Retirement Plans FAQs regarding IRAs
Many of the rules for traditional IRAs also apply to your account in a:
These FAQs provide general information and shouldn’t be cited as legal authority. Because these answers do not apply to every situation, yours may require additional research. |
General
General
Is my IRA contribution deductible on my tax return? Roth IRA contributions aren’t deductible. For contributions to a traditional IRA, the amount you can deduct may be limited if you or your spouse is covered by a retirement plan at work and your income exceeds certain levels. If neither you nor your spouse is covered by a retirement plan at work, your deduction is allowed in full.
Can I contribute to a traditional or Roth IRA if I’m covered by a retirement plan at work? Yes, you can contribute to a traditional and/or Roth IRA even if you participate in an employer-sponsored retirement plan. For 2012 , you can contribute up to $5,000 annually to your IRAs ($6,000 if you are 50 or older by the end of the year), assuming you have at least $5,000 ($6,000) in earned income for the year. For 2013, the limit is $5,500 ($6,500 if you are 50 or older). Traditional IRAs Roth IRAs If married filing jointly - maximum Roth IRA contribution is allowed if modified adjusted gross income is:
Contributing to both traditional and Roth IRAs If you are in a SEP or SIMPLE IRA plan How do I convert my traditional IRA to a Roth IRA? You can convert your traditional IRA to a Roth IRA by:
Return to General FAQs Distributions (Withdrawals) Rollovers
Can I roll over my IRA into my retirement plan at work? You can roll over your IRA into a qualified retirement plan (for example, a 401(k) plan), assuming the retirement plan has language allowing it to accept this type of rollover. Can I roll over my workplace retirement plan account into an IRA? Almost any type of plan distribution can be rolled over into an IRA. Can I take money from my SEP, SARSEP or SIMPLE IRA plan while I am still working? You can take distributions from your IRA (including your SEP-IRA or SIMPLE-IRA) at any time. There is no need to show a hardship in order to take a distribution. However, in addition to including the distribution in income, it may be subject to a 10% additional tax if you are under age 59 1/2. The additional tax is 25% if you take a distribution from your SIMPLE-IRA in the first 2 years you participate in the SIMPLE IRA plan. There is no exception to the 10% additional tax specifically for hardships. Do I request the distribution check directly from my employer or from the financial institution where contributions to my SEP or SIMPLE IRA plan are invested? You will need to contact the financial institution holding your IRA assets.
If I cash in my IRA before I am age 59 1/2, which forms do I need to fill out? Regardless of your age, you will need to file a Form 1040 and show the amount of the IRA withdrawal. Since you took the withdrawal before you reached age 59 1/2, unless you met one of the exceptions listed in Publication 590, you will need to pay an additional 10% tax on early distributions on your Form 1040. You may need to complete and attach a Form 5329 Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts, to the tax return.
Can I deduct the 10% additional early withdrawal tax in the adjusted gross income section of my income tax return as a penalty on early withdrawal of savings? No, the additional 10% tax on early distributions from qualified retirement plans does not qualify as a penalty for withdrawal of savings.
I am over age 70 1/2. Must I receive a required minimum distribution if I am still working? Is the answer different if I am the owner of the company? Both owners and employees over age 70 1/2 must take required minimum distributions. There is no exception for non-owners who have not retired.
How much must I take out of my IRA at age 70 1/2? Required minimum distributions (RMDs) must be taken each year beginning with the year you turn age 70 1/2. The RMD for each year is calculated by dividing the IRA account balance as of December 31 of the prior year by the applicable distribution period or life expectancy. You can determine your distribution period or life expectancy by using the Tables in Appendix C of Publication 590 Individual Retirement Arrangements (IRAs).
Can a qualified charitable distribution satisfy any required minimum distributions I must take from my IRA? Yes, your qualified charitable distributions can satisfy the amount that you must take as an RMD from your IRA. A qualified charitable distribution made by December 31, 2011, may satisfy all or part of your 2011 RMD. For example, if your 2011 RMD is $10,000, and you make a $5,000 qualified charitable distribution for 2011, you have only satisfied $5,000 of your RMD and must still take a $5,000 RMD for 2011.
If I already received a required minimum distribution for 2011, can I still treat that as a qualified charitable distribution? No. To qualify as a qualified charitable distribution, the IRA trustee must make the distribution directly to the qualified charity. Any distributions, including any RMDs that you actually receive cannot qualify as qualified charitable distributions.
How were qualified charitable distributions reported on Form 1099-R? Any distributions from an IRA in 2011, including any 2010 qualified charitable distributions made on or before January, 2011, are reported on a 2011 Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. IRA owners reported a 2010 QCD made in January 2011 on their 2010 Form 1040 as follows:
Return to Distributions FAQs
Loans
Can I roll over the outstanding loan balance from my retirement plan into an IRA and make the loan payments to the IRA? IRAs (including SEP-IRAs) do not permit loans. If this transaction was attempted, the loan would be treated as a distribution at the time of the attempted rollover.
The bank refuses to give a loan from my SEP - isn't it required to allow loans? Your account in a SEP, SIMPLE IRA or SARSEP plan is an IRA. IRAs do not permit loans.
Investments
What types of investments can I make with my IRA? The law does not permit IRA funds to be invested in life insurance or collectibles. If you invest your IRA in collectibles, the amount invested is considered distributed in the year invested and you may have to pay a 10% additional tax on early distributions. Here are some examples of collectibles:
IRA trustees are permitted to impose additional restrictions on investments. For example, because of administrative burdens, many IRA trustees do not permit IRA owners to invest IRA funds in real estate. IRA law does not prohibit investing in real estate but trustees are not required to offer real estate as an option.
Are the basic investment rules different for SEPs and SIMPLE IRA plans? The basic investment vehicle for each of these plans is an IRA, and the investment restrictions apply equally to all types of IRAs.
Can I deduct losses in my IRA on my income tax return? No, do not take IRA losses or gains into account on your tax return while the IRA is still open.
Recharacterization of a Roth IRA Rollover
What is a recharacterization of a rollover or a conversion to a Roth IRA? This is when you do a trustee-to-trustee transfer to a traditional IRA of amounts you previously rolled over or converted to the Roth IRA.
How can I recharacterize an amount rolled over to a Roth IRA from an employer-sponsored retirement plan? You can only recharacterize amounts rolled into a Roth IRA from an employer-sponsored retirement plan by transferring them to a new or existing traditional IRA, and not back into the plan from which they were distributed.
Is there a minimum waiting period to reconvert the money to a Roth IRA following a recharacterization? Yes, if you elect to recharacterize all or part of a rollover or conversion to a Roth IRA, you cannot reconvert the amount recharacterized to the same or another Roth IRA until the later of:
However, this waiting period does not apply to amounts other than the ones you recharacterized. For example, you can convert amounts from a different traditional IRA to a Roth IRA immediately.
If I have questions concerning IRAs, where do I go for help? Technical and procedural questions concerning IRAs may be directed to our toll-free tax assistance line for individuals at (800) 829-1040. |