What is IRA?

What is an IRA?

Retirement Plans FAQs regarding IRAs

These frequently asked questions and answers provide general information and should not be cited as any type of legal authority. They provide the user with information responsive to general inquiries. Because these answers do not apply to every situation, yours may require additional research. The freely available Adobe Acrobat Reader software is required to view, print, and search the questions and answers listed below. IRAs are the investment vehicles for IRA-based plans (e.g., SEP, SIMPLE IRA and SARSEP plans. All SEP-IRAs and SIMPLE IRAs are subject to the same investment rules as traditional IRAs. For more information on these types of plans, see the SEP FAQs, SIMPLE IRA Plan FAQs and SARSEP FAQs. General Distributions Loans Investments 2010 Rollovers and Conversions to a Roth IRA Have a Question? General Can I contribute to a traditional IRA or Roth IRA if I'm covered by a retirement plan at work? How can an individual convert a traditional IRA to a Roth IRA? Can I contribute to a traditional or Roth IRA if I’m covered by a retirement plan at work? Traditional IRAs Yes, you can contribute to a traditional IRA even if you participate in an employer-sponsored retirement plan. For 2010 and 2011, you can contribute up to $5,000 annually ($6,000 if you are 50 or older by the end of the year). However, if you or your spouse is covered by an employer retirement plan, this will affect how much, if any, of your contribution is tax-deductible. See Publication 590, Individual Retirement Arrangements (IRAs), for the rules on who can contribute, what compensation to use, and when and how to make IRA contributions. Roth IRAs You can also contribute to a Roth IRA even if you participate in an employer-sponsored retirement plan. You can contribute up to $5,000 ($6,000 if you are 50 or older by the end of the year), but the amount you can contribute may be reduced or even eliminated depending on your modified adjusted gross income (MAGI) and your filing status. For example, for 2010, you can make the maximum contribution to a Roth IRA if your filing status is married filing jointly and your MAGI is under $167,000, assuming you have at least $5,000 ($6,000) in earned income for the year. If your MAGI is between $167,000 to $177,000, your maximum Roth contribution for 2010 is reduced. You cannot make a Roth IRA contribution for 2010 if your MAGI is $177,000 or more. See the 2010 Pub. 590 for all the MAGI limits for 2010 and 2011. Contributing to both traditional and Roth IRAs There is no limit on the number of Roth IRAs and traditional IRAs you can own; however, your combined annual contributions to all of them cannot exceed the maximum annual contribution limit ($5,000; $6,000 if 50 or older). If you are in a SEP or SIMPLE IRA plan The rules above also apply if you’re covered by a SEP or SIMPLE IRA plan at work. A Roth IRA cannot be used to hold contributions made under these plans, but in most cases you can make a regular traditional IRA contribution ($5,000/$6,000) to your SEP IRA. How can an individual convert a traditional IRA to a Roth IRA? A traditional IRA can be converted to a Roth IRA by: Rollover - A distribution from a traditional IRA can be contributed to a Roth IRA within 60 days after distribution. Trustee-to-trustee transfer - The financial institution holding the traditional IRA assets will provide directions on how to transfer those assets to a Roth IRA with another financial institution. Same trustee transfer - As with the trustee-to-trustee transfer, the financial institution holding the traditional IRA assets will provide directions on how to transfer those assets to a Roth IRA. In this case, things should be simpler because the transfer occurs within the same financial institution. A conversion results in taxation of any untaxed amounts in the traditional IRA. Also, the conversion is reported on Form 8606, Nondeductible IRAs.