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Retirement planning isn't difficult when you've got our team to guide you. Whether you are already retired and looking to get the most out of your money, you are thinking about retiring soon and want to make sure you are prepared, or you are just starting your retirement savings, we can help you customize a plan to suit your retirement goals.

An Individual Retirement Account (IRA) is a solid way of investing in your financial future and offers a wide array of investment choices. Compare the benefits of a Roth IRA vs Traditional IRA with our reference chart or see how all the numbers add up using our Retirement Calculators.

To schedule a no cost no obligation financial consultation with the GTE Investment Group call 813.414.7140 or 1.888.972.5257 or fill out the Contact Us form and we will have someone follow up with you.

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Definition

A traditional individual retirement account or individual retirement annuity (IRA) is a personal savings plan that offers tax benefits to encourage retirement savings.

  • Contribute up to the lesser of $5,500 in 2013 ($5,000 in 2012) or 100 percent of your taxable compensation to a traditional IRA.
  • Individuals age 50 and older can make an extra "catch-up" contribution of $1,000 in 2012 and 2013.
  • Contributions may be fully or partially tax deductible, depending on certain factors.

 

Prerequisites

  • You have not reached age 70½ during the year of the contribution
  • You have taxable compensation (i.e., wages, self-employment income) during the year
  • You can deduct the full amount of your contribution provided that you are not covered by an employer-sponsored retirement plan
  • If you are covered by an employer-sponsored retirement plan, your IRA deduction (if any) depends on your modified adjusted gross income (MAGI) and your federal income tax filing status. You will be entitled to a partial deduction in 2013 if your MAGI is less than:
    • $69,000 if your filing status is single or head of household (less than or equal to $59,000 for a full deduction)
    • $115,000 if your filing status is married filing jointly (less than or equal to $95,000 for a full deduction)
    • $10,000 if your filing status is married filing separately (full deduction not available)

 

Note: These income ranges are for the 2013 tax year, and are indexed for inflation.

 

Key Strengths

  • Deductible contributions are made on a pretax basis
  • Funds grow tax deferred until they are withdrawn
  • $1,171,650 (as of April 1, 2010) (and in some cases more) of IRA assets are protected in the event of bankruptcy under federal law

 

Key Tradeoffs

  • Your ability to deduct contributions may be reduced or eliminated if you are covered by an employer-sponsored retirement plan.
  • Funds you withdraw from a traditional IRA are taxable income in the year received (to the extent that the withdrawal consists of deductible contributions and investment earnings).
  • Withdrawals taken before age 59½ may be subject to a 10 percent premature distribution tax (subject to certain exceptions).
  • Minimum annual withdrawals are required when you reach age 70½ (required minimum distributions).
  • Taxable portion of distributions will be taxed at ordinary income rates even if funds represent long-term capital gains or dividends paid on stock held within the IRA.

 

Variations from State to State

  • States vary in their protection of IRAs from creditors
  • States differ in their tax treatment of IRAs

 

How Is It Implemented?

  • Open an IRA with a bank, financial institution, mutual fund company, life insurance company, or stockbroker
  • Select types of investments to fund the IRA (e.g., CDs, mutual funds, annuities)
  • Make contributions up to the due date of your federal income tax return for that year (usually April 15 of the following year), not including extensions

Definition

A Roth individual retirement account (IRA) is a personal savings plan that offers tax benefits to encourage retirement savings.

  • Contribute up to the lesser of $5,500 in 2013 ($5,000 in 2012) or 100 percent of your taxable compensation to a Roth IRA.
  • Individuals age 50 or older can make an extra "catch-up" contribution of up to $1,000 in 2012 and 2013.
  • Contributions to a Roth IRA are not tax deductible, but the funds grow tax deferred and distributions are tax free under certain conditions.

 

Prerequisites

  • You have taxable compensation (i.e., wages, self-employment income) during the year of the contribution
  • Your modified adjusted gross income (MAGI) for 2013 must be:
    • $112,000 or less for a full contribution if your tax filing status is single or head of household (partial contribution allowed, up to MAGI of $127,000)
    • $178,000 or less for a full contribution if your tax filing status is married filing jointly or qualifying widow(er) (partial contribution allowed, up to MAGI of $188,000)
    • $10,000 or less for a partial contribution if your tax filing status is married filing separately and you lived with your spouse at any time during the year (full contribution not allowed)

 

Note: These income ranges are for the 2013 tax year, and are indexed for inflation.

