Retirement Plans FAQs regarding IRAs
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Many of the rules for traditional IRAs also apply to your account in a:
For more information on these types of plans, see the SEP, SIMPLE IRA plan and SARSEP FAQs. These FAQs provide general information and shouldn’t be cited as legal authority. Because these answers do not apply to every situation, yours may require additional research. |
General
Is my IRA contribution deductible on my tax return? Roth IRA contributions aren’t deductible. For contributions to a traditional IRA, the amount you can deduct may be limited if you or your spouse is covered by a retirement plan at work and your income exceeds certain levels. If neither you nor your spouse is covered by a retirement plan at work, your deduction is allowed in full. Can I contribute to a traditional or Roth IRA if I’m covered by a retirement plan at work? Yes, you can contribute to a traditional and/or Roth IRA even if you participate in an employer-sponsored retirement plan. For 2011 and 2012, you can contribute up to $5,000 annually to your IRAs ($6,000 if you are 50 or older by the end of the year), assuming you have at least $5,000 ($6,000) in earned income for the year. Traditional IRAs Roth IRAs If married filing jointly - maximum Roth IRA contribution is allowed if modified adjusted gross income is:
See the 2011 and 2012 charts for a summary of income limits that apply to Roth IRA contributions. Contributing to both traditional and Roth IRAs If you are in a SEP or SIMPLE IRA plan How do I convert my traditional IRA to a Roth IRA? You can convert your traditional IRA to a Roth IRA by:
A conversion results in taxation of any untaxed amounts in the traditional IRA. Also, the conversion is reported on Form 8606, Nondeductible IRAs. Return to General FAQs Distributions (Withdrawals) Rollovers
Distributions while still working
Required minimum distributions
Qualified charitable distributions
Can I roll over my IRA into my retirement plan at work? You can roll over your IRA into a qualified retirement plan (for example, a 401(k) plan), assuming the retirement plan has language allowing it to accept this type of rollover. Can I roll over my workplace retirement plan account into an IRA? Almost any type of plan distribution can be rolled over into an IRA. Can I take money from my SEP, SARSEP or SIMPLE IRA plan while I am still working? You can take distributions from your IRA (including your SEP-IRA or SIMPLE-IRA) at any time. There is no need to show a hardship in order to take a distribution. However, in addition to including the distribution in income, it may be subject to a 10% additional tax if you are under age 59 1/2. The additional tax is 25% if you take a distribution from your SIMPLE-IRA in the first 2 years you participate in the SIMPLE IRA plan. There is no exception to the 10% additional tax specifically for hardships. Do I request the distribution check directly from my employer or from the financial institution where contributions to my SEP or SIMPLE IRA plan are invested? You will need to contact the financial institution holding your IRA assets. If I cash in my IRA before I am age 59 1/2, which forms do I need to fill out? Regardless of your age, you will need to file a Form 1040 and show the amount of the IRA withdrawal. Since you took the withdrawal before you reached age 59 1/2, unless you met one of the exceptions listed in Publication 590, you will need to pay an additional 10% tax on early distributions on your Form 1040. You may need to complete and attach a Form 5329 Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts, to the tax return. Can I deduct the 10% additional early withdrawal tax in the adjusted gross income section of my income tax return as a penalty on early withdrawal of savings? No, the additional 10% tax on early distributions from qualified retirement plans does not qualify as a penalty for withdrawal of savings. I am over age 70 1/2. Must I receive a required minimum distribution if I am still working? Is the answer different if I am the owner of the company? Both owners and employees over age 70 1/2 must take required minimum distributions. There is no exception for non-owners who have not retired. How much must I take out of my IRA at age 70 1/2? Required minimum distributions (RMDs) must be taken each year beginning with the year you turn age 70 1/2. The RMD for each year is calculated by dividing the IRA account balance as of December 31 of the prior year by the applicable distribution period or life expectancy. You can determine your distribution period or life expectancy by using the Tables in Appendix C of Publication 590 Individual Retirement Arrangements (IRAs).
