Chapter 8

IRAs

There are several types of IRAs: Traditional IRAs, Roth IRAs, SIMPLE IRAs, and SEPs. You may personally set up a traditional or Roth IRA with your bank or broker. SIMPLE IRAs (8.18) and SEPs (8.15) are available only if your employer offers such plans. For 2012, the contribution limit for both traditional (8.2) and Roth IRAs (8.20) is $5,000, or $6,000 for individuals who are age 50 or older. Traditional IRA contributions may be fully deductible, partly deductible, or not deductible at all, depending on whether you (and your spouse) have retirement coverage where you work and if so, whether your income subjects you to the deduction phaseout rules (8.4).

Traditional IRA distributions are generally fully taxable and, if made before age 59½, subject to a penalty; see 8.12 for penalty exceptions. Minimum distributions from a traditional IRA must begin after you reach age 70½ (8.13).

Although contributions to a Roth IRA are not deductible, the Roth IRA has a major tax advantage: tax-free withdrawals of earnings may be made after a five-year waiting period if you are over age 59½ (8.23). Tax-free withdrawals of contributions may be made at any time. A traditional IRA may also be converted to a Roth IRA. After a conversion, a Roth IRA may be recharacterized back to a traditional IRA, and subsequently reconverted to a Roth IRA. See the discussion of annual contributions (8.20), conversions (8.21), and recharacterizations and reconversions (8.22).

Low-to-moderate-income taxpayers may be able to claim a tax credit on Form 8880 for contributions to a traditional IRA, Roth IRA, SIMPLE IRA, or salary-reduction SEP (25.16).

8.1 Starting a Traditional IRA

8.2 Traditional IRA Contributions Must Be Based on Earnings

8.3 Contributions to a Traditional IRA If You Are Married

8.4 IRA Deduction Restrictions for Active Participants in Employer Plan

8.5 Active Participation in Employer Plan

8.6 Nondeductible Contributions to Traditional IRAs

8.7 Penalty for Excess Contributions to Traditional IRAs

8.8 Taxable Distributions From Traditional IRAs

8.9 Partially Tax-Free Traditional IRA Distributions Allocable to Nondeductible Contributions

8.10 Tax-Free Rollovers and Direct Transfers to Traditional IRAs

8.11 Transfer of Traditional IRA to Spouse at Divorce

8.12 Penalty for Traditional IRA Withdrawals Before Age 59½

8.13 Mandatory Distributions From a Traditional IRA After Age 70½

8.14 Inherited Traditional IRAs

8.15 SEP Basics

8.16 Salary-Reduction SEP Set Up Before 1997

8.17 Who Is Eligible for a SIMPLE IRA?

8.18 SIMPLE IRA Contributions and Distributions

8.19 Roth IRA Advantages

8.20 Annual Contributions to a Roth IRA

8.21 Converting a Traditional IRA to a Roth IRA

8.22 Recharacterizations and Reconversions

8.23 Distributions From a Roth IRA

8.24 Distributions to Roth IRA Beneficiaries

Also Refer to:

25.15 Eligibility for the Saver’s Credit