a competent tax advisor to determine if you qualify for this credit.

Can traditional IRA assets be moved?

Under certain circumstances, a traditional IRA holder may wish to move their Traditional IRA from one financial organization to another. Traditional IRA holders can take comfort in the fact that their traditional IRA assets are always available to them. They may be:

  • Withdrawn (distributed) and redeposited elsewhere (called a "rollover");
  • Moved to another organization by the transaction known as a trustee-to-trustee transfer; or
  • Moved to a qualified retirement plan, tax-sheltered annuity, or 457(b) eligible deferred compensation plan, as long as the distribution is taxable.


Can other assets be combined in a traditional IRA?

Contributions made by an employer to a retirement plan known as a simplified employee pension (SEP) plan are actually contributed to a traditional IRA, and can be combined with regular traditional IRA contributions. Assets from a qualified retirement plan, tax-sheltered annuity or 457(b) eligible deferred compensation plan can also be moved to a traditional IRA by rollover.

When can I use my traditional IRA assets?


Unlike most employer retirement plans in which access is limited to such events as change of employment, plan termination, reaching retirement age, death or disability, access to your Traditional IRA assets is always guaranteed.

However, until age 59½ 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; or
  • IRS tax levy

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


Beginning in the year that a Traditional IRA holder turns age 70½, 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.

For more information...

For more information about the wisdom and ease of opening a traditional IRA, ask one of our representatives today for more details.

The Roth IRA - Options To Meet Your IRA Objectives

Concern regarding the instability of Social Security continues to grow, and Americans are looking for new ways to secure their financial future. The Roth IRA gives you the ability to invest your after-tax dollars today, let the investment grow tax deferred, and take qualifying withdrawals tax free.

Is investing for retirement important?

Many ideals are changing in today's society. For instance:

  • The trend of changing employment more frequently does not allow individuals to acquire great reserves in company pension plans;
  • Many new entrepreneurs cannot offer retirement options to themselves or their employees until the company is more financially secure;
  • Social Security is no longer seen as the answer to retirement funding; and
  • Individuals need to take the lead in building their retirement nest egg.

What makes the Roth IRA so unique?

Imagine for a moment that you have just received a paycheck from your company. You look at your payroll summary and notice that there are no federal income taxes withheld. Your initial reaction is that something is wrong. It's not, if this check is from your Roth IRA. Two factors make this possible:

  • First, the money you contribute to a Roth IRA has already been taxed. Therefore the principal amount is never subject to taxes or penalties in the future, as long as you stay within the contribution guidelines.
  • Second, this retirement savings vehicle allows the money you contribute to grow tax-deferred. If you do not withdraw any of the earnings until you have had a Roth IRA for at least five years, and satisfy one of the qualifying events, those tax-deferred earnings become tax-free.

Who is eligible?


Unlike the traditional IRA, there is no 70½ age limit on making contributions. You simply need to have earned income equal to the amount you contribute up to a maximum. Individuals may contribute up to the maximum amount per year if their modified adjusted gross income (MAGI) is less than $105,000. If an individual's MAGI is between $105,000 and $120,000, they may contribute a reduced amount adjusted for their income. Married couples filing jointly may contribute up to the maximum amount each if their MAGI is less than $137,000. Contributions for joint filers are reduced for MAGIs between $167,000 and $177,000.

Roth IRA contributions may not be made by individuals with MAGI of more than $120,000, or couples with MAGI of more than $177,000.

How much can I contribute?

The maximum amount per year is $5,000; however, as discussed previously, there are income thresholds that may reduce the amount you can contribute. An additional catch-up contribution of $1,000 for 2010 if you are age 50 or older.

Even though I cannot deduct my Roth IRA contributions, is there a tax credit that is available?

If you are an eligible individual and fall within certain income limitations, you may be eligible for a tax credit of up to 50 percent of your retirement savings contributions that do not exceed $2,000. An eligible individual is defined as someone who is:

  • 18 years of age as of the close of the taxable year;
  • Not a dependent of another taxpayer; and
  • Not a full-time student.

Please see a competent tax advisor to determine if you qualify for this credit.

When can I use 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 events:

  • Age 59½;
  • Death;
  • Disability; or
  • First home purchase.

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.

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:

  • Your MAGI must be $100,000 or less;
  • If you are married, you must file a joint income tax return;
  • You must pay taxes on all the pre-tax dollars you convert; and
  • The conversion must be completed within 60 days.

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

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


Unlike the traditional IRA, there are no required minimum distributions at age 70½. Your dollars can continue to grow until you need them. There is special distribution when these plans pass to your beneficiaries.

For more information on the benefits of the Roth IRA, ask one of our representatives today for details.