What is a qualified charitable distribution from an IRA? A qualified charitable distribution is a charitable gift:
An individual does not include the amount of the qualified charitable distribution, up to $100,000, in gross income for the year for which it is made. What was the deadline for making a 2011 qualified charitable distribution? The deadline for making a 2011 qualified charitable distribution was December 31, 2011. Can a qualified charitable distribution satisfy any required minimum distributions I must take from my IRA? Yes, your qualified charitable distributions can satisfy the amount that you must take as an RMD from your IRA. A qualified charitable distribution made by December 31, 2011, may satisfy all or part of your 2011 RMD. For example, if your 2011 RMD is $10,000, and you make a $5,000 qualified charitable distribution for 2011, you have only satisfied $5,000 of your RMD and must still take a $5,000 RMD for 2011. If I already received a required minimum distribution for 2011, can I still treat that as a qualified charitable distribution? No. To qualify as a qualified charitable distribution, the IRA trustee must make the distribution directly to the qualified charity. Any distributions, including any RMDs that you actually receive cannot qualify as qualified charitable distributions. How were qualified charitable distributions reported on Form 1099-R? Any distributions from an IRA in 2011, including any 2010 qualified charitable distributions made on or before January, 2011, are reported on a 2011 Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. IRA owners reported a 2010 QCD made in January 2011 on their 2010 Form 1040 as follows:
IRA owners should have filed Form 8606, Nondeductible IRAs, with their 2010 tax return if the IRA owner made the QCD from a traditional IRA in which the owner had basis and received a distribution from the IRA in 2010, other than the January 2011 QCD. The value of all IRAs reported on Form 8606, line 6, should have been reduced by any 2010 QCD made by January 31, 2011. Return to Distributions FAQs Loans Can I roll over the outstanding loan balance from my retirement plan into an IRA and make the loan payments to the IRA? IRAs (including SEP-IRAs) do not permit loans. If this transaction was attempted, the loan would be treated as a distribution at the time of the attempted rollover. The bank refuses to give a loan from my SEP - isn't it required to allow loans? Your account in a SEP, SIMPLE IRA or SARSEP plan is an IRA. IRAs do not permit loans. Return to Loans FAQs Investments
What types of investments can I make with my IRA? The law does not permit IRA funds to be invested in life insurance or collectibles. If you invest your IRA in collectibles, the amount invested is considered distributed in the year invested and you may have to pay a 10% additional tax on early distributions. Here are some examples of collectibles:
Check Publication 590, Individual Retirement Arrangements (IRAs), for more information on collectibles. IRA trustees are permitted to impose additional restrictions on investments. For example, because of administrative burdens, many IRA trustees do not permit IRA owners to invest IRA funds in real estate. IRA law does not prohibit investing in real estate but trustees are not required to offer real estate as an option. Are the basic investment rules different for SEPs and SIMPLE IRA plans? The basic investment vehicle for each of these plans is an IRA, and the investment restrictions apply equally to all types of IRAs. Can I deduct losses in my IRA on my income tax return? No, do not take IRA losses or gains into account on your tax return while the IRA is still open. Return to Investments FAQs 2010 Rollovers and Conversions to a Roth IRA
What was the deadline for electing to include the taxable portion of my 2010 rollover or conversion to a Roth IRA on my 2010 return? The default method for reporting rollovers or conversions to a Roth IRA in 2010 is reporting half of the taxable amount in your gross income in 2011 and half in 2012. However, you could have elected to include the entire amount in your 2010 gross income on your 2010 tax return. You cannot change your election after the due date for your 2010 tax return. If I included the taxable amount of my 2010 rollover or conversion on my 2010 tax return, but later recharacterized that rollover or conversion, what should I do? For a recharacterized rollover or conversion, you should amend your 2010 tax return to subtract the amount recharacterized from the taxable amount of the rollover or conversion you previously included in your 2010 gross income. How were 2010 rollovers or conversions to a Roth IRA reported on a 2010 Form 1099-R? Qualified plans and IRAs reported a 2010 rollover, other than from a designated Roth account in a 401(k) or a 403(b) plan, to a Roth IRA on a 2010 Form 1099-R regardless of whether the recipient elected to include the taxable portion of the rollover in 2010, or half in 2011 and half in 2012. No Form 1099-R is required for 2011 or 2012 for rollovers or conversions to a Roth IRA in 2010. Do I have to report my 2010 rollovers and conversions to a Roth IRA on my 2011 tax return? You must report half of the taxable amount of your 2010 rollovers and conversions on your 2011 income tax return unless you:
Return to 2010 Rollover and Conversions FAQs Recharacterization of a Roth IRA Rollover
What is a recharacterization of a rollover or a conversion to a Roth IRA? This is when you do a trustee-to-trustee transfer to a traditional IRA of amounts you previously rolled over or converted to the Roth IRA. How can I recharacterize an amount rolled over to a Roth IRA from an employer-sponsored retirement plan? You can only recharacterize amounts rolled into a Roth IRA from an employer-sponsored retirement plan by transferring them to a new or existing traditional IRA, and not back into the plan from which they were distributed. Is there a minimum waiting period to reconvert the money to a Roth IRA following a recharacterization? Yes, if you elect to recharacterize all or part of a rollover or conversion to a Roth IRA, you cannot reconvert the amount recharacterized to the same or another Roth IRA until the later of:
However, this waiting period does not apply to amounts other than the ones you recharacterized. For example, you can convert amounts from a different traditional IRA to a Roth IRA immediately.
If I have questions concerning IRAs, where do I go for help? Technical and procedural questions concerning IRAs may be directed to our toll-free tax assistance line for individuals at (800) 829-1040. |
