401k/403b Frequently Asked Questions
How much can I contribute?
2015 = $18000/yr
How much extra money can I add to my 401(k) if I am over 50?
2015 Limits = $6,000/yr in addition to the $18,000/yr normal limit
My company is getting a new 401(k). Can I roll into an IRA?
Employees are seldom able to rollover their 401(k) into an IRA. If you are of retirement age (59.5) and still working you can usually do an in service IRA rollover while continuing to contribute to your 401k plan.
IRA Frequently Asked Questions
How much can I contribute?
2015 = $5500/yr
How much extra money can I add to my IRA if I am over 50?
2015 = $1000/yr in addition to the $5500/yr normal limit.
What is the best way to rollover my IRA
By initiating a rollover you have 60 days to deposit the money into another IRA account. The seamless way is to do a direct transfer. You can only rollover once a year but direct transfers have no annual limits.
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
Can my non-working spouse open an IRA?
Yes,even though a spouse doesn't have earned income he/she is still eligible to open an IRA in their name.
Can I convert my traditional IRA to a Roth IRA?
Yes. After legislation changes in 2010 it is possible to convert your IRA to a Roth IRA. After all of the recent media attention this strategy has gotten many investors think that the tax free income is a no brainer, but before you go and pay taxes on your IRA consider the following:
Will you make more money per year in retirement and have a higher tax rate?
Most people will have a lower income in retirement than when they work and their tax rates go down. Others believe that the government may raise tax rates on everybody in the future and prefer to pay taxes now rather than later. One thing to note is if you want to do a conversion it is best to pay the taxes from savings rather than out of your retirement account.
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:
how long you have until retirement
your current tax rate
your projected tax rate at retirement
the amount you currently have invested in tax-deductible IRAs
whether you have a company-sponsored retirement plan
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.
Inheriting an IRA? Spending vs. Investing
If you’ve inherited an IRA from someone other than your spouse, you can benefit from keeping the assets in a tax-deferred account.
By naming you as a beneficiary of an IRA, the original account owner has given you the opportunity to enhance your own financial security, should you choose to take advantage.
With an Inherited IRA, you can stretch your IRA assets by taking advantage of tax-deferred growth and annual minimum required distributions (MRDs). If you withdraw all the money, you’ll lose the retirement savings advantages and face a large tax bill. You can always take out more than the MRD amount if you need to; however, it’s usually advisable to leave the assets you don’t immediately need in the Inherited IRA, to take advantage of as much tax-deferred growth as possible.
MRDs on an Inherited IRA require careful attention, as they often must begin by the year after the year of the original owner’s death. If you miss taking MRDs, you may be subject to an IRS penalty.
1. Roll over the assets into a new or existing IRA in your own name.
As a surviving spouse, you have one option that nobody else has: rolling over inherited IRA assets into your own IRA and treating these assets as if they were your own. This may be a good choice if you don’t have an immediate need for your spouse’s IRA assets and you are looking to keep the money in a tax-advantaged account for as long as possible. If you have not reached age 70½ but your spouse had, this option enables you to delay taking distributions until you reach age 70½, rather than continuing your spouse’s MRDs.
If you are under age 59½ and you do need to access some or all of the assets you inherit from a traditional IRA, you will be subject to a 10% early withdrawal penalty if you roll those assets into your own IRA and then take a distribution. If you find yourself in this situation, you can take withdrawals penalty free, even if you’re under 59½, if you instead transfer the assets to an inherited IRA, also known as an IRA beneficiary distribution account (see option 2, below).
No matter which option you choose, the rules for MRDs will still apply. This means you must withdraw a certain amount of money from your IRA, including inherited assets, each year once you reach age 70½.
Keep in mind that if your spouse was age 70½ or older at the time of death, you will need to determine whether he or she met the MRD for the year in which he or she passed away. If your spouse did not meet the MRD, you must take an MRD for that calendar year by December 31. However, this distribution must be reported under your Social Security number, not your spouse's. The year of death MRD will be calculated using your spouse’s age and life expectancy. If you fail to meet the December 31 deadline, you may be subject to an IRS penalty equal to 50% of the amount not withdrawn. For deaths that occur late in the year, consider filing IRS Form 5329 with a letter of explanation to request a waiver of the penalty.
Distributions from a traditional IRA will be taxed as ordinary income. However, if the original account was a Roth IRA and the assets were in the account for five years or more, distributions may be tax free. In either case, the registration type of both IRAs must match in order to transfer the assets from one account to another (e.g., traditional IRA to traditional IRA or Roth IRA to Roth IRA). If the assets were not in a deceased spouse’s Roth IRA for more than five years, it would be best to consult a tax adviser regarding how withdrawals may be taxed, and whether or not it’s best to roll them into your own Roth IRA or keep them separate in an inherited Roth IRA.
2. Transfer the assets to an inherited IRA.
Transferring assets to an inherited IRA may make the most sense if you are under age 59½ and need to access some or all of your spouse’s IRA assets now, or before you attain the age of 59½. Why? Because you won’t be subject to a 10% penalty when you take withdrawals from an inherited IRA prior to age 59½ as you would be if you were withdrawing assets from a non-inherited IRA you may own.
The timing of your first MRD will be based on the age your spouse attained, not on your age. If your spouse was older than 70½, you must begin MRDs by December 31 of the year following your spouse’s death. The MRD amounts will be based on the IRS’s Single Life Expectancy table (Appendix C, IRS Publication 590), based on your age.
If your spouse was under age 70½, you can delay commencing MRDs until the year your spouse would have turned 70½, even if you are older than 70½.
Another option is to invoke the five-year rule. So long as your spouse was under age 70½ when he or she died, you have five years during which you can withdraw inherited assets from an inherited IRA at any time, in any amount, as long as all the assets are withdrawn by December 31 of the fifth year following your spouse’s death. However, keep in mind that these larger distributions could push you into a higher tax bracket.
If you inherit a Roth IRA and transfer the assets to an inherited Roth IRA, your MRDs will always be treated as if your spouse were under age 70½. Therefore, you must begin MRDs by December 31 of the year following your spouse’s death. These MRDs will be based on the Single Life Expectancy table. You may also elect to take distributions under the five-year rule. Withdrawals from inherited Roth IRAs are normally tax free so long as the funds were in the original Roth IRA for five years or more.
If you decide to establish an inherited IRA, be sure your IRA custodian registers the account properly. The account registration should include the name of the person who died, an indication that the account is an IRA beneficiary distribution account, and the inheritor’s name. Note that different IRA custodians may have varying interpretations of the IRS’s rules regarding account registrations.
Confirm your spouse’s beneficiaries are up to date. As life events such as marriage, divorce, and deaths occur, it’s in your best interest (and your spouse’s) to confirm that your beneficiary designations are up to date. Remember that IRA beneficiary designations supersede a will.
Request a trustee-to-trustee transfer. No matter which option you choose, make sure that any assets transfer directly from one account to another or from one IRA custodian to another. There is no option for a 60-day rollover when inheriting IRA assets. If you receive a check, the money will be taxed as ordinary income, and will be ineligible to be deposited into an inherited IRA you may own at another firm or back into the inherited IRA that it was withdrawn from to begin with.
Commingling of inherited IRAs is not permitted. If you inherit different types of IRAs from your spouse (Roth, traditional, SEP, etc.) or from other IRA owners, you cannot combine them into a single inherited IRA.