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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 The earnings of the IRA are tax deferred until withdrawn.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
Withdrawal penalty of 10% if you are under the age of 59 1/2 (Some exceptions apply.) Withdrawal penalty of 10% on earnings if you are under the age of 59 1/2 (Some exceptions apply. Must also meet Roth IRA five-year aging requirement.)
Eligibility under age 70 1/2 with earned compensation No age restriction as long as you have earned compensation
Mandatory distributions must begin at age 70 1/2 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
  2014 Income Limits
Single $114,000-$129,000
Married, filing separately $0-$10,000
Married, filing jointly $181,000-$191,000

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 year 2014, 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 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 year 2014.)

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 70 1/2. You may withdraw your contributions from your Roth IRA at any time with no government penalty. Please see IRS Publication 590 for details.

What are the penalties for making an early withdrawal?

The government penalty for withdrawing from an IRA prior to age 59 1/2 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 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 2014 tax year.

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 for details.

What are the recent changes for IRAs?

In August 2006, the Pension Protection Act of 2006 was passed, which allows for the following:
  • 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 our IRA Department at 1-800-231-8193.