Am I Eligible to Have an IRA?
If you are under age 70 1/2 for the entire tax
year and have earned income, you are eligible to establish an 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.
Earned income is the salary
or wages you receive as an employee. If you are self-employed, earned income
is your net income for personal services performed for the business.
All taxable alimony is considered earned income. Interest, dividends,
and most rental income and passive income sources and are not considered
Do I Pay Taxes on the
Earnings of My IRA?
All earnings on your IRA contributions
(deductible and/or nondeductible) remain
tax deferred until you make withdrawals from the account.
What if I'm Not Eligible for a Deductible IRA Contribution?
You can still make nondeductible contributions
to your IRA. You may also be eligible for a Roth IRA.
When Can I Withdraw
Funds From My IRA Without Incurring Any IRS Penalties?
You can withdraw funds from your IRA without
a 10 percent premature distribution penalty any time after you reach age 59 1/2.
You can also avoid the premature distribution penalty before age 59 1/2 if
you become disabled, if the distributions are part of certain periodic
payments, for medical expenses in excess of 7.5 percent of your adjusted
gross income, for health care insurance if you have been receiving
unemployment compensation for at least 12 weeks, for distributions paid
directly to the IRS due to IRS levy, for qualified higher education
expenses, or for a first-time home purchase. When you reach ages 70
1/2 you must begin to take minimum required distributions or servere tax
penalties will apply.
What Is a Spousal IRA?
The spousal IRA rules allow a married person to
make an IRA contribution for his/her spouse. An eligible spouse can
contribute the lesser of: The maximum allowable contribution for
the current tax year, or the total of both spouses' compensation for the
tax year reduced by the higher compensated spouse's traditional IRA
contribution and Roth IRA contribution for the year. Catch-up contributions are available
for spousal IRA arrangements and would increase the allowable contribution
How Do I Move Funds
From One IRA to Another?
There are two methods you can use to move funds
from one IRA to another: rollover and transfer. For a rollover, you have 60 calendar days
following the date of receipt to rollover 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 funds are moved from one IRA to another without
you having control or custody of the funds. There are no time or
frequency limits on the number of transfers permitted.