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Retirement & Benefits

Investing isn't a sprint - your final stretch could last decades, and so should your investment strategy.

 
"The StockCross name might be new to some investors, but the longevity of the company, and the total years of investment experience by our advisors, would astound anyone."

Ed Shaughnessy
Customer Service Manager
20 years industry experience

IRA Rollover FAQs

Open an IRA Rollover

Am I eligible to contribute to a Traditional or Roth IRA?

The following chart explains the eligibility requirement for contributions.

Deductibility Phase-out Ranges for Active Participants
Traditional IRA Roth IRA
1. Must have earned income 1. Must have earned income
2. Must be under age 70½ 2. Must be within income limits

2011 Modified Adjusted Gross Income (MAGI)
Limits for Roth Contribution
Single Filer $122,000
Married Joint Filer $179,000
Married Filing Separate $10,000

If your MAGI is under the applicable income limits, you may make a contribution to a Roth IRA as long as you have earned income For more detail, see "What are the phase-out ranges for a Roth IRA contribution?".

What are the differences between Traditional and Roth IRAs?

The basic differences between Traditional and Roth IRAs lie in three different areas.

Contributions
Traditional IRA: Regular contributions may be tax deductible
Roth IRA: No tax deduction

Growth of Earnings
Traditional IRA: Tax-deferred
Roth IRA: Tax-deferred and possibly tax exempt

Taxability of Withdrawals
Traditional IRA: Generally included in taxable income (except for nondeductible assets)
Roth IRA: Tax-free for qualified distributions

What are the phase-out ranges for a Roth IRA contribution?

If your MAGI lies within your applicable phase-out range, your maximum contribution is reduced. The 2011 phase-out ranges are as follows.

Roth IRA MAGI Phase-Out Ranges
Single Filer $107,000 - $122,000
Married Joint Filer $169,000 - $179,000
Married Filing Separate $0 - $10,000

If your MAGI is within the phase-out range, determine your maximum contribution to a Roth IRA by the following formula.

Contribution Limit = (Upper Limit of Phase-Out Range - MAGI) / (Maximum Contribution x (Upper Limit - Lower Limit))

For a Single Filer in 2011
Contribution Limit = $5,000 x (($122,000 - MAGI) / $15,000)

For a Single Filer Age 50 or Older in 2011
Contribution Limit = $6,000 x (($122,000 - MAGI) / $15,000)

For a Married Filer Filing Joint in 2011
Contribution Limit = $5,000 x (($179,000 - MAGI) / $10,000)

For a Married Filer Filing Joint Over Age 50 in 2011
Contribution Limit = $6,000 x (($179,000 - MAGI) / $10,000)

Note: Once the contribution limit is determined, the result must be rounded up to the nearest $10.

Example: For tax year 2011, Susan, age 42, a single filer, has a MAGI of $112,000. The maximum amount she may contribute to a Roth IRA is calculated as follows.

$5,000 x (($122,000 - $112,000) / $15,000) = $3,340

Note: Contribution limit is rounded up to the nearest $10.

As long as you have eligible earned income, you may make regular contributions to a Traditional IRA until the year in which you attain age 70½, at which point distributions are required to be taken. Unlike Traditional IRA rules, the Roth IRA rules do not have a maximum age restriction. As long as you satisfy the Roth IRA earned income requirement, you may contribute to a Roth IRA, even in or after the year in which you attain age 70½.

How much can I contribute to a Traditional or Roth IRA?

You may make a contribution up to the lesser of:
  1. 100% of earned income, or
  2. $5,000 (for tax year 2011)
Contribution limits are subject to cost-of-living-adjustments (COLAs).

Contribution Limits
Year Amount
2011 $5,000
2012 & beyond $5,000 + potential COLA increases

In addition, if you are age 50 or older, an additional amount (called a catch-up contribution) may be contributed to your IRA. Your catch-up contribution can be up to $1,000 annually.

Is my IRA contribution deductible?

