Common Questions

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General

What is an IRA?

An IRA is an Individual Retirement Account that provides either a tax-deferred or tax-free way for you to save for retirement. There are many different types of IRAs but Roth, Traditional, and Rolllover IRAs are the most common. An IRA is simply an account. In an IRA some people invest in mutual funds or stocks, while others may choose bank products such as CDs and money market savings. Each IRA has certain eligibility requirements and each has unique features. Finding the right IRA for you will largely depend on which IRAs you are eligible for and which one offers the benefits that are most important to you.

Do IRAs only benefit those nearing retirement?

No. IRAs can provide benefits to anyone who is saving for retirement. In fact, the earlier you start, the more likely you are to benefit from an IRA due to compounding tax-deferred growth.

What is compounding tax-deferred growth?

All it really means is that when you earn interest, dividends or sell an investment (such as a mutual fund) for a gain, in an IRA, you don't need to pay taxes that year on the earnings. Instead, all taxes are deferred until you withdraw those earnings in your retirement.. This means you keep your money working for you and through the years that can really add up.

If I contribute to a 401(k), 403(b) or other employer-sponsored plan, can I also contribute to an IRA?

Yes. If you are currently investing in a 401(k) or other employer-sponsored plan, you are still eligible to open and contribute to an IRA.

Can anyone contribute to an IRA?

Traditional IRAs are available to anyone under the age of 70½ who has earned income at least as great as the amount they contribute to their IRA.

Roth IRA eligibility is based on your Modified Adjusted Gross Income (MAGI) and your tax-filing status (individual or joint) for the year of that contribution.

• Individual tax filers with 2009 modified adjusted gross income not exceeding $120,000 ($120,000 for 2010), and joint tax filers with 2009 modified adjusted gross income not exceeding $176,000 ($177,000) are eligible to open and make a full contribution. See Roth Contribution Chart for more details.

For both Roth and Traditional IRAs, if you have no earned income but your spouse earns enough income to cover your contribution as well as their own, and their income (MAGI) meets the eligibility requirements above (Roth only), you are eligible to open and contribute to an IRA.

If you contribute to an employer-sponsored plan like a 401(k) or 403(b), you are still eligible to contribute to an IRA.

Is there a limit to how much I can contribute to an IRA?

Your contribution limit depends on your age and earned income. The maximum amounts allowed by law are:

	2009	2010
Under age 50	$5,000	$5,000
Age 50 and over	$6,000	$6,000

Your contribution limit is the maximum noted above or 100% of your earned income, whichever is less.

What is the deadline to make an annual contribution to an IRA?

You can make contributions to an IRA for a given tax year until the tax-filing deadline of the following year. The deadline for 2009 contributions is April 15, 2010. You can make IRA contributions for tax year 2010 from January 1, 2010 through April 15, 2011.

Is my contribution tax-deductible?

Roth IRA contributions are after-tax contributions and are not tax-deductible. Deductibility of Traditional IRA contributions depends on several factors, including your tax filing status and income:
Your contribution to a Traditional IRA is fully tax-deductible if any of the following apply:

• Neither you nor your spouse participates in an employer-sponsored retirement plan.
• You participate in an employer-sponsored retirement plan and your 2009 modified adjusted gross income is under $55,000 or less, ($56,000 for 2010) as a single taxpayer or $89,000 or less, as married taxpayers filing jointly.
• You do not participate in an employer-sponsored retirement plan, but your spouse does, and your 2009 joint modified adjusted gross income is no more than $166,000 ($167,000 for 2010). See Traditional Deductibility Chart for more details.

What are the ways I can invest in an IRA?

IRAs are like most other accounts when it comes to how you invest your money. They allow you to choose from investment products such as mutual funds, stocks, bonds, and ETFs, as well as bank products like CDs and money market savings.

When can I access the money in my IRA?

For a Roth IRA there is no tax or penalty for withdrawal of contributions at any age. There is also no penalty or federal tax on withdrawal of earnings after age 59½, provided the account has been held for five years and certain other requirements are met. If you withdraw your earnings before age 59½ or if the account has not been open for at least 5 years, there is a 10% penalty.

For a Traditional IRA, there is no penalty for withdrawals taken after age 59½. However, penalties do apply if you do not take the Required Minimum Distributions (RMDs) beginning at age 70½. If you take withdrawals before age 59½, you are subject to a 10% penalty.

For both Roth and Traditional IRAs, there will be no penalty for account withdrawals for the following reasons:

• Higher education expenses for you or certain family members
• Qualified first-time home purchase expenses up to $10,000
• Death or disability of the account owner
• Certain medical expenses and health insurance premium payments of unemployed individuals and un-reimbursed expenses exceeding 7.5% of adjusted gross income (AGI)
• Withdrawals made in equal installments over the account holder's life expectancy

Roth & Traditional IRAs

What is a Roth IRA?

A Roth IRA is a retirement savings account that provides federally tax-free growth and withdrawals once it has been open for 5 years and you are 59½ years of age. Contributions can be withdrawn at any time, tax and penalty-free. A Roth IRA allows you to choose from investment products such as mutual funds, stocks, bonds, and ETFs, as well as bank products like CDs and money market savings.