 

 

Key Strengths

  • Qualified distributions are completely tax free (and penalty free)
  • You can contribute after age 70½ (as long as you have taxable compensation)
  • You have flexibility in withdrawing your funds prior to retirement
  • You are not required to take any distributions while you are alive
  • Contributions can be made even if you are covered by an employer-sponsored retirement plan
  • $1,171,650 (as of April 1 2010) (and in some cases more) of IRA assets are protected in the event of bankruptcy under federal law

 

Key Tradeoffs

  • You receive no tax deduction when you make a contribution
  • If a withdrawal does not qualify for tax-free status, the portion that represents earnings is subject to federal income tax (and perhaps an early withdrawal penalty if under age 59½)
  • Special penalty provisions may apply to withdrawals of Roth IRA funds that were converted or rolled over from a traditional IRA, SEP IRA, or SIMPLE IRA
  • There is always the possibility that the law will change in the future

 

Variations from State to State

  • States vary in their protection of Roth IRAs from creditors
  • States may differ in their tax treatment of Roth IRAs

 

How Is It Implemented?

  • Open a Roth IRA with a bank, financial institution, mutual fund company, life insurance company, or stockbroker
  • Select types of investments to fund the Roth IRA (e.g., CDs, mutual funds, annuities)
  • Make contributions up to the due date of your federal income tax return for that year (usually April 15 of the following year), not including extensions

 

IRA contribution limits

The maximum amount you can contribute to a traditional IRA or Roth IRA in 2013 increases to $5,500 (or 100% of your earned income, if less), up from $5,000 in 2012. The maximum catch-up contribution for those age 50 or older remains at $1,000. (You can contribute to both a traditional and Roth IRA in 2013, but your total contributions can't exceed this annual limit.)

Traditional IRA deduction limits for 2013

The income limits for determining the deductibility of traditional IRA contributions have also increased for 2013 (for those covered by employer retirement plans). For example, you can fully deduct your IRA contribution if your filing status is single/head of household, and your income ("modified adjusted gross income," or MAGI) is $59,000 or less (up from $58,000 in 2012). If you're married and filing a joint return, you can fully deduct your IRA contribution if your MAGI is $95,000 or less (up from $92,000 in 2012). If you're not covered by an employer plan but your spouse is, and you file a joint return, you can fully deduct your IRA contribution if your MAGI is $178,000 or less (up from $173,000 in 2012).

 

 

 

*If you're not covered by an employer plan but your spouse is, your deduction is limited if your MAGI is $178,000 to $188,000, and eliminated if your MAGI exceeds $188,000.

 

Roth IRA contribution limits for 2013

The income limits for determining how much you can contribute to a Roth IRA have also increased. If your filing status is single/head of household, you can contribute the full $5,500 to a Roth IRA in 2013 if your MAGI is $112,000 or less (up from $110,000 in 2012). And if you're married and filing a joint return, you can make a full contribution if your MAGI is $178,000 or less (up from $173,000 in 2012). (Again, contributions can't exceed 100% of your earned income.)

Employer retirement plans

The maximum amount you can contribute (your "elective deferrals") to a 401(k) plan has increased for 2013. The limit (which also applies to 403(b), 457(b), and SAR-SEP plans, as well as the Federal Thrift Plan) is $17,500 in 2013 (up from $17,000 in 2012). If you're age 50 or older, you can also make catch-up contributions of up to $5,500 to these plans in 2013 (unchanged from 2012).

(Special catch-up limits apply to certain participants in 403(b) and 457(b) plans.)

If you participate in more than one retirement plan, your total elective deferrals can't exceed the annual limit ($17,500 in 2013 plus any applicable catch-up contribution). Deferrals to 401(k) plans, 403(b) plans, SIMPLE plans, and SAR-SEPs are included in this limit, but deferrals to Section 457(b) plans are not. For example, if you participate in both a 403(b) plan and a 457(b) plan, you can defer the full dollar limit to each plan--a total of $35,000 in 2013 (plus any catch-up contributions).

The amount you can contribute to a SIMPLE IRA or SIMPLE 401(k) plan has increased to $12,000 for 2013, up from $11,500 in 2012. The catch-up limit for those age 50 or older remains unchanged at $2,500.

Note: Contributions can't exceed 100% of your income.

The maximum amount that can be allocated to your account in a defined contribution plan (for example, a 401(k) plan or profit-sharing plan) in 2013 is $51,000 (up from $50,000 in 2012), plus age-50 catch-up contributions. (This includes both your contributions and your employer's contributions. Special rules apply if your employer sponsors more than one retirement plan.)

Finally, the maximum amount of compensation that can be taken into account in determining benefits for most plans has increased to $255,000, up from $250,000 in 2012; and the dollar threshold for determining highly compensated employees remains unchanged at $115,000.

