Frequently asked questions about Roth Ira
What is the difference between a Traditional IRA and a Roth IRA?
A Traditional IRA is the IRA originally approved by the US government. The Traditional IRA has two main benefits.
payment of tax proceeds from the IRA is deferred until the funds are extracted.
For many taxpayers, contributions to the IRA are tax deductible.
A Roth IRA is a newer plan for retirement savings. The primary benefit of a Roth IRA is that all earnings accumulate tax-exempt if the removal meets the requirements of a qualified distribution.
Traditional IRA vs. Roth IRA
* Tax-deductible contributions to qualified investors
* No tax exempt withdrawals
* Penalty for extraction of 10% if you are under age 59 ½ (some exceptions apply).
* Eligibility under 70 and ½ with accrued compensation
* Mandatory distributions should begin at 70 years of edad½
* Contributions are not tax deductible
* Extractions tax free for qualified distributions or distributions (contributions) “base” only
* Penalty for extraction of 10% on profits if under age 59 ½ (some exceptions apply. You must also meet the requirements of the five years of Roth IRA).
* No age restriction as long as you have accrued compensation
* No mandatory distributions
No contributions are permitted to Roth IRA if your income exceeds the maximum amount shown above.
Can I convert a Traditional IRA to a Roth IRA?
Yes. All contributions to Roth conversion are taxable when converted and they are the basis of the account. (Consult a tax advisor if you made nondeductible contributions to a Traditional IRA). Some restrictions may apply. Contact us for more information.
How much can I contribute annually to my IRA?
For fiscal years 2015 and 2016, contributions from new dollars to an IRA are limited to $ 5.500 or 100 percent of earned income, whichever is lower. You can deposit up to $ 5,500 per year in a Roth IRA or Traditional, or split between the two; but not more than $ 5,500 between the two. Transfers and renewals are limited to the amount that was removed from the previous IRA (or qualified plan).
(Note: individuals 50 years of age or older can contribute up to $ 6,500 or 100% of earned income – the amount is less – for fiscal years 2015 and 2016).
How and when I can make a withdrawal from my IRA?
You can perform an extraction of a Traditional IRA at any time. However, it is possible that the government and the bank will charge penalties for removal. Withdrawals may also be subject to income tax. You must take a required minimum distribution (RMD) from your Traditional IRA every year from the year you turn 70 ½ years. You can extract contributions from your Roth IRA at any time without the government will apply penalties. See Publication 590-B of the IRS for more information.
What are the penalties for making an early withdrawal?
The penalty imposed by the government to make a withdrawal from a Traditional IRA before age 59 ½ is 10 percent. The type of investments you choose can also have a withdrawal penalty if it is done within a certain period (eg, certificates of deposit). 10 percent of government penalty waived under certain conditions.
See Publication 590-B of the IRS for more information on rules related extractions with a Traditional IRA and Roth.
Do I qualify for tax-deferred deposits to a Traditional IRA?
To determine if you qualify for a full or partial tax deferment, consult your tax adviser.
In general, the fact that you can deduct a Traditional IRA contribution depends on whether you or your spouse are covered by the pension plan of a company. If there is no plan of a company, you can deduct the total contribution of up to $ 5,500 (or $ 6.500 if you are 50 years old or more) for fiscal years 2015 and 2016.
If you or your spouse are covered by the plan of a company and is an active participant, you should consult your adjusted annual gross income and modified to determine if you are eligible for a full or partial deduction. See Publication 590-A of the IRS for more information.
What are other potential benefits of having an IRA?
The EGTRRA provisions are now permanent (eg., Up contributions and credits savers)
Cost of living adjustments, increasing the income limits for IRA deductions take.
free distributions from the IRA penalties for certain qualified guards and reservists
Beneficiaries who are not spouses can set up a direct rollover of assets of a retirement plan workplace (eg., 401 (k), QRP) to an inherited IRA.
Refunds of income tax can be paid directly to the IRA.
From 2009, you can transfer funds directly to a qualified Roth IRA plans. (Important note: this action is taxable).