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What is a Traditional IRA? How Can an IRA Help Me?

 

Open an IRA account today!  

 

You may make a contribution to your Traditional or Roth IRA for:

2019 at any time prior to the 2019 IRS tax filing deadline! (Wednesday, July 15, 2020) 

2020 at any time between January 1, 2020 and Monday, April 15, 2021

 

     Get Important Information Regarding your IRA Brokerage Account at Place Trade Financial

Traditional IRA Limits 2019     Roth IRA Limits 2019 

 

Get the Facts about IRAs

What are the benefits and drawbacks of investing in an IRA? This page offers educational information that you may use in addition to consulting with your tax advisor to see if an IRA may be right for you. Follow the links above to get more information on IRAs and other retirement accounts available at Place Trade as well as information on rollovers and guidance that is specific to your IRA account. Please call us at 800-50-PLACE or 91719-7200 for help opening your IRA today! 

Jump to a section by clicking one of the links below: 

Traditional IRA Basics

Get more info at IRS.gov

 

What is a Traditional IRA?

 

Why participate in a Traditional IRA?

 

Traditional IRA Contribution Limits

 

Traditional IRA Deductibility Limits

 

Traditional IRA Non-Deductible Contributions

 

Important Things to Remember

 

Traditional IRA Rollover Contributions

 

Regular IRA Rollover

 

 

Important Things to Remember about IRA Rollovers

 

Direct Rollover

 

Important Things to Remember About Direct Rollovers

 

What is a Conduit IRA?

 

IRA Distributions

 

Withholding

 

Basis of In-Kind Distributions

 

Required Minimum Distributions (RMD) at Age 70 1/2

 

 

 

 

 

When is the IRA Contribution Deadline? 

You may make an eligible contribution to your Traditional or Roth IRA at any time prior to the IRS tax filing deadline for that year. The tax deadline is usually on April 15th* of the following year, however, this may change in observance of state and federal holidays. Please note that brokerage account clients may have an earlier deadline in order to process your contribution in time. Full-service clients may fund accounts through this date. *The deadline for the 2019 tax year has been moved to Wednesday, July 15, 2020 due to COVID-19.

Please call us at 919-719-7200 for more information and how we may still get your IRA funded before the deadline! 

 

 

 

 

What is a Traditional IRA?

A Traditional IRA is any Individual Retirement Arrangement that is not a RothSEPSIMPLE, or Qualified Plan (including Individual 401(k), or a Coverdell ESA.

The key benefit of a Traditional IRA is tax-deferred growth. Your investments grow free of federal income taxes until the money is withdrawn.

You can set up and make contributions to a Traditional IRA if you (or, if you file a joint return, your spouse) received taxable compensation during the year and you were not age 70 1/2 by the end of the year for the tax year 2019. For 2020 and later, there is no age limit on making regular contributions to traditional or Roth IRAs.

You can have a Traditional IRA whether or not you are covered by an additional retirement plan.

However, you may not be able to deduct all of your contributions if you or your spouse are covered by an employer retirement plan.

Eventually, you must pay federal income tax on investment earnings and any IRA contributions that you have deducted. Please consult your tax and/or legal advisor for details. For more information visit www.irs.gov.

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Why participate in a Traditional IRA?

 

Contributions to a traditional IRA may be deductible

No limit on the number of contributions per year

No limit on the number of IRA accounts

Earnings in an IRA accumulate tax free until distributed

IRA accounts can be used as a "channel" for distributions from a qualified plan

Any participant under the age of 70 1/2 (through the 2019 tax year) with compensation can participate in a traditional IRA (For 2020 and later, there is no age limit on making regular contributions to Traditional or Roth IRAs.)

Note: Due to changing laws, it is always best to review your individual circumstances with a qualified Tax Advisor.

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Traditional IRA Contribution Limits 

You may make an eligible contribution for your 2020 Traditional or Roth IRA at any time prior to the 2020 IRS tax filing deadline which is Monday, April 15, 2021. (Your account must be funded or have proof of postmark by this date!) For brokerage accounts, please check to see if earlier cutoff dates may have been set by our clearing firm.

