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General IRA questions
Union Bank offers a range of investment choices for your IRAs.
FDIC-insured options include fixed- and variable-rate time deposits, a money market savings account, and our Bonus Rate Rollover IRA time deposit.
UnionBanc Investment Services, the brokerage subsidiary of Union Bank, offers investment options for your IRA. These investments are not FDIC insured and not protected against market or investment loss.
You can make Traditional or Roth IRA contributions for the previous tax year until your tax return due date (not including extensions), generally April 15.
When you leave a job or retire, if you receive a distribution from your employer-sponsored retirement plan, it can trigger adverse tax consequences (see question 8.3). If you or your employer make an eligible rollover distribution to another qualified retirement account, such as a Rollover IRA, you can avoid incurring taxes and penalties as a result of a distribution. This strategy also helps keep your money earning tax-deferred income.
No, an IRA must be put in an individual's name. However, you can name your trust as a beneficiary. Consult your attorney for more information.
No, you cannot both participate in the same IRA. Each spouse must have a separate IRA.
Yes. If you meet certain compensation limits and eligibility requirements, you may claim a Traditional IRA deduction on your tax return if you make your contribution by the due date of your tax return, generally April 15 of the following year. This rule applies even if you file your tax return before April 15. Since Roth IRA contributions are not tax deductible, you cannot claim a deduction for Roth IRA contributions. Consult your tax advisor regarding your specific tax situation.
No, your combined annual contributions to both Traditional and Roth IRA plans cannot exceed the maximum annual contribution limit.
Union Bank assesses a $25 annual custodial fee on each Traditional and Roth IRA. This fee is waived if any one of the following applies:
Yes. You can also consolidate multiple retirement accounts into one or more accounts at Union Bank.
Generally, you can directly roll over a distribution from a qualified retirement plan (see question 8.3) into a Traditional IRA. Distributions you cannot roll over include:
A plan that meets the requirements of IRS Section 401(a) is a qualified retirement plan and is eligible for special tax consideration.
You may be able to contribute to a Traditional IRA, if you:
If you meet the eligibility requirements:
No. A law passed in 2001 defines increases in the contribution limits through 2008, with potential cost-of-living adjustments in $500 increments starting in 2009. Eligibility requirements apply. The law also allows you to make additional catch-up contributions if you are 50 or older. The maximum contribution limits for tax years 2017 and 2018 are:
You can begin withdrawing from a Traditional IRA without early-withdrawal IRS penalties at age 59 1/2.
You can generally take distributions from a Traditional IRA for the following purposes, subject to certain restrictions, without IRS early-withdrawal penalties:
A Roth IRA is a type of retirement account for which you make contributions with after-tax dollars, but earnings on qualified withdrawals are tax-free.
With a Traditional IRA, you pay taxes on principal and earnings when you withdraw them. Depending on your income, you may be able to deduct the initial contribution to a Traditional IRA. With a Roth IRA, you pay income taxes on your contributions, but the earnings on qualified withdrawals are tax-free.
There are no age limitations. Your MAGI (income before certain deductions) determines your eligibility to contribute to a Roth IRA.
If you’re single and your MAGI for tax year 2017 is:
If you’re married filing jointly and your MAGI for 2017 is:
If you’re single and your MAGI for tax year 2018 is:
If you’re married filing jointly and your MAGI for 2018 is:
For more information about your IRA eligibility, consult your tax advisor.
For tax years 2017 and 2018, you can contribute up to $5,500 if you are younger than 50; up to $6,500 if you are 50 or older.
or 100 percent of your earned income, whichever is less.
(Note: Earned income does not include investment earnings such as interest and dividends.)
No. A law passed in 2001 defines increases in the contribution limits through 2008, with potential cost-of-living adjustment in $500 increments starting in 2009. Eligibility requirements apply. The law also allows you to make additional catch-up contributions if you are 50 or older. The maximum contribution limit for tax years 2017 and 2018 are:
Qualified distributions are tax-free. Withdrawals before age 59 1/2, non-qualified distributions, including those within the 5-year holding period, may be subject to a 10% tax on early distributions, unless one of the exceptions provided by the IRS applies.
A qualified distribution requires:
Assets be held in a Roth IRA for at least five taxable years (beginning with the first taxable year for which you contributed to a Roth IRA of any kind) and one of the following events:
No. With a Traditional IRA, you must begin taking minimum distributions by April 1 following the year in which you turn 70 1/2. With a Roth IRA, the required minimum distribution rules do not apply until you die.
Yes, however you should discuss with your tax advisor the eligibility requirements and how this type of conversion would affect your individual tax and financial situation.
Education Savings Accounts
A Coverdell Education Savings Account allows you to save up to $2,000 per child, per year until the child turns 18 for elementary, secondary-education, and higher-education expenses, subject to eligibility requirements. While contributions are not tax-deductible, earnings grow tax-deferred, and qualified distributions are tax-free.
Any qualifying individual can contribute to an education savings account, making this an ideal savings option for parents, grandparents, other relatives, and friends.
More than one person can contribute for the same child, and more than one education savings account can be established for the same child. However, the total combined contributions cannot exceed $2,000 per child, per year, across all accounts. Contributions must stop when the child attains age 18, except in the case of children that meet certain special-needs requirements.
Although the account is in the child's name, the account's responsible individual (the child's parent or guardian) controls the education savings account until all of the funds are distributed. The responsible individual is the individual who has the power to direct the investment of contributions; redirect the initial investments; and direct the financial organization regarding administration, management, and distribution of the funds (generally, until the child attains the age of majority).
