IRA: Frequently Asked Questions

Traditional IRA

If you are under the age of 70 1/2 for the entire tax year and have earned income (or your spouse has earned income), you are eligible to establish a traditional IRA, even if you already participate in any type of government plan, tax-sheltered annuity, simplified employee pension (SEP) plan, Savings Incentive Match Plan for Employees of Small Employers (SIMPLE), or qualified plan (pension or profit sharing) established by an employer.

Roth IRA

Basically, there are two requirements for eligibility to contribute to a Roth IRA: you must have earned income (or your spouse must have earned income) and your modified adjusted gross income (MAGI) cannot exceed certain limits (see the table below).

Traditional IRA

You may contribute any amount up to 100 percent of your compensation or $4,000*, whichever is less.

Roth IRA

You may contribute any amount up to 100 percent of your compensation or $4,000*, whichever is less, as long as your MAGI is within prescribed limits. These prescribed limits are:

Single Filers

• MAGI of $95,000 or Less - Full $4,000* Contribution
• MAGI Between $95,000 and $110,000 - Partial Contribution
• MAGI of $110,000 or More - No Contribution

Married, Joint Filers

• MAGI of $150,000 or Less - Full $4,000* Contribution
• MAGI Between $150,000 and $160,000 - Partial Contribution
• MAGI of $160,000 or More - No Contribution

Note: It's important to realize that $4,000* is the aggregate amount that you can contribute to any Roth and/or traditional IRA in a given tax or calendar year. For example, if you contribute $500 to a traditional IRA, the most you could contribute is $3,500** to a Roth IRA for that year.

*$5,000 if you are age 50 or older.
**$4,500 if you are age 50 or older.

Traditional IRA

Deductibility of your contribution is based on whether or not you are an active participant in an employer-maintained retirement plan. If you're single and not an active participant, you are eligible for a full ($4,000*) deduction no matter how large your income. If you or your spouse are active participants, the deductible amount is dependent on your MAGI and income tax-filing status. You may be eligible for the maximum deduction, a partial deduction, or no deduction. Even if you are not eligible for a deductible contribution, you can still make a nondeductible contribution to a traditional IRA and take advantage of tax-deferred earnings.

Roth IRA

No, money contributed to a Roth IRA is taxable as income in the year it is earned.

*$5,000 if you are age 50 or older.

Traditional IRA

All earnings on your traditional IRA contributions (deductible and/or nondeductible) remain tax deferred until you make withdrawals from the account. They are then taxed as income in the year they are withdrawn.

Roth IRA

No, provided you withdraw the earnings as part of a qualified distribution. That's the best part of the Roth IRA. When you're ready to take a withdrawal, you pay no taxes on any of the earnings that your money has generated. Qualified tax-free distributions are those taken after the five-year holding period for any of the following reasons: after reaching 59 1/2, permanent disability, a first-time home purchase up to $10,000, or in the event of your death.

Traditional IRA

You can withdraw funds from your traditional IRA any time after you reach age 59 1/2 without incurring a 10 percent IRS premature-distribution penalty. You can avoid the penalty before age 59 1/2 if you become disabled, if the distributions are part of substantially equal periodic payments, for medical expenses in excess of 7.5 percent of your adjusted gross income, for health care insurance if you've been receiving unemployment compensation for at least 12 weeks, for qualified higher education expenses*, or for a first-time home purchase up to $10,000.

Roth IRA

The 10 percent IRS premature-distribution penalty does not apply to earnings you withdraw when you take any of the qualified distributions listed above. In addition, the 10 percent IRS penalty is also waived for certain other distribution reasons. For these distributions, taxes on any earnings will apply. Roth IRA distributions that are subject to taxes (on any earnings withdrawn) but no penalty include:

• Substantially equal periodic payments,
• Medical expenses in excess of 7.5 percent of your adjusted gross income (AGI),
• Health care insurance if you've been receiving unemployment compensation for at least 12 weeks,
• Qualified higher education expenses, and
• Distributions taken within the first five years for any of these reasons: age 59 1/2, death, disability, or first-time home purchase.
• Distributions taken from a Roth IRA for any reason other than a qualified reason or one of the reasons listed here are subject to both taxes and a 10 percent IRS penalty on any earnings withdrawn.

*This information should not be construed as offering tax-free advice. Consult your tax advisor or legal counsel for information concerning your particular situation.

Traditional IRA

If you are over age 59 1/2, simply include the taxable portion of the amount withdrawn (generally, deductible contributions and all earnings) as income. However, if you are under age 59 1/2 and do not meet one of the exceptions, you must also pay a 10 percent IRS penalty for premature distribution. The nondeductible portion of the distribution is not taxable when withdrawn nor is it subject to the 10 percent premature-distribution penalty.

Roth IRA

Qualified distributions from a Roth IRA, as mentioned above, are not subject to federal income taxes (state taxes may apply). Beyond that, another helpful feature of the Roth IRA is that, for non qualified distributions, original contribution amounts are returned first. Contributions (as opposed to earnings) are not subject to taxation or the 10 percent IRS premature-distribution penalty when distributed. In other words, you can always get back your principal tax free and IRS penalty free for any reason.*

*The rules for amounts converted or rolled over from traditional IRAs into Roth IRAs may be different. Please consult your tax adviser.

Traditional IRA

When you reach your age 70 1/2 year, you must begin to take minimum required withdrawals or severe penalties will be imposed.

Roth IRA

There are no required withdrawals from a Roth IRA.

Great idea. Opening both a traditional IRA and a Roth IRA lets you develop your own blend of tax-deductible contributions to your traditional IRA and nondeductible contributions to your Roth IRA. You can decide which is a greater priority for you: minimizing your taxes now through a deduction or minimizing your taxes in the future with tax-free earnings. Again, it's important to remember that $4,000* is the aggregate amount that you can contribute to any Roth and/or traditional IRA in a given tax or calendar year.

*$5,000 if you are age 50 or older.

Simply see any of our New Account representatives. We will explain the nature of these accounts in more detail and help you complete the simple forms necessary to establish your traditional and/or Roth IRA.