Am I eligible to take a tax credit for my IRA* contributions?
If you are an eligible individual and fall within certain income limitations, you may be eligible for a tax credit of up to 50 percent of your retirement savings contributions that do not exceed $2,000. An eligible individual is defined as someone who is:
- at least 18 years of age as of the close of the taxable year,
- not a dependent of another taxpayer, and
- not a full-time student.
Please see a competent tax advisor to determine if you qualify for this credit.
Can Traditional IRA assets be moved?
Under certain circumstances a Traditional IRA holder may wish to move his or her Traditional IRA from one financial organization to another. Traditional IRA holders can take comfort in the fact that their Traditional IRA assets are always available to them.
They may be:
- withdrawn (distributed) and redeposited elsewhere (called a “rollover”),
- moved to another organization by the transaction known as a trustee-to trustee transfer, or
- moved to a qualified retirement plan, tax-sheltered annuity, or 457(b) eligible deferred compensation plan, as long as the distribution is taxable.
Can other assets be combined in a Traditional IRA?
Contributions made by an employer to a retirement plan known as a simplified employee pension (SEP) plan are actually contributed to a Traditional IRA, and can be combined with regular Traditional IRA contributions. Assets from a qualified retirement plan, tax-sheltered annuity or 457(b) eligible deferred compensation plan can also be moved to a Traditional IRA by rollover.
When can I use my Traditional IRA assets?
Unlike most employer retirement plans, in which access is limited to such events as change of employment, plan termination, reaching retirement age, death or disability, access to your Traditional IRA funds is always guaranteed. However, until age 59½, there is a 10 percent early distribution penalty unless you qualify for an exemption due to:
- disability,
- qualifying medical expenses,
- qualifying education expenses,
- unemployment (under certain conditions),
- qualifying first home purchase,
- death,
- receipt of your Traditional IRA assets in equal payment over your life expectancy, or
- IRS tax levy.
Am I ever required to take funds from my Traditional IRA?
Beginning in the year that a Traditional IRA holder turns age 70½, distributions from a Traditional IRA must begin. These distributions are based generally on the person’s Traditional IRA account balance, divided by the applicable distribution period. Since the purpose of Traditional IRAs is to provide for retirement- not to be a tax shelter- IRA holders who fail to take their required distributions are subject to penalty.
Even though I cannot deduct my Roth IRA contributions, is there a tax credit that is available?
For taxable years beginning in 2002 through the taxable year beginning in 2006, if you are an eligible individual and fall within certain income limitations, you may be eligible for a tax credit up to 50 percent of your retirement savings contributions that do not exceed $2,000. An eligible individual is defined as someone who is:
- 18 years of age as of the close of the taxable year,
- not a dependent of another taxpayer, and
- not a full-time student.
Please see a competent tax advisor to determine if you qualify for this credit.
How do I withdraw money from my IRA without taxes or penalties?
If you satisfy two conditions, you may make tax-free and penalty-free withdrawals from your Roth IRA. First, a Roth IRA must have been open for a minimum of five years. Second, the withdrawal must be made after the occurrence of one of the following events:
- age 59½,
- death,
- disability, or
- first home purchase.
Distributions that meet the above requirements are referred to as “qualified distributions.” While you may take distributions from your Roth IRA at any time, distributions that are not qualified distributions will be subject to taxes (and, in some cases, early distribution penalties) to the extent they exceed your aggregate contributions to Roth IRAs.
Can I move money from my Traditional IRA to my Roth IRA?
The answer is “Yes.” There are specific rules that govern the process of converting funds from a Traditional IRA to a Roth IRA.
Some of these rules include:
- Your MAGI must be $100,000 or less.
- If you are married, you must file a joint income tax return.
- You must pay taxes on all the pre-tax dollars you convert.
- The conversion must be completed within 60 days.
We suggest you seek advice from a competent tax advisor to confirm whether moving your funds is beneficial to you.
Am I ever required to take funds from my Roth IRA?
Unlike the Traditional IRA, there are no required minimum distributions at age 70 ½.Your dollars can continue to grow until you need them. There are special distribution requirements when these plans pass to your beneficiaries.
What makes the Roth IRA so unique?
First, the money you contribute to a Roth IRA has already been taxed. Therefore, the principal amount is never subject to taxes or penalties in the future, as long as you stay within the contribution guidelines.
Second, this retirement savings vehicle allows the money you contribute to grow tax-deferred. If you do not withdraw any of the earnings until you have had a Roth IRA for at least five years, and satisfy one of the qualifying events, those tax-deferred earnings become tax-free.
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*Catholic United Financial IRAs are Individual Retirement Annuities.