I.R.A. Little known facts

   IRA to IRA Rollover

You can withdraw funds (any amount) from your custodial IRA account and use them in any way (penalty free!) for up to sixty days from constructive receipt, as long as you redeposit them in the form of cash (only), in a qualified custodial or trustee IRA account. The only restriction is that you can only perform this “IRA to IRA Rollover”, once per twelve calendar months per IRA.

 Direct Rollover

Since January of 1993, you now have 20% of any qualified pension plan withdrawal automatically withheld by your employer for future taxes, when you take a distribution. In addition, if you do not re deposit the remaining 80% of your withdrawal, PLUS an amount equivalent to the 20% withheld, within 60 days of constructive receipt of your distribution, you will be penalized 10% by the IRS on the full 100% (e.g. including the 20% that was withheld by your employer!).

You can avoid ALL penalties AND the 20% withholding, by establishing an IRA account and directing your employer to Directly Rollover your full (100%) distribution to your IRA.

 Non Deductible Contributions

Although you may not be able to deduct your annual IRA contribution on your personal income tax form, you can still make a NON DEDUCTIBLE contribution.

Although these are after tax dollars, you will not have to pay taxes on the earnings or the basis (your original contribution amounts) when you withdraw funds from your IRA! This has an even greater long term impact on your account earnings because of the avoidance of higher taxes on savings grown and compounded over many years in your account.

However, you must keep track of the NON DEDUCTIBLE amounts and their earnings separately from your tax deductible contributions and earnings. IMPORTANT NOTE: Because this can be tricky, it is advisable to set up a separate account for your non-deductible contributions.

As the amounts of qualified donations allowed are changing on an annual basis, please refer to the allowable IRS guidelines for specifics on what amount of donation you can make.

 CONDUIT IRA

A CONDUIT IRA is an IRA that preserves your right to roll a previous pension or tax sheltered annuity (403(b)) rollover back to a pension plan or tax sheltered annuity at some time in the future. For example, let’s say you change jobs, and you receive a distribution from your previous company’s retirement plan.

If you elect to Directly Roll the distribution over to a CONDUIT IRA at the time of the distribution, AND you do not add additional IRA contributions to the Conduit IRA, nor merge the amount rolled over with any other IRA or SEP IRA, you are permitted to roll your Conduit IRA back to your future employer’s pension plan (subject to the terms of the receiving company’s plan).