Get the facts about Individual Retirement Accounts (IRAs)
An Individual Retirement Account (IRA) is a retirement savings account to help you grow money either tax-free or tax-deferred, depending on the type of IRA you choose. Anyone under the age of 70½ can open and contribute to an IRA. IRAs can help ensure financial security in retirement by supplementing a 401(k) or company pension plan. For some people, IRAs offer a primary foundation for retirement savings.
Breaking down IRAs
Once you’ve made the decision that an IRA is right for you, you need to do 2 things:
• Pick an IRA plan. The most common IRA plans are Traditional, Roth and SEP IRAs. Depending on your age and taxable income, you could have more than one IRA plan to choose from. And choosing more than one plan could help you meet your goals, whether you’re just getting started on saving for retirement or adding to a nest egg you’ve been building for years.
• Add IRA products. Once you choose an IRA plan, you can typically choose from a variety of products, from lower risk savings accounts and certificates of deposit to higher risk stocks, bonds and mutual funds. Ally’s IRA products include CDs and online savings accounts that allow your money to grow with less risk than investments like stocks on either a tax-deferred or tax-free basis.
Other things to know about IRAs
• IRA Contributions & Distributions. Because IRAs are meant to help you save for retirement, there are restrictions as to how you can add money to IRAs and when you can use the money you’ve saved.
• IRA Rollovers & Transfers. There are several different ways to move your retirement money around to make the most of it. You can choose to have the assets distributed to you directly or transferred to another plan for you.
• Converting to a Roth IRA. You can convert your Traditional IRA to a Roth IRA, regardless of your income and marital status.
Frequently asked questions
What is an Individual Retirement Account (IRA)?
An Individual Retirement Account (IRA) is a retirement savings account with tax advantages. Ally offers three types of IRA plans: Traditional IRA, Roth IRA and SEP IRA (Simplified Employee Pension).
Are there income, contribution and other limits for IRAs?
Yes. The IRS establishes limits for IRAs, depending on what type of plan you choose. Check out our IRA comparison chart for more details. You may want to check with the IRS or a tax professional to find out what limits may apply to you.
What is considered eligible income for an IRA contribution?
The IRS defines eligible income as: wages, salary, tips, professional fees, bonuses, taxable alimony, commissions resulting from profits or sales, income earned if you are self-employed and the sole proprietor of a business, and the income you receive as a partner for providing services. Anything not listed here is ineligible income.
When can I contribute to my Traditional or Roth IRA?
You can contribute to your IRA anytime during the tax year and anytime before the official April IRS filing due date. (Not including extensions.) For specific information go to www.irs.gov.
For IRA certificates of deposit, additional funds cannot be added during the initial term after the opening deposit. Once the certificate of deposit matures, you have the opportunity to deposit additional funds and roll over the CD into a new term.
What’s the difference between a Traditional IRA and Roth IRA?
With a Traditional IRA, you prefer your money to grow tax-deferred until you withdraw it in retirement. In many cases, your contributions are tax-deductible in the year they are made.
A Roth IRA may be a good option if you’re interested in both tax-free growth and withdrawals. Your Roth IRA contributions are not tax-deductible.
You may want to check with your tax professional to discuss the benefits of each type of IRA.
What is a SEP IRA (Simplified Employee Pension)?
A SEP IRA is an IRA that allows contributions to be made by an employer on behalf of an employee. Business owners and anyone who is self-employed can also use this type of IRA to save for retirement. Please note that IRS guidelines prohibit employees from making personal contributions to their SEP IRA.
What’s the difference between a rollover and a transfer?
A rollover occurs when you take a distribution from an IRA or qualified retirement plan such as a 401(k) plan or 403(b) plan and move the assets to an Ally IRA. This includes converting an existing IRA into a Roth IRA. Rollovers could be subject to tax consequences, and you can only make one tax-free rollover from a Traditional IRA during a 1-year period.
Transfers move funds directly from the trustee or custodian at another institution over to Ally; for example from a Traditional IRA at your other bank into your Traditional IRA at Ally.
Can I contribute to an IRA if I have a retirement plan with my employer?
Yes. Keep in mind that your ability to deduct your IRA contributions on your taxes may be affected by the fact that you (or your spouse) are covered under your employer’s retirement plan. Please check with the IRS or your tax professional for more information.
Can I convert a Traditional IRA to a Roth IRA?
Yes, although this may result in you having to pay some taxes on your earnings from the Traditional IRA once you convert to a Roth IRA. Check with your tax professional to see if this is a good option for you.
When can I withdraw money from my Traditional IRA?
You can withdraw money from your Traditional IRA at any time; however, if you are under the age of 59½, the Internal Revenue Service (IRS) could charge you a 10% tax. There are exceptions, so please check with the IRS or your tax professional before making a withdrawal.
Am I required to take distributions at a certain age from my IRA?
It depends. If you have a Traditional or SEP IRA, the IRS requires that you take an annual minimum distribution by April 1st of the year following the year you turn 70½. The amount of your distribution depends on how much you have in your account divided by your life expectancy. Check with the IRS or your tax professional for more information on how to calculate your distribution amount.
If you have a Roth IRA, you don’t have to take an annual minimum distribution, so your money can grow until you need it.
What are the IRA distribution guidelines for withholding?
It’s always best to consult with a tax professional before making any decisions about tax withholdings on your distribution.
For Traditional IRAs and SEP IRAs, the IRS requires us to withhold 10% in federal income taxes from your IRA distributions unless you tell us not to withhold this amount or to withhold more than 10%.
For Roth IRAs, the IRS does not typically require us to withhold federal income tax on qualified Roth IRA distributions. An exception to the general rule applies to conversions from a Traditional IRA to a Roth IRA; then, we are required to automatically withhold 10% on the amount converted. You can also choose not to withhold or withhold at greater than 10% on this amount.
How many beneficiaries can I have on my IRA?
You can have up to 6 total beneficiaries (primary and contingent) for each IRA.
What is the difference between a primary and contingent beneficiary?
Your primary beneficiaries are the people who will receive the funds in your account at your death. Contingent beneficiaries will receive these funds if all primary beneficiaries are deceased.
How can I change or add to my IRA beneficiaries?
You can change or add beneficiaries any time by logging on to online banking, calling us at 1-877-247-ALLY (2559), or completing and mailing the Change of Beneficiary form.
If you are married and would like to appoint a primary beneficiary other than or in addition to your spouse, you must submit a notarized Change of Beneficiary form that includes your spouse’s signature. Before making any changes, however, you may wish to consult with a tax professional or the IRS for more information.
Does Ally offer Savings Incentive Match Plan for Employees (SIMPLE) IRAs?At this time, Ally only offers Traditional, Roth and SEP IRAs.