Making IRA contributions
For Traditional IRAs, you can contribute as long as you’re younger than age 70½ and have taxable compensation. In many cases, your contributions are tax-deductible in the year they are made, and the money you add to your account grows tax-deferred until you take it out in retirement.
For Roth IRAs, if you have taxable compensation and meet eligibility requirements, you can make contributions at any age to a Roth IRA and your money grows tax free. You are eligible to make a full contribution to a Roth IRA for 2013 if your income does not exceed $112,000 if you file an individual tax return, or $178,000 if you file jointly or are a widow(er).
Contribution limits begin to decrease when income levels exceed these amounts.
Keep in mind, your Roth IRA contributions are usually not tax-deductible.
SEP IRAs offer a way for employers to make retirement contributions for themselves as well as on behalf of their employees. Ally does not allow personal contributions to a SEP IRA.
How much can I contribute each year?
For Traditional and Roth IRAs:
• If you're younger than age 50, you can contribute up to $5,000 in 2012 and up to $5,500 in 2013.
• If you're age 50 or older, you can contribute up to $6,000 in 2012 and up to $6,500 in 2013.
For SEP IRAs, an employer can contribute up to 25% of an employee's compensation, with a maximum of $50,000 in 2012 and $51,000 in 2013. If you are self-employed, the limit is 20%.
Other ways to contribute – Rollovers and Transfers
In addition to making contributions to your IRA, you may also be able to roll over or transfer funds from qualified retirement plans like other IRAs or 401(k) plans.
● With a rollover, you can move money via cash distribution from another retirement account to an IRA. A rollover may be tax-free.
● With a transfer, you can request the transfer of funds from one IRA to another IRA. The money is never distributed to you, and therefore the transaction is tax-free.
Taking IRA distributions
When you withdraw money from your IRA, it’s known as a distribution. You can take IRA distributions anytime. However, if you’re younger than 59½, the IRS could charge you an additional 10% in taxes. Keep in mind that Roth IRAs are subject to a 5-year holding period. To avoid losing the favorable tax treatment available to Roth IRAs, it is important that you monitor the holding period.
Life happens. You may find the best way to pay for it is to dip into your IRA before the age of 59½. The 10% tax penalty for early withdrawal may not apply if the reason you need the money fits into one of the exceptions.
Examples of exceptions are:
• Deductible medical expenses
• Purchase of a home by a first-time homebuyer
• Higher education expenses
Talk to your tax professional about these options.
Both Traditional and SEP IRAs have minimum distribution requirements if you’re at least age 70½. For Roth IRAs, there isn’t a required minimum distribution.
To see more details on contribution limits and deadlines, and how these plans differ, review our IRA Plan Comparison Chart.