Traditional IRA FAQs

 

Straight answers to your questions about Traditional IRAs

 


Contents


General


What is a Traditional IRA?

IRA stands for Individual Retirement Account. A Traditional IRA is an account that enables you to make contributions pre-tax (e.g. with no taxes taken out now) to save for retirement. When you retire and begin taking disbursements from the account, you pay the taxes at that time. The funds in a Traditional IRA can be invested at your direction in a number of different ways. 

 

Am I eligible to have a Traditional IRA?
If you are younger than age 701/2 for the entire tax year, and have compensation, you are eligible to establish and make an annual tax-year contribution to a traditional IRA, even if you already participate in certain government plans, a tax-sheltered annuity, a simplified employee pension (SEP) plan, a Savings Incentive Match Plan for Employees of Small Employers (SIMPLE), or a qualified pension or profit-sharing plan established by an employer.

 


Compensation


What is compensation?
Compensation is the salary or wages you receive as an employee. If you are self-employed, compensation is your net income for personal services performed for the business. All taxable alimony is considered compensation. Interest, dividends, and most rental income are passive income sources and are not considered compensation. 
 

How much can I contribute to my IRA?
You may contribute any amount up to 100 percent of your compensation or the amount set forth in the chart below, whichever is less, to a traditional IRA (or aggregated between a traditional and a Roth IRA). Additionally, if you have attained age 50 or older by the end of your taxable year, you are eligible to make catch-up contributions.  

 

 

Tax Year

Contribution Limit

Catch-Up

Limit

Total Limit for Age 50 and Over

2013

$5,500

$1,000

$6,500

2014 and later

$5,500 + COLA*

$1,000

$6,500 + COLA*

*Subject to annual cost-of-living adjustments (COLAs).

 

The amount of any tax refund contributed directly to your IRA is subject to the annual contribution limit.

 

 

 



Family


What happens to my IRA in the event of my death?
Your named beneficiary(ies) will receive the entire proceeds of the IRA. Your beneficiary(ies) will not be subject to the 10 percent early distribution penalty tax. Distributions to your beneficiary(ies) will be made in accordance with the required minimum distribution rules and your IRA agreement.

 

What is a spousal IRA?
The spousal IRA rules allow contributions to an IRA on behalf of a spouse. A married couple can contribute up to 100 percent of their combined compensation or the contribution limit, whichever is less. The amounts can be divided in any manner between the two spouses’ IRAs with no more than the annual limit being contributed to either spouse’s IRA. Catch-up contributions are available for eligible spousal IRA arrangements and would increase the allowable contribution limits.

 



Moving Assets


How do I move assets from one IRA to another?
There are two methods you can use to move assets from one IRA to another: rollover and transfer. For a rollover, you have 60 calendar days following the date of receipt to roll over the distribution to another IRA. Rollovers from IRAs may not occur more than once during a 12-month period (this rule applies to each separate IRA you own). A transfer occurs when the assets are moved from one IRA to another IRA without you having control or custody of the assets. There are no time or frequency limits on the number of transfers permitted.

 

How do I move assets from an employer-sponsored retirement plan (ERP), to a Traditional IRA?
An eligible rollover distribution from one of these plans may be rolled over or directly rolled over to an IRA. Generally, an eligible rollover distribution is any distribution except one that is

  1. Part of a series of substantially equal periodic payments over your single life expectancy or joint life expectancy of you and your beneficiary or for a specified period of ten years or more
  2. A required minimum distribution for an employee age 701/2 or older
  3. Any hardship distribution.

A rollover occurs when assets distributed from your ERP are paid directly to you, then subsequently rolled over by you to a traditional IRA within 60 calendar days.

 

A direct rollover occurs when assets distributed from your ERP are made payable to the IRA custodian/trustee for the benefit of your traditional IRA.

 

Taxable ERP distributions paid to you that are eligible for rollover are subject to a mandatory 20 percent federal income tax withholding at the time of distribution. Assets moved to an IRA via a direct rollover are not subject to withholding.

 

As with an IRA-to-IRA rollover, an ERP plan recipient has 60 calendar days following the date of receipt to roll over any portion of the distribution to an IRA. The 12-month limitation does not apply to rollovers from an ERP to an IRA.

 

Learn More About Rollovers, Direct Rollovers and Transfers >

 

 

 

How much should you save for retirement?






 


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- Call CSB at (888) 418-5626.

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