Eligibility to deduct Traditional IRA contributions is based on the answers to three questions.
  1. Are you (the IRA holder) an active participant in an employer-sponsored retirement plan or, if married, is your spouse an active participant?
  2. What is your tax return filing status?
  3. What is the amount of your modified adjusted gross income (MAGI)?
As a Traditional IRA holder, you are considered an active participant if you are a participant in one of the following employer-sponsored retirement plans for any part of the applicable year.
  • A qualified pension, profit sharing or stock bonus plan (IRC Sec.401(a))
  • A qualified annuity plan (IRC Sec. 403(a))
  • A simplified employee pension (SEP) plan (IRC Sec. 408(k))
  • A plan established for its employees by the United States, by a state or political subdivision or by an agency or instrumentality of the United States or a state or political subdivision (other than a plan under IRC Sec. 457)
  • A plan described in IRC Sec. 501(c)(18)
  • A tax sheltered annuity (IRC sec. 403(b)) or
  • A savings incentive match plan for employees (SIMPLE) plan (IRC Sec. 408(p))

Deductibility for Active Participants

Deductibility Phase-out Ranges for Active Participants
Tax Year Single Filer Married Filing Joint Married Filing Separate
2010 $56,000 - $66,000 $89,000 - $109,000 $0 - $10,000
2011 $56,000 - $66,000 $90,000 - $110,000 $0 - $10,000

Using the table above, if you are an active participant in 2011, deductibility is broken down as follows.

Married Filing Separate Tax Return
MAGI up to $10,000: Partial deduction
MAGI over $10,000: No deduction

Single Tax Return Filer
MAGI up to $56,000: Full deduction
MAGI between $56,000 and $66,000: Partial deduction
MAGI over $66,000: No deduction

Married Filing Joint Tax Return
MAGI up to $90,000: Full deduction
MAGI between $90,000 and $110,000: Partial deduction
MAGI over $110,000: No deduction

If your MAGI is within the phase-out range, deductibility is determined by the following formula.

Deduction Limit = (Upper Limit of Phase-Out Range - MAGI) / (Maximum Contribution x (Upper Limit - Lower Limit))

For a Married Individual Filing Separate in 2011
Deduction Limit = $5,000 x (($10,000 - MAGI) / $10,000)

For a Married Individual Age 50 or Older Filing Separate in 2011
Deduction Limit = ($5,000 + $1,000) x (($10,000 - MAGI) / $10,000)

For a Single Individual in 2011
Deduction Limit = $5,000 x (($66,000 - MAGI) / $10,000)

For a Single Individual Age 50 or Older in 2011
Deduction Limit = ($5,000 + $1,000) x (($66,000 - MAGI) / $10,000)

For a Married Individual Filing Joint in 2011
Deduction Limit = $5,000 x (($110,000 - MAGI) / $20,000)

For a Married Individual Age 50 or Older in 2011
Deduction Limit = ($5,000 + $1,000) x (($110,000 - MAGI) / $20,000)

Deductibility If Not an Active Participant

Married Filing Separate
If neither you nor your spouse is an active participant, your contribution is fully deductible.

If you are not an active participant, but your spouse is, your deductibility phase-out range for 2011 is as follows: $0 - $10,000

Single Filer
Your contribution is fully deductible.

If you are not an active participant, but your spouse is, your deductibility phase-out range for 2011 is as follows: $169,000 - $179,000

For a Married Individual Filing Joint in 2011
Deduction Limit = Annual Contribution Limit x (($179,000 - MAGI) / $10,000)

For a Married Individual Filing Joint Age 50 or Older in 2011
Deduction Limit = ($179,000 - MAGI) / ((Annual Contribution Limit + Catch-Up Contribution) x $10,000)

As an IRA holder, you are permitted to make nondeductible IRA contributions to Traditional IRAs to the extent deductible contributions cannot be made. You may also choose to declare contributions that are eligible for a deduction as nondeductible. The combined total of deductible and nondeductible contributions cannot exceed the annual contribution limit plus catch-up contributions, or 100 percent of earned income, whichever is less.

Is a Traditional IRA or a Roth IRA right for me?

Each of the following factors determines whether a Traditional IRA or a Roth IRA is the right choice for you.
  • Anticipated tax rate at retirement
  • Years to retirement
  • Current tax rate
  • Earnings rate assumptions
  • Distribution plans at retirement
For some individuals, a Roth IRA provides tremendous tax saving opportunities. However, a Roth IRA is not right for everyone. Use the IRA Selector™ to gain a better understanding of how various assumptions can affect your decision.

What is the IRA Selector™?

