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Frequently Asked IRA Questions

   Personal IRAs | Frequently Asked Questions

What's the difference between a Traditional IRA vs. Roth IRA?

Traditional IRA
A Traditional IRA is the IRA originally chartered by the U.S. government. There are two primary benefits of a Traditional IRA.
  1. The earnings of the IRA are tax deferred until withdrawn.
  2. For many taxpayers, the contributions to the IRA are tax deductible.
Roth IRA
A Roth IRA is a more recent form of a retirement savings plan. The principal benefit of a Roth IRA is that all earnings will accumulate tax-free if the withdrawal meets the qualifications of a qualified distribution.

Traditional vs. Roth IRA

Differences at a glance:

Traditional IRA Roth IRA
Tax deductible contributions for qualified investors Contributions are not tax deductible
No tax-free withdrawals Tax-free withdrawals for qualified distributions or distributions of "basis" (contributions) only
Withdrawal penalty of 10% if you are under the age of 59½ (Some exceptions apply.) Withdrawal penalty of 10% on earnings if you are under the age of 59½ (Some exceptions apply. Must also meet Roth IRA five-year aging requirement.)
Eligibility under age 70½ with earned compensation No age restriction as long as you have earned compensation
Mandatory distributions must begin at age 70½ No mandatory distributions

What are the Modified Adjusted Gross Income (MAGI) limits for Roth IRAs?

If your MAGI is at or above the limits, you may not make a contribution to your Roth IRA, regardless of your age. Partial contributions allowed if your income is between:

  Roth IRA Roth IRA
  2015 Income Limits 2016 Income Limits
Single $116,000-$131,000 $117,000-$132,000
Married, filing separately $0-$10,000 $0-$10,000
Married, filing jointly $183,000-$193,000 $184,000-$194,000

No Roth IRA contributions allowed if your income exceeds maximum shown above.

Can I convert a Traditional IRA into a Roth IRA?

Yes. All conversion contributions to a Roth are taxable when converted and also become the basis in the account. (Refer to a tax advisor if you ever made non-deductible contributions to a Traditional IRA.) Some restrictions may apply. Please contact us for more information.

How much can I contribute annually to my IRA?

For the tax years 2015 and 2016, contributions of new dollars to an IRA are limited to $5,500 or 100 percent of earned income, whichever is less. Up to $5,500 per year can be deposited to either a Traditional or a Roth, or split between the two; but no more than $5,500 between the two. Transfers and rollovers are limited to the amount that was withdrawn from the previous IRA (or qualified plan).
(Note: Individuals age 50 or older can contribute up to $6,500 or 100% of earned income – whichever is less – for tax years 2015 and 2016.)

How and when may I make a withdrawal from my IRA?

You may withdraw from a Traditional IRA at any time. You may, however, be subject to government and financial institution withdrawal penalties. Withdrawals may also be subject to income tax. You must take a Required Minimum Distribution (RMD) from your Traditional IRA each year, starting for the year in which you turn age 70½. You may withdraw your contributions from your Roth IRA at any time with no government penalty. Please see IRS Publication 590-B for details.

What are the penalties for making an early withdrawal?

The government penalty for withdrawing from a Traditional IRA prior to age 59½ is 10 percent. The type of investment you choose may also have a withdrawal penalty if you withdraw within a certain period of time (for example, Certificates of Deposit). The 10 percent government penalty is waived under certain conditions.

Please see IRS Publication 590-B for details on the withdrawal rules related to a Traditional vs. Roth IRA.

Do I qualify for tax-deferred deposits to a Traditional IRA?

To determine whether you qualify for full or partial tax deferral, please see your tax advisor.

In general, whether you may deduct a Traditional IRA contribution first depends on whether you or your spouse are covered by a company's retirement plan. If there is NO company plan involved, you may be able to deduct the full contribution, up to $5,500 (or $6,500 if age 50 or older) for 2015 and 2016 tax years.

If you or your spouse are covered by a company plan and are an active participant, you must look at your total Modified Adjusted Gross Income for the year to determine if you are eligible for a full or partial deduction. Please see IRS Publication 590-A for details.

What are other possible benefits of having an IRA?

  • EGTRRA provisions were made permanent (e.g., catch-up contributions and saver's credit)
  • Cost-of-living adjustments, increasing the income limits for taking IRA deductions
  • Penalty-free distributions from IRAs for certain qualified guardsmen and reservists
  • Non-spouse beneficiaries may set up a Direct Rollover of plan assets from a Workplace Retirement Plan (e.g., 401(k), QRP) to an Inherited IRA
  • Income tax refunds can be paid directly to IRAs
  • Beginning in 2009, you are able to roll your qualified plan funds directly to a Roth IRA. (Important Note: This action is a taxable event.)

Contact Us

For answers to your other IRA questions, or for more information on a Traditional vs. Roth IRA, please contact our IRA Department at 1-800-231-8193 and listen carefully to the options.