In general, a rollover is the movement of funds from one retirement savings vehicle to another. You may want, or need, to make a rollover for any number of reasons--your employment situation has changed, you want to switch investments, or you've received death benefits from your spouse's retirement plan. There are two possible ways that retirement funds can be rolled over--the 60-day rollover and the trustee-to-trustee transfer.

 

The 60-day, or indirect, rollover

With this method, you actually receive a distribution from your retirement plan and then, to complete the rollover transaction, you make a deposit into the new retirement plan that you want to receive the funds. You can make a rollover at any age, but there are specific rules that must be followed. Most importantly, you must generally complete the rollover within 60 days of the date the funds are paid from the distributing plan.

 

If properly completed, rollovers aren't subject to income tax. But if you fail to complete the rollover or miss the 60-day deadline, all or part of your distribution may be taxed, and subject to a 10% early distribution penalty (unless you're age 59½ or another exception applies).

 

Further, if you receive a distribution from an employer retirement plan, your employer must withhold 20% of the payment for taxes. This means that if you want to roll over your entire distribution, you'll need to come up with that extra 20% from your other funds (you'll be able to recover the withheld taxes when you file your tax return).

 

The direct rollover  

The second type of rollover transaction occurs directly between the trustee or custodian of your old retirement plan, and the trustee or custodian of your new plan. You never actually receive the funds or have control of them, so a trustee-to-trustee transfer is not treated as a distribution. Trustee-to-trustee transfers avoid both the danger of missing the 60-day deadline and, for employer plans, the 20% withholding problem.

 

With employer retirement plans, a trustee-to-trustee transfer is usually referred to as a direct rollover. If you receive a distribution from your employer's plan that's eligible for rollover, your employer must give you the option of making a direct rollover to another employer plan or IRA.

 

A trustee-to-trustee transfer (direct rollover) is generally the safest, most efficient way to move retirement funds. Taking a distribution yourself and rolling it over makes sense only if you need to use the funds temporarily, and are certain you can roll over the full amount within 60 days.

 

Should you roll over money from an employer plan to an IRA?

In general, you can keep your money in an employer's plan until you reach the plan's normal retirement age (typically age 65). But if you terminate employment before then, should you keep your money in the plan (or roll it into your new employer's plan) or instead make a direct rollover to an IRA?

There are several reasons to consider making a rollover. In contrast to an employer plan, where your investment options are limited to those selected by your employer, the universe of IRA investments is almost unlimited. Similarly, the distribution options in an IRA (especially for your beneficiary following your death) may be more flexible than the options available in your employer's plan.

 

On the other hand, your employer's plan may offer better creditor protection. In general, federal law protects your total IRA assets up to $1,171,650 (as of April 1, 2010)--plus any amount you roll over from a qualified employer plan--if you declare bankruptcy. (The laws in your state may provide additional protection.) In contrast, assets in an employer retirement plan generally enjoy unlimited protection from creditors under federal law, regardless of whether you've declared bankruptcy.

 

Use this rollover guide to help you decide where you can move your retirement dollars. A financial professional can also help you navigate the rollover waters. Keep in mind that employer plans are not legally required to accept rollovers. Review your plan document.

Some distributions can't be rolled over, including:

  • Required minimum distributions (to be taken after you reach age 70½ or, in some cases, after you retire)
  • Certain annuity or installment payments
  • Hardship withdrawals
  • Corrective distributions of excess contributions and deferrals

1 Required distributions and nonspousal death benefits can't be rolled over.

2 In general, if you make a tax-free rollover from a traditional IRA, you can't make another tax-free rollover from that same IRA for one year. This does not apply to direct (trustee-to-trustee) rollovers.

3 Taxable conversion

4 Nontaxable conversion

5 Only after employee has participated in SIMPLE IRA plan for two years.

6 Required distributions, certain periodic payments, hardship distributions, corrective distributions, and certain other payments cannot be rolled over; nonspousal death benefits can be rolled over only to an inherited IRA, and only in a direct rollover.

7 May result in loss of qualified plan lump-sum averaging and capital gain treatment.

8 Direct (trustee-to-trustee) rollover only; receiving plan must separately account for the after-tax contributions and earnings.

9 457(b) plan must separately account for rollover--10% penalty on payout may apply.

10 Nontaxable dollars may be transferred only in a direct (trustee-to-trustee) rollover.

11 Taxable dollars included in income in the year rolled over.

12 401(k), 403(b), and 457(b) plans can also allow participants to roll over (convert) eligible rollover distributions of non-Roth funds to Roth if certain requirements are met.