The IRA Selector™ is designed to help you decide if you should invest retirement funds in a Traditional IRA or a Roth IRA. Three calculators will provide comparisons of estimated future retirement amounts to help you better understand the potential benefits of Traditional and Roth IRAs.
  • The Basic Comparison calculator estimates whether a Traditional IRA or a Roth IRA would provide more funds at retirement.
  • The Legacy Planner estimates which IRA will best benefit your beneficiary after your death.
  • The Breakeven Analyzer estimates the time frame when one type of IRA becomes more beneficial to use to save for retirement than the other.
The IRA Selector™ is designed for educational purposes only and is not intended to be used as investment or tax advice. Because each individual's financial circumstances are unique, you should seek competent professional tax advice before deciding on any IRA option.

When is the contribution deadline?

Contributions for a tax year must be made by the tax return due date (not including extensions) following the end of that tax year. That is, a contribution for a particular tax year must be made between January 1 of the tax year and April 15 of the following tax year. Contributions that are made between January 1 and April 15 of the same year for the previous tax year are called "carryback" contributions.

What should I know about traditional IRA distributions?

You can withdraw your Traditional IRA assets at any time, subject to taxes and possible penalties. Money withdrawn from a Traditional IRA is included in your gross income in the tax year received, unless the distribution is made because of one of the following reasons.
  • Rollovers and transfers which are properly redeposited to an IRA or other valid retirement plan
  • Excess contributions removed before the tax return deadline including extensions, if the interest attributable to the excess is also removed (the interest attributable to the excess would be included as income by this taxpayer)
  • Excess amounts removed after the tax return deadline (including extensions)
  • Transfers incident to divorce
  • A distribution of nondeductible IRA contributions
Taxable distributions from a Traditional IRA are taxed as ordinary income.

Early Distribution Penalty
If you take a distribution from your IRA prior to the day you actually reach age 59½, you must include the taxable portion of the distribution in your gross income and a 10% penalty is assessed on the taxable amount. This 10% early distribution penalty generally does not apply if you meet any of the following exceptions.
  • Death
  • Disability
  • A valid rollover to another IRA or other valid retirement plan
  • Qualified medical expenses
  • Health insurance for unemployed individuals
  • First-time home purchase expenses
  • Higher education expenses of qualified individuals
  • Distribution of substantially equal periodic payments over life expectancy
  • IRS levy
  • Qualified reservist distributions

Required Minimum Distributions
You are required to begin taking annual distributions from your Traditional IRAs upon reaching age 70½. If you fail to withdraw a required minimum distribution, you are subject to an IRS 50% excess accumulation penalty on the amount that should have been withdrawn.

IRA distributions must begin by your required beginning date.

Required Beginning Date: April 1 following the year the IRA holder reaches age 70½.

Distributions for each following year must be taken by December 31 of that year.

The IRS provides a formula for calculating the minimum distribution amount, which is generally based on an anticipated life expectancy. Note that you can always take more than the minimum amount, but you must withdraw at least your minimum required amount each year.

Is a distribution from my Roth IRA taxable or subject to penalties?

The taxation of a Roth IRA distribution depends on what assets are being distributed and whether the distribution is considered qualified or nonqualified.

Qualified Distributions
Your Roth IRA distribution may be taken tax and penalty-free if it is considered a qualified distribution. A qualified distribution is one that satisfies the following requirements.
  1. 5 year waiting period AND
  2. One of the following:
    • Attainment of age 59½
    • Death
    • Disability
    • First-time homebuyer expenses
Nonqualified Distributions
If a distribution from a Roth IRA is not qualified, tax and penalties may apply. To determine this, you'll need to understand the ordering rules for a Roth IRA distribution.

Ordering Rules on Nonqualified Distributions
The ordering rules state that if a Roth IRA holder has made both contributory and conversion contributions to Roth IRAs, the assets are distributed in the following order:

First: Contributions
Second: Taxable Conversions
Third: Nontaxable Conversions
Fourth: Earnings

Note: In the order above, "contributions" may include 401(k) and 403(b) plan designated Roth account assets rolled over to Roth IRAs and beginning in 2011, "conversions" may include other retirement plan rollover amounts.

Taxes and penalties apply to each of the above classes of assets in the Roth IRA as follows.

Taxes & Penalties Apply?
Class of Assets
Taxable? 10% Penalty?
Contributions No No
Taxable Conversions No Yes*
Non-Taxable Conversions No No
Earnings Yes Yes*
*Unless a penalty exception applies. See a competent tax
adviser for details.

Roth IRA holders are responsible for determining the taxation of their Roth IRA distributions and applying the ordering rules.

No Required Minimum Distributions The Roth IRA holder need not take required minimum distributions. Beneficiaries of a Roth IRA holder, however, must generally take distributions based on their life expectancy.


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