You may make an eligible contribution for your 2019 Traditional or Roth IRA at any time prior to the 2019 IRS tax filing deadline which is Wednesday, July 15, 2020. (Your account must be funded or have proof of postmark by this date!)

 

Traditional IRA Contribution Limits ~ 2019 & 2020

 

 

Under Age 50  

 

Total

Under Age 50  

Age 50 & Up

Additional 

 Total

Age 50 & Up

2020* **

$6,000

Catch-up Contribution

$1,000

$7,000

2019* ** $6,000 Catch-up Contribution $1,000 $7,000

                                                                                                                                                                                                                                                            Source: irs.gov

"Total" means your total contributions to all of your Traditional and Roth IRAs. You cannot exceed the total amount/contribution limit regardless of how many IRAs that you have or the type/types of IRA(s) that you may own.

*Or your taxable compensation for the year.                                                                                                                                                           

** Effective for tax year 2002 and beyond, for participants who are eligible to make an IRA contribution and have attained the age of 50 before the end of the taxable year, the participant can make a "catch-up" contribution in addition to the normal contribution amount as shown in the table above. The catch-up contribution was $500 from 2002-2005. For the year 2006 and beyond, the catch-up contribution limit will be $1000. The maximum contribution cannot exceed 100% of your actual compensation. Learn more about COLA Increases for Dollar Limitations on Benefits and Contributions from the IRS.

Please note that the IRA contribution limit does not apply to:

  • Rollover contributions
  • Qualified reservist repayments

Deductibility limits can be confusing and tax laws are frequently changing. It is always best to review your specific situation and/or circumstances with a qualified tax advisor.

 


 

Open an IRA online or call us at 1-800-50-PLACE or 1-919-719-7200 to speak with an experienced retirement specialist to help you roll over your old retirement account or help you start planning for retirement today!

 


 
 

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Traditional IRA Deductibility Limits

If the IRA participant is not eligible to participate in an employer-sponsored plan, the IRA contribution is fully deductible, regardless of the participant's income. This includes singlehead of householdor qualifying widow(er) as well as married filing jointly or separately with a spouse who is not covered by a plan at work.

If the IRA participant is an "active participant", then the IRA deductibility is determined by the participant's adjusted gross income. The table above shows the deductibility limits for active participants for tax years 2014 and 2015. This includes married filing jointly with a spouse who is covered by a plan at work

Please Note: Deductibility limits can be confusing, so it is always wise to review your specific situation with your tax advisor.

*Please note that if you are married and file separately and did not live with your spouse at any time during the year, your IRA deduction is determined under the "single" filing status.

If neither spouse is covered by a retirement plan at work, there is no AGI limit. If your filing status is single, head of household, qualifying widow(er), married filing jointly or separately with a spouse who is not covered by a plan at work, then there is no AGI limit and you may take a full deduction. See IRS Publication 590 for more information.

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Traditional IRA Non-Deductible Contributions

Non-deductible contributions are contributions that exceed the deductibility limit but not the contribution limits. The deductibility limits only affect a participant's ability to take a deduction, not his ability to contribute. Any person under the age of 70 1/2* with compensation can contribute to a Traditional IRA, regardless of compensation. *For 2020 and later, there is no age limit on making regular contributions to traditional or Roth IRAs.

Non-deductible contributions can earn tax-deferred income. Only the earnings will be taxable to the IRA participant when distributed. Upon distribution, the non-deductible contributions are recovered on a pro-rata basis.

The participant must inform the IRS that he has made a non-deductible contribution by filing IRS Form 8606 with his tax return.

An IRA participant may remove his non-deductible contributions (plus any applicable earnings) for a given tax year prior to the tax filing deadline (including extensions) for that year. Only the earnings will be taxable.

 


 

Important Things to Remember:

Contribution Limits: There is no minimum contribution limit per the IRS. However, most brokerage firms, mutual fund and investment management companies do require account minimums so please be sure to inquire prior to investing.

