Category Archives: what is an IRA

Do You Qualify for Early IRA Distributions?

Posted on February 29, 2012 by admin

Since their inception in 1982, millions of Americans have used IRAs and their Roth cousins to save for retirement.  But there are some limits to the tax advantages that these accounts offer; the IRS has mandated that all monies that are withdrawn from a traditional or Roth IRA before age 59 ½ must be subject to a 10% early withdrawal penalty as a means of encouraging taxpayers to let the money in these accounts grow until retirement.  The IRS has softened this restriction over the years by allowing for certain exceptions to this rule. Taxpayers who face the following situations may take early IRA distributions from either their traditional or Roth IRAs without penalty: Death (the beneficiary will receive the proceeds tax-free Total long-term disability, certified by a doctor Medical expenses that exceed 7.5% of the taxpayer’s adjusted gross income that are not reimbursed by any type of insurance or reimbursement plan (these expenses must be qualified expenses that can be listed on Schedule A of the 1040 if the taxpayer were to itemize deductions) Any amount taken to pay for health or medical insurance, provided that the taxpayer has been unemployed through no fault of his or her own and received unemployment compensation for at least 12 weeks straight. The distributions must also be taken in either the year that the unemployment compensation was paid or the following year, and no later than 60 days after reemployment begins Substantially equal series of payments – under Rule 72(t) in the Internal Revenue Code, IRA owners can begin taking distributions in the form of an annuity that is actuarially calculated to last until death. These calculations can take one of three forms, listed on page 53 of IRS Pub. 590. The method of calculation can be changed once without incurring the penalty Qualified higher education expenses, including tuition, books, fees and supplies and also room and board for those who are at least half-time students. The student can either be the IRA owner or a spouse or dependent. Expenses incurred while building or buying a first home, up to $10,000. The homeowner can be either the IRA owner or a spouse or lineal descendant or ancestor. Distributions taken by military reservists as a result of a call back to active duty for at least 179 days Any qualified rollover or transfer from or to an IRA from another IRA or qualified plan Any tax levy from the IRS Roth IRA owners can also withdraw their contributions tax-free at any time without penalty regardless of their age.  For more information on traditional and Roth IRAs, download Pub. 590 from the IRS website at www.irs.gov or consult your financial advisor. Continue reading →

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Start Funding Your 2012 IRA Today

Posted on February 7, 2012 by admin

It’s never too early to begin funding your 2012 IRA.  Start saving now and you’ll have 15 months to make contributions.  Thanks to Congressional action, you’ll benefit from revised income limits for deductions and qualified plan participation. IRA Contribution Limits Congress voted late in 2011 to keep the amount that may be contributed to a traditional or Roth IRA the same as for 2011. Those under age 50 may contribute up to $5,000, while those age 50 and above are allowed to make an additional “catch-up” contribution of $1,000. You can fund your IRA with a single lump-sum payment if you wish, or you can make periodic payments that will deposit a certain amount each month. Those who do this will have to pay in $416.66 per month to fully fund their IRA (or $500 a month for those who are also making the catch-up contribution). Of course, it is also possible to make irregular contributions within the limits, such as $1,000 in January, $3,000 in May and the remainder in August. IRA Deduction Limits Although the contribution limits are the same, the income threshold for deductibility of contributions has risen somewhat. For those who also make contributions to an employer-sponsored qualified plan, IRA contributions are phased out between $58,000 and $68,000 of modified adjusted gross income for those who file as single or Head of Household and $92,000 to $112,000 for married couples filing jointly. For those who do not contribute to any kind of qualified plan, the phase out schedule is $173,000 to $183,000 for married couples filing jointly. There is no income limit for single and Head of Household filers in this category, and the phase out schedule is $0 to $10,000 of MAGI for married couples filing separately, regardless of whether either spouse contributes to a qualified plan or not. Roth IRA Income Limits As in 2011, there is now no income limit for Roth conversions of any kind. Of course, this does not mean that you should necessarily convert all of your traditional tax-deferred retirement plan balances to a Roth IRA in 2012, because you may end up putting yourself in a higher tax bracket and pay unnecessary taxes on your conversion. Those who wish to make contributions to their Roth IRAs in 2012 may do so as long as their incomes are below $173,000 if they are married and file jointly. The amount that they can contribute starts to phase out at that level and completely phases out for MFJ filers with incomes of $183,000 or more. For those who file as Single, Head of Household or Married Filing Separately, the MAGI phase out starts at $110,000 and finishes at $125,000. Conclusion The contribution and deduction limits for IRAs in 2012 will most likely change again in 2013, depending upon what Congress decides. For more information on IRAs, consult IRS Pub. 590 or consult your financial advisor. Continue reading →

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