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Retirement plan rules and legislation are always changing. To stay abreast of the latest information, simply explore our FAQs, which cover all the details—from contribution limits to beneficiary rules. This information is being provided as general information and is not intended to be legal or tax advice. Lord Abbett does not provide legal or tax advice. Some of this information may be quite complex and we strongly suggest you consult with your advisor or tax professional based on your individual situation.
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Choose from the frequently asked retirement questions and click to view the related answers.If the individual is married and one of the spouses is covered by a retirement plan then the non-covered (does not have to be non-working) spouse may deduct all IRA contributions if joint income is less than $173,000 for a 2012 contribution. At $183,000 for 2012 the deduction is phased out. If their joint 2012 income is between $173,000 and $183,000 ($178,000 to $188,000 for 2013), then a partial (pro-rata) deduction is allowed.
If both individuals are covered by a retirement plan, deduction eligibility phase out begins at $92,000. If their adjusted gross income (AGI) is less than $92,000 then their IRA contributions can be deducted. If their AGI is greater than $112,000 then their IRA contributions are not deductible. If their joint income is between $92,000 and $112,000 ($95,000 to $115,000 for 2013) then a partial (pro-rata) deduction is allowed.
If someone is single and covered by a retirement plan, then $58,000 is the first income threshold used in determining deduction eligibility. If income is below $58,000 a full deduction is allowed while the IRA is not deductible once the income exceeds $68,000. If income is between $58,000 and $68,000 ($59,000 to $69,000 for 2013) a partial (pro-rata) deduction is allowed.
Yes. Individuals who are under age 50 may contribute up to $5,500 per year. Individuals who are age 50 or older can contribute an additional $1,000. Whether or not the traditional IRA contribution is deductible still depends on whether or not the individual is covered by a qualified plan and if yes, how much he/she earns based on marital status.
Individuals must begin receiving RMDs by April 1 of the calendar year following the calendar year the individual attains age 70½ and continue to receive the RMD before each subsequent December 31. Two distributions will be required in the first year if the individual waits until the calendar year following 70½ to commence RMDs. To avoid taking two RMDs in the same year the individual would take the first RMD by December 31 of the year he/she turns 70½.
If the full RMD is not taken in a given year, a 50% excess tax is assessed on the amount not taken.
Accurately accounting for after-tax dollars contributed to or distributed from an IRA is called basis tracking. The account owner should focus on the following general guidelines:
Accumulated earnings can possibly be transferred to a qualified plan allowing the basis to be converted to a Roth IRA tax free
Individuals age 70½ or older may make a withdrawal (of up to $100,000 per taxpayer, per taxable year) from their IRA and have it sent directly to a registered charity. The contribution is neither income nor a deduction for the individual, but may be used to offset all or part of 2012 and/or 2013 required minimum distribution. This provision has been extended for two years through the end of 2013.
All qualified plans such as a 401(k) must now allow a deceased participant's beneficiary to rollover the late participant's account to an IRA (traditional or Roth) whether or not the beneficiary is the participant's spouse. A non-spouse rollover must go directly to the IRA or it becomes taxable to the non-spouse beneficiary. If the beneficiary were the spouse, then the spouse could take possession of the distribution for 60 days, without tax consequence, before completing the rollover.
The rollover is also taxable to the non-spouse if the funds are sent directly to a Roth IRA from a non-Roth retirement plan account. This is the only way a non-spouse may convert an inherited retirement plan account to a Roth IRA. When a non-spouse inherits a participant's account and rolls it to an IRA, the account must be set up as a decedent (beneficial) IRA and not commingled with the individual's other IRA accounts, if any. He/She must begin taking distributions by 12/31 of the year following the participant's death otherwise the IRA (traditional or Roth) account would need to be completely redeemed by 12/31 of the calendar year that includes the fifth anniversary of the participant's death.
Converting means that all or a portion of an individual's IRA becomes taxable and the account is reclassified as a Roth IRA. If the account is held until age 59 ½ and for at least five years, all the Roth IRA proceeds, including the earnings, will be income tax free. IRAs that can be converted include traditional, rollover, SEP and SIMPLE.
When a taxpayer converts a traditional IRA to a Roth IRA he/she will pay income tax on the taxable portion of the converted IRA. He/She has the option to recharacterize the transaction and return it to being a traditional IRA. Said another way, recharacterization allows taxpayers to undo having a tax assessed. There are two main reasons why a taxpayer would choose recharacterization: 1) The investments did not perform well or 2) the taxpayer cannot afford to pay the taxes.
Suppose we look at a hypothetical situation: Chris chose to convert a $100,000 traditional IRA to a Roth IRA on January 5, 2013 and he would have to pay taxes on that $100,000 when he files his 2012 tax return. Let's say that by October 31, 2013, the account has lost value and is worth $85,000. Chris can choose to recharacterize the Roth conversion as a traditional IRA, and, for tax purposes, the conversion never happened. Chris owes no taxes on the $100,000 conversion, and the IRA is restored to the type of account (traditional IRA) it was before any changes took place.
In this example, Chris could have waited until October 15, 2014 to trigger the recharacterization. Waiting this long and then recharacterizing would cause Chris to amend his 2012 tax return but the delay could also create some investment perspective; allowing him to see if the account regains its losses before going through recharacterization machinations.
Recharacterization allows taxpayers to reconvert the account to a Roth IRA (presumably the value remains lower as would the potential tax liability) after 30 days or in the tax year following the conversion if later.
If the minor has earned income he/she may be eligible to contribute to a traditional or a Roth IRA. Actually anyone can contribute. For example, if 14 year old Sam earned (and will be otherwise taxed on) $2,200 on his paper route, he, or his parents, can contribute up to $2,200 to a traditional or Roth IRA. One parent would be the account's custodian, signing all the applications and naming the beneficiary, until Sam attained the age of majority which is generally age 18.
If Sam's income of $2,200 came from babysitting, for example, and Sam simply pocketed the money the various families paid him, without filing a tax return, Sam could not have an IRA.
The saver's tax credit is a nonrefundable federal income tax credit available to individuals with an adjusted gross income (AGI) of less than $57,500 fo 2012 and $59,000 for 2013. Salary deferral contributions to a 401(k), 403(b), governmental 457(b), SIMPLE IRA, and SAR-SEP can reduce an individual's AGI, creating Saver's Tax Credit eligibility. In addition, the credit is available for contributions to a traditional or Roth IRA. The maximum annual contribution eligible for the saver's credit is $2,000, making the maximum saver's credit $1,000. The amount of the credit varies with income and tax filing status. Please review eligibility with a tax professional.