The maximum contribution amount for an individual is the lesser of 100% of compensation or $6,000 per year (for 2019 & 2020). Plus any catch-up contributions

For a married couple with a non-working spouse (or a working spouse who is not covered by an employer-sponsored plan), the maximum contribution for the couple is the lesser of 100% of compensation or $12,000, with no more than $6,000 contributed for each individual (for 2019) and $12,000, with no more than $6,0000 for each individual (for 2020). Separate IRAs must be established for each spouse, and the couple must file a joint tax return. The catch-up contribution limit for 2019 and 2020 remains at $1,000 and is limited to a combined total of $14,000 for 2019 and $14,000 for 2020 ($1,000 for each spouse - this example assumes that each spouse is over age 50).

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Talk with an IRA Rollover Specialist Today Call 1-800-50-PLACE


 

Traditional IRA Rollover Contributions

*The IRS has waived certain penalties, distribution and withholding requirements related to COVID-19. Please visit the IRS official website and speak with your tax and/or legal advisor for more details. 

Regular IRA Rollover

A distribution from a qualified retirement account (Qualified Plan, SIMPLESEP, 457, 403(b) and Traditional IRA) that is redeposited into the same IRA or another IRA within 60* days of the date of distribution is considered a rollover contribution. If the entire amount of the distribution is redeposited, there will be no taxable distribution. If only part of the distribution is redeposited, the amount that is not redeposited will be subject to taxes and possibly penalties. (For information on Roth IRAs please visit our  Roth IRA's page.) 

Learn the facts about Rollover IRAs

 

Important Things to Remember about IRA Rollovers:

 

  • For assets to be eligible for rollover they must have come from a retirement account that has had no rollover contributions, nor distributions within the prior 12 months.
  • An IRA participant may complete only one rollover of the same assets within a 12-month period.
  • An IRA participant may rollover any assets, either cash or non-cash, but he must redeposit the same assets that were originally distributed.
  • An IRA participant may not roll over a required minimum distribution.
  • A rollover is a reportable transaction. The distribution is reported on IRS Form 1099R. The rollover contribution (redeposit) is reported on IRS Form 5498.

 

Check out the Retirement Plan Rollover Chart

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Talk with an IRA Rollover Specialist Today Call 1-800-50-PLACE


 

Direct Rollovers

The deposit of assets from a qualified plan directly into an IRA account (or the subsequent deposit of these assets into a successor qualified plan), without receipt by the IRA participant, is considered a direct rollover.

Learn more about 401(k) Rollovers

Changing Jobs? Know all of your options when it comes to what to do with your old 401(k) retirement plan so that you can make the decision that is right for you!

 

Important Things to Remember About Direct Rollovers:

By completing a direct rollover of assets from a qualified plan, the IRA participant can avoid the mandatory 20% withholding on distributions from a qualified plan.

 

Learn about Tax Reporting for IRA Rollovers into your Place Trade IRA

.

The IRA account that holds direct rollover assets is often referred to as a "Conduit IRA".

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IRA Distributions

*The IRS has waived certain penalties, distribution and withholding requirements related to COVID-19. Please visit the IRS official website and speak with your tax and/or legal advisor for more details. 

Earnings in an IRA account can accumulate tax-free until they are distributed to the IRA participant. Once distributed, earnings and deductible contributions are taxed as ordinary income.

Because the purpose of an IRA account is to provide a retirement income, the IRS imposes an additional tax of 10% of the amount of the distribution if the IRA participant takes a distribution before the age of 59 1/2.

The IRS does allow several exceptions to this 10% additional tax, including:

  • Distributions to the IRA participant's beneficiaries upon the participant's death.
  • The disability of the participant.
  • Distributions that are taken annually as a series of substantially equal payments (based on the participant's life expectancy) until the participant reaches the age of 59 1/2 or until 5 years have elapsed, whichever is longer.
  • Qualified first time home purchase.
  • Qualified medical expenses in excess of 7 1/2% of AGI (adjusted gross income).
  • Qualified medical insurance premiums during a period of unemployment.
  • Qualified educational expenses.
  • As a result of an IRS tax levy.

Distributions are reported to the IRS on Form 1099R.

