IRA Rules

Archive for December, 2008

Rolling SEP IRA into 401K – Realty Academy – Chris Bird.mov

IRA distribution rules concern how an IRA owner can withdraw funds from his or her IRA. An individual retirement account allows individuals to accumulate funds tax free or tax deferred. The IRA rules are very favorable for people to save money for retirement. However, emergencies happen and many people need access to the funds in their retirement accounts before they retire. Most people pay attention to all the IRA rules going into the IRA accounts, but they are unsure about what taxes and penalties there are when it comes to taking money out of an IRA prematurely, under the current IRA distribution rules. 

IRA Distributions Rules for Traditional IRA, SEP IRA, and SIMPLE IRA

Under the distribution section of the Ira Rules, an owner of a Traditional IRA individual retirement account, SEP IRA account, or SIMPLE IRA account may distribute assets from his or her IRA account at anytime. The taxable portion of the IRA distributions will be subject to ordinary income tax. 

Additionally, the IRA owner may be subject to a 10% premature distributions penalty* if he or she is under age 59 � and does not qualify for one of the Life Event Exceptions, under current Ira Rules. 

Ira Distribution Rules for Premature IRA Distributions (Under age 59 �)

If an IRA owner elects to take IRA distributions from the IRA individual retirement plan before age 59 �, the tax code as specified by Ira Rules may impose ordinary income tax, plus a 10% premature distributions penalty* against the taxable amount distributed. 

Ira Distribution Rules Exceptions

However, Ira Rules allows for some exceptions. IRA assets may be distributed before reaching age 59½ without the 10% premature distributions penalty, if it is used for one of the following Life Event Exceptions: 

• Purchase of a first home, up to $10,000 lifetime maximum

*If a SIMPLE IRA owner distributes assets from his or her SIMPLE IRA before having participated in the plan for at least two years, the premature distributions penalty will be 25%, unless one of the Life Events listed above applies. 

Ira Distribution Rules for Normal IRA Distributions (Over age 59 �)

Under the current Ira Distribution Rules, IRA distributions are penalty-free and can be made for any reason at retirement age. The only exception to this Ira Rule applies to IRA owners who have not completed a 72(t) payment schedule. The taxable portion of the IRA owner’s distribution may be subject to ordinary income tax.

Question: Roth IRA INVESTING QUESTIONS?

I recently opened a Roth IRA with TradeKing.

Answer: You can buy and sell within a Roth IRA account all you want. There are no taxes on any money earned either as dividends, interest or capital gains. Now here is something that you should seriously consider. Dividends under current tax law get taxed at a reduced rate. That law might change though. In fact I expect it to change. There are some exceptions to this law. The main one is dividends from REITs and Limited Partnerships. These are taxed at the full tax rate. Also interest is taxed at the full tax rate. So REITs and LPs and interest within a Roth IRA get a better tax break than regular dividends. Also short term capital gains get a better tax break within a Roth IRA than do long term capital gains. If you ever were to have the desire to be a short term trader it would be an advantage to use a Roth IRA account to do so provided you can make a profit at it. Losses within a Roth IRA are a total loss.

Marie Handy, WBRZ, 1990: Spotlight on Seniors – Individual Retirement Accounts