What is a Traditional IRA?

A Traditional IRA is a retirement savings account that provides federally tax-deferred growth. Withdrawals after the age of 59½ are taxed at your tax rate at that time. Contributions may be tax-deductible. A Traditional IRA allows you choose from investment products such as mutual funds, stocks, bonds, and ETFs, as well as bank products like CDs and money market savings.

What are the differences between a Roth IRA and a Traditional IRA?

While Roth and Traditional IRAs are both good choices when saving for retirement, there are many differences to keep in mind:

• Any earnings in a Roth IRA are federally tax-free after five years and age 59½. Earnings in a Traditional IRA are tax-deferred until withdrawn in retirement when they are taxed at your current rate.
• Contributions to a Roth IRA can be withdrawn at any time, tax and penalty-free. Withdrawals from a Traditional IRA before the age of 59½ are subject to taxes and a 10% federal penalty.
• Anyone with earned income under the age of 70½ can contribute to a Traditional IRA. Roth IRAs are restricted to those who do not exceed certain modified adjusted gross income limits.
• Traditional IRA contributions may be tax-deductible. Roth IRA contributions cannot be deducted.

Can I contribute to both a Roth and Traditional IRA?

You may contribute simultaneously to a Traditional IRA and a Roth IRA (subject to eligibility) as long as the total contributed to all (Traditional and/or Roth) IRAs equals no more than the contribution limits for the year of contribution.

Rollover IRAs

What is a Rollover IRA and why would I want to establish one?

A Rollover IRA is a retirement account specifically designed to receive transfers from a previous employer-sponsored retirement plan, such as a 401(k) or 403(b). By rolling over this account directly:

• You can consolidate your retirement accounts for simplified management and greater control.
• You get a wider variety of investment choices, letting you find investments that more closely fit your financial goals and style.
• You maintain the tax-deferred status of your retirement savings while allowing them the opportunity to grow.

What’s the difference between a Traditional, Roth and Rollover IRA?

Traditional and Roth IRAs are called “contributory” since their purpose is to preserve and grow any money you contribute to them. There are annual limits to how much you may contribute to a Roth or Traditional IRA. A Rollover IRA is used to maintain the tax-deferred status of money you move in, or “roll over”, from another tax-deferred retirement saving plan—usually a 401(k). There is no limit to how much you can rollover into an IRA.

What’s the difference between a Rollover and a Transfer?

It’s all about where the money is coming from. Open a Rollover when the money is coming from an employer-sponsored savings plan such as a 401(k). If your savings are already in a Traditional or Roth IRA, you simply open a new Traditional or Roth account and transfer your current cash and investments.

I’ve already got a Rollover IRA somewhere else; can I transfer that?

Absolutely. Once you’ve opened a Rollover IRA it’s easy to move your cash and investments into it with assistance from our Retirement Help Desk.

I own company stock as part of my old 401(k); what should I do with it?

Some companies give you stock as part of your retirement savings plan. If your stock has grown in value, rather than rolling over the stock when you move your 401(k), sometimes taking a“lump-sum distribution” of this stock can save you significant amounts of money. There are a number of variables to consider before you decide the best course of action.

We suggest you talk with a tax advisor; our Rollover Specialists are also available to answer your questions about moving stock.

What is the difference between a Direct Rollover and Indirect Rollover?

With a Direct Rollover, the check from your employer sponsored plan is made out to the financial institution where you opened your IRA, “for the benefit of” you. Since this money is deposited directly from the 401(k) to the IRA, no taxes are withheld.

With an Indirect Rollover, the check is made payable to you. Your former employer withholds a mandatory 20% for taxes. You have 60 days to deposit these funds into an IRA, and must make up the 20% yourself, otherwise the 20% withheld will be considered a taxable distribution and only 80% will continue to grow tax-free or tax-deferred. In addition, if you are under age 59 ½ you would be subject to an additional early withdrawal penalty of 10%.

Are there times when I might want to take my 401(k) savings as a check instead of rolling it over immediately?

Yes, there are two instances.

1. You may need the money for pressing needs such as daily living expenses, your mortgage, or more. Remember, though: you instantly lose 20% to mandatory federal income tax witholding (you may owe more or less at tax time depending on your federal and state tax rate). And if you are under 59½, you’re hit with an additional 10% early withdrawal penalty. Worse yet, your money doesn’t have a chance to continue growing with its tax-deferred status.

2. You want to use the money as a short-term loan. You actually have 60 days from the time you receive your check to when you’re required to deposit it. But remember: it’ll still be missing the 20% held back by your employer, and you are required to deposit the full amount (including that 20%) at the end of 60 days to avoid a 10% early distribution penalty. You can apply at tax time to get the withheld amount back, but that could be a long way off.

Can I roll any amount of money from my previous 401(k) into a Rollover IRA?

Yes, there is no limit to the amount you can roll over. It’s one of the many advantages of using a Rollover IRA.