Learn about how tax reporting for your account by visit: Tax Information and Reporting

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Withholding 

*The IRS has waived certain penalties, distribution and withholding requirements related to COVID-19. Please visit the IRS official website and speak with your tax and/or legal advisor for more details. 

All distributions from an IRA account are subject to 10% Federal withholding tax unless the IRA participant elects to waive this withholding. The IRA withholding waiver election must be in writing and will stay in effect until the IRA participant revokes the election. 

 


 

Basis of In-Kind Distributions:

The basis of in-kind distributions from an IRA account is the fair market value of the assets on the date of distribution. In-kind distributions made on the FSI SDIRA system are valued at the asset's prior night closing price.

 


 

Required Minimum Distributions (RMD) at Age 72 (70 ½ if you reached 70 ½ in 2019)

For the 2020 tax year only: You may not have to take a Required Minimum Distribution (RMD). Please see IRS Notice 2020-6 Relief for Reporting Required Minimum Distributions for IRAs for 2020 for more details.

The IRA account is intended to provide a retirement income for the participant, not to provide a death benefit for the participant's beneficiaries. According to Internal Revenue Service (IRS) regulations, you must begin to take required minimum distributions (RMD) from your retirement account once you attain the age of 72 (70 ½ if you reached 70 ½ in 2019).

The IRS will not let you keep retirement funds in your account indefinitely (excluding Roth IRAs). Once you reach age 72 (70 ½ if you reach 70 ½ in 2019), you generally have to start taking withdrawals from your IRA, SIMPLE IRA, SEP IRA, or other retirement plan account. RMDs are not required from Roth IRAs as withdrawals not required until after the death of the owner.

The amount of the distribution is determined by dividing the prior end of year fair market value by a life expectancy factor. For tax purposes, required minimum distributions are included in the participant's gross income, and the rules for recovery of non-deductible contributions apply.

These distributions must commence by April 1st of the year following the year in which you attain the age of 72 (70 ½ if you reached 70 ½ in 2019), and must be taken by December 31st each year thereafter.

 

   

 

 

When will I have to take my first Required Minimum Distribution?

 

How to determine the beginning date for your first RMD:

 

For IRAs (including SEP and SIMPLE IRAs):

April 1 of the year following the calendar year in which you:

  • reach age 72 (70 ½ if you reached 70 ½ in 2019)

 

For 401(k), profit-sharing, 403(b), or other defined contribution plan

April 1 following the later of the calendar year in which you:

  • reach age 72 (70 ½ if you reached 70½ in 2019), or
  • retire

 

 

   

 

The RMD is based upon your attained age, a life expectancy factor, and the prior year-end value of the retirement account. The IRS will impose a 50% penalty on the amount of the required minimum distribution that is not distributed to the IRA participant.

Deductibility limits can be confusing and tax laws are frequently changing. It is always best to review your specific situation and/or circumstances with a qualified tax advisor. 

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Call us today at 1-800-50-PLACE (1-800-507-5223, 919-719-7200) to get started!

 


(Please be sure to check with your tax and/or legal advisor prior to making any contributions, withdrawals or other changes to your retirement account. Place Trade Financial, Inc. does not offer tax or legal advice. Information provided by Place Trade is for educational purposes and should not be considered as tax or legal advice under any circumstances.)     


 

 Learn about IRAs, Traditional IRAs, Roth IRAs, Minimize taxes with qualified contributions to your retirement account.  Make "Catch-up contributions" if you are over 50.  Learn about income limits/deduction limits for Single, Head of household, Qualified widow or widower, married filing jointly, married filing separately, spouse not covered by plan at work, spouse, no plan at work, plan at work, lived with spouse, agi, adjusted gross income, ira deduction, full deduction, partial deductions and so much more!

 

Call us today at 1-800-50-PLACE (1-800-507-5223, 919-719-7200) for more information! 

 

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Learn more about retirement planning by visiting some of the links below:

Roth IRA

SEP IRA

SIMPLE IRA

Traditional IRA

Qualified Plans

Rollover IRAs

Find out how Place Trade can help you get the most out of your college planning by visiting some of the links below:


Coverdell ESA

529 College Savings Plans

UGMA/UTMA Accounts