The education savings account is designed to be part of an overall savings plan. It offers the advantage of tax-free earnings when you withdraw the funds for qualified education expenses. Also, since 2002, you can contribute to an education savings account and to a qualified state tuition program for the same child in the same year.
Although the contributions are not tax-deductible, you can withdraw earnings tax-free for qualified education expenses.
You have until your tax return due date (not including extensions), typically April 15, to contribute to an education savings account for the tax year for which you are filing.
Yes. The $2,000 maximum contribution per child, per year does not affect your ability to contribute to a Traditional or Roth IRA.
Yes. You must use withdrawals from an education savings account for qualifying education expenses or the earnings may be subject to income tax and possible penalties.
You can withdraw earnings tax-free and without penalty for qualified education expenses. These include tuition, fees, books, supplies, and equipment required for the education of the designated beneficiary at an eligible educational institution. If the student is half-time or greater, room and board is considered a qualified education expense. Note: Depending on the investment option chosen, Union Bank early-withdrawal penalties or compensating fees may apply if funds are withdrawn prior to the maturity date.
Although contributions must stop when the child attains age 18, the account can remain open until the child turns 30. If the funds have not been distributed by that time, the account balance must be withdrawn within 30 days or transferred to another child within the same family within 60 days. The mandatory distribution requirement does not apply to students with special needs.
What is a SIMPLE IRA plan?
A Savings Incentive Match Plan for Employees (SIMPLE) gives eligible businesses with 100 or fewer employees a way to help employees save for retirement without complicated paperwork and procedures. Each employee sets up a SIMPLE IRA, which is a tax-deferred retirement account. The employer makes tax-deductible contributions to the SIMPLE IRAs. Employees may also contribute to their SIMPLE IRAs through payroll deductions.
Small businesses, including self-employed individuals, with 100 or fewer employees that do not maintain any other qualified retirement plan are eligible.
While employers may choose more-liberal eligibility requirements, they must include all employees who meet both of the following requirements:
Employer contributions are mandatory and can be accomplished in one of three ways:
For tax years 2017 and 2018, employees may contribute a specified percentage of their income up to a maximum $12,500 ($15,500 for those age 50 and older) through regular payroll deductions.
An employer may open a SIMPLE IRA for a tax year on any date between January 1 and October 1 of that year. New employers established after October 1 of the year can establish a SIMPLE IRA plan as soon as administratively possible.
The employer must deposit employee contributions no later than 30 days after the close of the month in which the payroll deduction takes place. The deadline for employer contributions is the employer's tax return due date (including extensions).
SIMPLE IRA plans must be maintained on a calendar-year basis.
If you participate in a SIMPLE IRA plan, the IRS considers you an active participant in an employer-sponsored retirement plan. This can affect whether you can deduct contributions to a Traditional IRA, depending on your income. However, you can participate in a SIMPLE IRA plan and still contribute to an IRA, subject to IRS rules on IRA eligibility. A SIMPLE IRA plan contribution does not count against your limit for Traditional or Roth IRA contributions.
You may make a tax-free rollover of your SIMPLE IRA to another SIMPLE IRA at any time. You must participate in a SIMPLE IRA plan for at least two years to be eligible to make a tax-free rollover to a non-SIMPLE IRA. The two-year period begins on the first day on which the employer deposits a contribution into the SIMPLE IRA. You can roll over a SIMPLE IRA into another SIMPLE IRA, a qualified plan, a tax-sheltered annuity (section 403(b) plan), or a state or local government deferred-compensation plan (section 457 plan). Consult a tax advisor for more information.
Distributions from a SIMPLE IRA are generally taxed like distributions from a Traditional IRA. Funds withdrawn prior to age 59 1/2 are generally subject to early-withdrawal penalties. Distributions taken (before age 59 1/2) during the first two years of participation in a SIMPLE IRA may be subject to a 25 percent penalty; after two years' participation, the penalty decreases to 10 percent.
You must receive the first distribution by April 1 of the year following the year you attain age 70 1/2 and then annually by December 31 thereafter.
Simplified Employee Pension
A Simplified Employee Pension (SEP) plan is an employer-sponsored retirement plan that uses IRAs to minimize cost and paperwork. Each employee sets up a SEP IRA, which is a tax-deferred retirement account. A business or self-employed individual makes tax-deductible contributions to the SEP IRA. Once an employer makes a contribution to a SEP IRA for an employee, the funds belong to the employee and are subject to Traditional IRA rules. Each employee directs his or her own investments.
Businesses of any size, including:
While employers may choose more-liberal eligibility requirements, they must include employees who meet all of the following requirements:
The maximum annual contribution for each employee for 2017 is either 25 percent of compensation or $54,000, whichever is less. For 2018 it’s up to 25% of compensation or $55,000, whichever is less.
An employer must establish SEP plans by the business's tax-filing deadline (including extensions).
An employer must contribute to SEP plans by the business's tax-filing deadline (including extensions).
While employers make contributions to SEP IRAs, the funds belong to the employee (employees are immediately 100 percent vested in their SEP IRA funds) and are subject to Traditional IRA rules. Each employee directs his or her own investments. Only businesses (employers) can contribute to SEP IRAs. In contrast, only individuals can contribute to Traditional IRAs.
aIf you participate in a SEP plan, you are considered an active participant in an employer-sponsored retirement plan. This may affect whether you can deduct Traditional IRA contributions, depending on your income. However, you can participate in a SEP plan and still contribute to an IRA. A SEP plan contribution does not count against your limit for Traditional or Roth IRA contributions.
Distributions from a SEP IRA are generally taxed like distributions from a Traditional IRA. Funds withdrawn prior to age 59 1/2 are generally subject to early-withdrawal penalties.