Frequently Asked Questions
Who can contribute to an IRA?A traditional IRA can be opened by anyone with earned income who is under 70½. (Please note that you cannot contribute to an IRA during the year in which you turn 70½.) A Roth IRA can be opened by anyone with earned income, regardless of age, if their 2014 adjusted gross income is below $129,000 (single) or $191,000 (joint).
How much can I contribute to an IRA?
Roth and Traditional IRA Limits
I understand that if I am 50 years old or older I am able to make a catch-up contribution, but how exactly does that work? Is that in addition to the maximum annual contribution?It is in addition to the annual contribution limit. For example, in 2014, an IRA owner that is 51 years old may be able to contribute the full $5,500 to a Roth IRA or traditional IRA as well as the $1,000 catch-up contribution for a total of $6,500.
Can I invest in both traditional and Roth IRAs?Yes, as long as the total amount of your contributions does not exceed the maximum annual contribution (outlined above). For example, in 2014, if you were eligible to contribute $2,750 to a deductible IRA, you could also contribute $2,750 to a non-deductible IRA or Roth IRA.
Should I invest in an IRA or my company sponsored retirement plan?A company sponsored retirement plan with a matching contribution by the employer is normally the best choice. Visit our Roth IRA Analyzer to find out which IRA may be best for you based on your situation.
What is the deadline for my IRA contributions?The final deadline for making prior year IRA contributions is typically April 15. For example, a contribution for tax year 2013 may be made up until April 15, 2014.
Is my spouse eligible for an IRA?Yes, a non-working spouse is eligible to open either a traditional or Roth IRA with a maximum contribution of $5,500.
Can a minor contribute to an IRA?As long as the child has earned income, he or she can contribute to a minor IRA. It can be opened as a traditional or Roth IRA, and the maximum contribution is $5,500 or 100% of earned income, whichever is less. To establish a minor IRA, the account must be opened and held by an adult, as guardian, in the name of the minor. While the adult is the individual authorized to perform transactions on the account, the minor is considered the registered owner for tax purposes.
If I'm self-employed, what other retirement saving options do I have?If you are self-employed or own a small business, other options you may have include contributing to a Simplified Employee Pension IRA (SEP-IRA) or SIMPLE plan.
When can I take funds out of my IRA?Distributions from a traditional IRA can be made penalty-free at 59½, and minimum required distributions begin the year you turn 70½. You can also take withdrawals from a Roth IRA once you are 59½, as long as the account has been in existence for at least five years. Unlike traditional IRAs, there are no required distributions with a Roth.
In most instances, if withdrawals are made before age 59½, there is a 10% early distribution penalty. However, there are situations where funds can be taken from an IRA without tax or penalty. You can withdraw funds from any IRA penalty-free to pay for a first-time home purchase or higher education. If the funds withdrawn from a Roth IRA are used for a first time home purchase, and the account has been open for at least five years, the withdrawal will also be tax-free. Certain exceptions also exist for circumstances involving death, disability, and medical expenses.
Also, you can withdraw your contributions (but not any earnings) from a Roth IRA at any time for any reason without penalty.
If I take a distribution from my IRA, can I replace it without being penalized?Once a distribution is taken from an IRA, you have sixty days from the time you receive the check to replace those funds and avoid any associated penalties or taxes. This type of rollover can be done only once every 365 days.
Can I convert my existing traditional IRA to a Roth IRA?Yes. And starting in 2010, the $100,000 eligibility income cap that previously applied to individuals who converted a traditional IRA to a Roth IRA has been lifted and investors will be free to implement a conversion regardless of income level. Married individuals filing separately are also now able to convert.
As you get ready to invest, it may be a good time to talk with your tax advisor about your overall retirement plan and which IRA options may make sense for you. You'll want to consider these and other important factors as you make your final decision: