IRAs

For answers to some of the most frequently asked questions about IRAs, please select a question. The information below is provided for educational purposes and is not intended as tax advice. Please consult a tax professional.

Traditional IRAs
Roth IRAs
SIMPLE IRAs
SEP IRAs

Traditional IRAs

What are the benefits of establishing a traditional IRA?
The primary benefit of a traditional IRA is to provide an additional source of income at retirement. The earnings remain tax-deferred until distributed. In addition, an IRA owner may be eligible for a tax deduction for contributions made to a traditional IRA. Consult your tax advisor for more information.

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How much can I contribute to a traditional IRA each year?
For 2014, the maximum contribution to a traditional IRA is $5,500.00, or 100% of earned income per tax year, whichever is less. If you are over the age of 50, your contribution limit is $6,500.00. You must reduce this contribution by the amount contributed to a Roth IRA in the same year.

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Who is eligible to make a contribution to a traditional IRA?
Any individual younger than age 70 ½ who has compensation may be eligible to make a contribution. Consult your tax advisor.

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What are "catch-up" contributions?
Individuals who are 50 or older by the end of the year can contribute an amount in excess of their annual contribution into a Traditional IRA as follows: 

Tax Year

Contribution Limit

Age 50 & Over Limit

2013

$5,500.00

$6,500.00

2014

$5,500.00

$6,500.00

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When is the deadline for making a contribution?
You can contribute to either a Traditional or Roth IRA until the April 15 due date of your tax return. If the 15th falls on a weekend or holiday, the deadline is the next business day.

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Is there a penalty for an IRA owner who fails to take the required minimum distribution at age 70 ½?
Yes, there is a 50% excess-accumulation tax on any required distribution amount not taken by the due date.

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Roth IRAs

What is a Roth IRA?
A Roth IRA is an individual retirement plan that is established in much the same way as a Traditional IRA. However, unlike a Traditional IRA, you cannot deduct contributions to a Roth. If you satisfy the requirements, qualified distributions are tax-free for the IRA holder or beneficiaries (estate planning). Contributions can be made to your Roth IRA even after you attain age 70 ½, and you are never required to take amounts out as long as you live.

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How much can I contribute to a Roth IRA?
The maximum contribution to a Roth IRA depends on your Modified Adjusted Gross Income (MAGI) and age. Consult your tax advisor.

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When is the deadline for making a contribution?
You can contribute to either a Traditional or Roth IRA until the April 15 due date of your tax return. If the 15th falls on a weekend or holiday, the deadline is the next business day.

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Who is eligible to make a contribution to a Roth IRA?
An individual and/or spouse with compensation may make a contribution provided his/her Modified Adjusted Gross Income (MAGI) does not exceed certain limits. Consult your tax advisor.
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Can I deduct my Roth IRA contribution?
Contributions to your Roth IRA are never tax-deductible.

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Do I have to contribute to a Roth IRA annually?
No, Roth IRA contributions are discretionary. There is no obligation to make an annual contribution.

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Can I still contribute to a Roth IRA if I'm older than 70 ½ and I'm still working?
Yes, provided the contribution does not exceed your earned income for the year and you meet Modified Adjusted Gross Income (MAGI) eligibility guidelines. Consult your tax advisor.

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What are "catch-up" contributions?
Individuals who are 50 or older by the end of the year can contribute an amount in excess of their annual contribution into a Roth IRA as follows: 

Tax Year

Contribution Limit

Age 50 & Over Limit

2013

$5,500.00

$6,500.00

2014

$5,500.00

$6,500.00

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When may I withdraw my Roth IRA earnings tax free?
Roth IRA earnings may be withdrawn tax-free if your Roth IRA has been established for at least five years and one of the following apply:

  • Age 59 ½ or older
  • Disability
  • Death
  • First time home purchase ($10,000.00 lifetime limit per person)

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When am I required to begin taking distributions from my Roth IRA?
You are not required to take distributions from a Roth IRA as long as you live. You can allow your money to grow in a Roth IRA free of taxes for as long as you choose.

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Can I contribute to a Roth IRA if I participate in an employer-sponsored retirement plan?
Yes, and you can contribute past age 70 ½ as long as you continue to earn compensation and meet the Modified Adjusted Gross Income (MAGI) limit. Consult your tax advisor.

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SIMPLE IRAs

What is a Savings Incentive Match Plan IRA (SIMPLE IRA)?
A SIMPLE IRA plan is a salary deferral retirement plan. This means that participants decide how much they want to save for retirement, and that amount is deducted from their salary on a pre-tax basis each pay period. This amount is then contributed to the SIMPLE IRA established by that participant's employer.

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Who can establish a plan?
In general, a SIMPLE IRA plan is available to any business owner who:

  • Has 100 or fewer employees who received at least $5,000.00 in compensation (including elective deferrals under the SIMPLE plan) from the company for the preceding calendar year.
  • Is not currently maintaining another employer sponsored retirement plan, such as a SEP-IRA, Keogh, 403 (a), 403(b), 401(k), 408, 457, or 501.
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Contribution limits for SIMPLE IRA plans will gradually increase through 2006 and will be subject to cost of living adjustments (COLAs) thereafter. 

Tax Year

Contribution Limit

Age 50 & Over Limit

2013

$12,000.00

$12,000.00 + $2,500.00

2014

$12,000.00

$12,000.00 + $2,500.00

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What is the tax impact of a SIMPLE IRA plan?
Contributing to a plan can help an employer save on taxes because contributions made on behalf of plan participants are generally deductible as a business expense. Also, businesses receive a tax credit for startup costs of the plan and for two taxable years immediately following. Contributing to a SIMPLE IRA plan also reduces each participant's current federal income taxes.

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Is the employer required to contribute to employee accounts?
Yes, the employer must provide a contribution in the form of matching funds or a fixed, non-elective contribution.

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When must contributions be made to the employee account?
An employee deferral must contribute to his/her SIMPLE IRA as soon as reasonably possible, but in no case later than 30 days after the end of the month in which they were withheld from pay. Employer matching contributions or non-elective contributions can be made as late as the due date (including extensions) of the employer's tax return for the year in which the SIMPLE calendar year ends.

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When can an employee take distributions from a SIMPLE IRA?
A SIMPLE IRA allows participants to withdraw their money at any time. However, to discourage early withdrawals, IRS regulations require that distributions from a SIMPLE IRA, within the two-year period beginning on the date SIMPLE contributions were first made, are subject to a 25% premature withdrawal penalty tax. A withdrawal made before the age of 59 ½ will incur a 10% penalty tax.

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SEP IRAs

What is a Simplified Employee Plan (SEP) plan?
A Simplified Employee Pension (SEP) is a written arrangement (a plan) that allows an employer, including self-employed individuals, to make deductible contributions toward his or her own and employees' retirement plans. The contributions are made to a Traditional IRA of each participant of the plan.

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What are the limits on employee and employer contributions to the plan?
Employees are not allowed to make contributions to a SEP IRA. Employers may contribute the lesser of the contribution amount ($52,000.00) or 25% of the employee's compensation for 2014. 

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When is the deadline for making a contribution?
Contributions must be made by an employer's tax-filing due date, including extensions.

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When am I required to begin taking distributions from my SEP IRA?
The first required minimum distribution is by April of the year after you become 70 ½. There is a 50% excess accumulation tax on any required distribution not taken by the due date.

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What is the tax impact of a SEP IRA plan?
Contributing to a plan can help an employer save on taxes because contributions made on behalf of plan participants are generally deductible as a business expense.

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