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IRA's

Q: Is there an age limit to how long I can contribute to an IRA?
A: With a traditional IRA, you are limited to contribute until the year you reach age 70 1/2, it is only a ROTH IRA that you can contribute as long as you have earned income without any age limitation.

Q: Is there a limit to how much I can contribute to a Traditional IRA?
A: Yes. You may contribute up to $5,000 in earned income in 2009 ($6,000 if age 50 or older by the end of 2009. There is no upper limit to how much you can earn and still contribute.

Q: Is there a limit to how much I can contribute to a Roth IRA?
A: Yes. You may contribute up to $5,000 in earned income in 2009 ($6,000 if age 50 or older by the end of 2009. Please note that the amount you contribute may be less than these amounts depending on your income, filing status and if you contribute to another IRA.

Q: Can I deduct contributions to a traditional IRA?
A: Yes, depending on your income, filing status, whether you are covered by a retirement plan at work and whether you receive social security benefits.

Q: Can I deduct contributions to a Roth IRA?
A: No. You can never deduct contributions to a Roth IRA.

Q: Do I have to take IRA distributions when I reach a certain age?
A: You must take required minimum distributions when you reach age 70 1/2 with a Tradtional IRA. If you are the owner of a Roth IRA you do not need to take distributions regardless of age.

Q: How are IRA distributions taxed.
A: Traditional IRA distributions are taxed as ordinary income. Roth IRA distributions are typically not taxed as long as they are held for a minimum of 5 years, you are at least age 59 1/2 or distributions are made to a beneficiary or to your estate.

Q: What are the benefits of a Roth IRA?
A: Contributions to a Roth IRA are made with money that has already been taxed (ordinary income tax) so Roth IRA earnings and principal are generally not taxed at distribution. After 5 years and after age 59 1/2, this allows you to withdraw money that is generally tax-free to you and to your beneficiaries.

Q: Can a traditional IRA be converted to a Roth IRA?
A: A traditional IRA can be converted to a Roth IRA under certain circumstances that include, but are not limited to having a modified adjusted gross income of not more than $100,000 and recognizing that you must pay ordinary income tax on the amount of the traditional IRA transfer. In the year 2010 this limitation no longer exists.

Q: After I die, when must my IRA be distributed to my beneficiaries?
A: Your IRA must be distributed within 5 years to your beneficiaries. This applies to both traditional and Roth IRAs.

Q: What is the penalty for taking a Traditional IRA distribution before age 59 1/2?
A: In 2009 the penalty is 10% of the amount withdrawn, plus you must pay ordinary income tax on the entire amount.

Q: What is the penalty for not taking a Required Minimum Distribution (RMD) after age 70 1/2?
A: The penalty is you must pay a 50% excise tax on the money that was not distributed.

Q: How do I determine what my Required Minimum Distribution (RMD) should be?
A: Your required minimum distribution is based on your age and is related to the number of years you are expected to live. Required minimum distributions are completely detailed in the tables found in IRS publication 590 which can be accessed at www.irs.gov

Q: Can my IRA be effectively used to create a lasting legacy for my wife, kids and grandkids?
A: Yes, absolutely. Several years ago the IRS introduced the Multi-Generational Stretch Individual Retirement Account. This type of IRA allows the IRA owner to name children and grandchildren as beneficiaries (or other non-family members). The beauty of this concept is if each beneficiary only takes the minimum required distribution (RMD), the money can accumulate interest and grow tax deferred over the actuarial lives of each beneficiary. This means that a 2 year old granddaughter might be able to receive IRA distributions over as long as 80 years. The effect of compounding over a long period of time can be quite dramatic.

Q: Can I create a stretch IRA with any financial instuition, including my brokerage house?
A: The answer is that generally banks, insurance companies and a few brokerages houses offer stretch IRAs. Be careful, however, because there are some issues and risks depending on where you place your IRA money. The safest place is with an insurance company. They have many years of experience in distributing money to multiple beneficiaries over several generations. The issue with banks and brokerage houses is the fees they charge you. In the case of brokerage houses, the national average is 2% - 3% paid annually in brokerage fees. What can happen is that the brokerage house can make more in fees each year than the payouts to the beneficiaries. Banks also charge fees to manage your IRA account. Insurance companies do not charge fees for stretch IRA's.
The second issue relates to required minimum distributions. Brokerage houses are not set up to manage distributions over several generations. By their own admission, they do not have and generally cannot easily track the birthdates of several generations of beneficiaries. This causes a problem because if a required minimum distribution is not made, there is a penalty of 50% on the money that was not distributed. Insurance companies are the best and safest places to put your stretch IRA money, typically in a fixed or equity indexed annuity.

Q: Where can I find information on the rules and regulations regarding IRA's?
A: The best source is IRS publication 590, which can be accessed, viewed and downloaded from www.IRS.gov

The above FAQs are for informational purposes only and should not be considered advice or counsel as to any particular individual or family's situation for estate or elder planning purposes.