Individual

Traditional or Contributory IRA

The Traditional deductible IRA was created for individuals that don't participate in an employer sponsored retirement plan. Although, certain individuals that do participate in an employer sponsored retirement program may still qualify for this IRA. The name implies that it has been or will be funded via cash contributions by the IRA owner.

Income your account may earn is not taxable while it is in the account.

If you are under age 70 and have earned income, or a spouse with qualifying earned income, you may each contribute up to $5,000 a year that may be tax deferred (including a $1,000 catch-up amount for those over 50.) Under the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), the following contribution limit increases are in effect: 2002-2004 $3,000; 2005-2007 $4,000; 2008 and beyond $5,000, plus potential COLA increases in $1000 increments beginning in 2009. Individuals who attain the age of 50 before the close of the taxable year may contribute an amount in excess of the basic annual IRA contribution limit as follows: 2002-2005 $500; 2006 and beyond $1,000. Consult your tax adviser to determine if contributions are tax deductible.

The deadline for making a contribution is usually April 15 of the year following the desired contribution year (excluding extensions applicable to SEP IRAs only).

Taxable distributions may be taken without penalty starting at age 59 and must be started by April 1 once you have reached 70.

Transfers may be made to this account from Traditional, Rollover, SEP or SIMPLE IRAs, or a qualified retirement plan (401k, 403b, etc.). SIMPLE IRA transfers or rollovers must meet the two-year rule, which means you must have been a participant for at least two years.

Rollover (Non-Contributory) IRA

This type of IRA was designed as a holding account for funds distributed from a qualified retirement plan (401k, 403b, etc.). After 2002, it was no longer as necessary to maintain rollover IRAs. Now, funds rolled to any IRA from a qualified plan may be returned to another qualified retirement plan in the future.

PENSCO Trust, like all successful custodians, generally cannot request the funds from your current pension plan on your behalf. You may want to contact the administrator of your qualified retirement plan to find out whether or not you are eligible to roll the funds out of the plan, and what the procedures are for "rolling over" the funds from the plan.

Some plans require that you first establish your receiving IRA and provide them with the account number to facilitate the rollover. Should this be the case, you may submit your IRA application to us in advance of requesting the rollover. We will process your application and email you your new account number within 24 hours of receiving it.

Transfers may be made to this account from another Rollover IRA or Traditional IRA.

The Roth IRA

Under the Taxpayer Relief Act of 1997, a new type of IRA, the Roth IRA, was established. Contributions to a Roth IRA are nondeductible, but if certain requirements are satisfied, all withdrawals from a Roth IRA will be free from income tax. Except as described below, a Roth IRA is treated like any other IRA.

Limits

To be treated as a Roth IRA, the IRA must be so designated when it is established. The maximum yearly contribution to all IRAs for the 2009 tax year is $5,000 ($6,000 for individuals who have attained age 50). Contributions to Roth IRAs and traditional IRAs (both deductible and nondeductible) are aggregated for purposes of applying these limits.

AGI Limit and Phase-Out Range

Here are the income restrictions associated with 2009 Roth IRA contributions:

In order to make a full contribution to a Roth IRA for 2009, a married taxpayer filing jointly must have joint adjusted gross income (AGI) of $166,000 or less for that year, and a single taxpayer must have AGI of $105,000 or less for that year. The AGI phase-out range (i.e., the range in which less-than-full contributions may be made) for Roth IRAs is between $166,000 and $176,000 for married taxpayers filing jointly and between $105,000 and $120,000 for single taxpayers. A married taxpayer filing a separate return for a year generally may not contribute to a Roth IRA for that year.

After Age 70½

Unlike traditional IRAs, an individual may contribute to a Roth IRA even after he or she has attained age 70-1/2. Also, the age 70-1/2 mandatory distribution requirements and the incidental benefit rules do not apply to Roth IRAs. Thus, no distributions are required until the IRA holder's death.

Rollovers and Conversions

Through 2009, a traditional IRA may be rolled over or converted penalty-free to a Roth IRA, provided that the individual's AGI (or joint AGI with his or her spouse) for the taxable year of rollover or conversion is not more than $100,000 and the individual is not married filing separately. Also, any rollover must be a "qualified rollover contribution," that is, a rollover contribution that meets the general IRA rollover rules, including the 60-day time limit rule. However, the rule that prohibits multiple IRA rollovers within a twelve-month period does not apply. Beginning January 1, 2010, the limit of $100,000 AGI is lifted, and anyone with a traditional IRA or 401(k) etc., may convert to a Roth IRA. In addition, the tax impact of a 2010 conversion may be spread in any proportion over the tax years 2011 and 2012.

Both deductible and nondeductible traditional IRAs may be converted or rolled over under these rules. Distributions from traditional IRAs will generally be taxable in the year of conversion or rollover to the extent they would otherwise be taxable if they were not part of a qualified rollover distribution. For purposes of the $100,000 limit, AGI is determined before any amount includable in income as a result of the rollover or conversion. Again, this limit expires in 2010.

Qualified Distributions

"Qualified distributions" from a Roth IRA are not includable in income. A qualified distribution is a distribution that is made after the five-taxable year period that began with the first taxable year for which the individual (or the individual's spouse) made a contribution (including a rollover or conversion contribution from a traditional IRA) to the individual's Roth IRA and which is:

Made on or after the date the individual attains age 59-1/2
Made to a beneficiary (or to the individual's estate) after the individual's death
A distribution attributable to the individual's being disabled; or
A "qualified special purpose distribution" (which means a qualified first-time homebuyer distribution)

Nonqualified Distributions

Distributions from Roth IRAs that are not qualified distributions are treated as made first from already-taxed dollars (i.e., contributions, rollovers and conversions). Therefore, until the total of all distributions from an individual's Roth IRA (or Roth IRAs) exceeds the amount of already-taxed dollars, the distribution(s) will not be includable in income. Also, for purposes of determining the tax treatment of IRA distributions, Roth IRAs and traditional IRAs are treated separately.