How much money can I contribute to my IRA?

The annual maximum regular contribution limit for 2016 is the lesser of $5,500 or 100% compensation if you are younger than 50 or $6,500 per tax year if you are older than 50.

Do I have to deposit my maximum contribution all at once?

No. You can make monthly, weekly, even daily deposits if you would like.

Who is eligible for a Traditional IRA?

You can open a Traditional IRA if:

  • You are younger than 70 ½ for the entire tax year and
  • You or your spouse have earned income

Who is eligible for a Roth IRA?

You can open a Roth IRA if:

  • You or your spouse have earned income and
  • Your modified adjusted gross income does not exceed the limits*

* Roth Contribution Chart:

A key fact to remember is there are phase out limits for eligibility to contribute to a Roth IRA. If the modified adjusted gross income, MAGI, for someone who is single exceeds $127,000, or if married filing a joint return exceeds $188,000, no contributions are allowed. If the income for a single individual is below $112,000 or $178,000 for a married couple, full contributions can be made. If income is in between those amounts a partial Roth contribution can be made.

*Source: Which IRA is right for you? © 1997 Wolters Kluwer Financial Services- Bankers Systems ™ IRA-BRO-COMP rev. 10/01/2006 

What is earned income?

Earned income is your salary you earn as an employee; the net income you make if you are self- employed, and taxable alimony. Rental income, interest, and dividends are not considered earned income. 

As always, check with your tax professional to determine your earned income eligibility.

What is the benefit of having a Roth IRA? 

While you do not get tax deductible contributions, a Roth IRA gives you the benefit of tax-free qualified withdrawals. This includes any earnings on your Roth. You do, however have to wait five years before making the first withdrawal on your Roth. There is no age limit on the Roth.

As always, check with your tax professional about tax-free withdrawals from your Roth IRA.

Are there any penalties for taking money out of a Roth?

If your withdrawal is not a qualified withdrawal, there is a 10% penalty. Bank penalties may also apply.

What is a qualified withdrawal?

  • Any of the following is considered a qualified withdrawal:
  • Distributions taken when and after you turn 59 ½
  • Distributions to your beneficiary after your death
  • Distributions taken if you are disabled
  • Distribution taken for first-time home buyer ($10,000 max)
  • Equal periodic payments
  • Qualified Reservist Distributions
  • Medical expenses over 7.5% of your adjusted gross income
  • Health insurance premiums for certain unemployed individuals
  • Higher education expenses
  • IRS levies

As always, check with your tax professional before taking a distribution from your IRA to make sure it is a qualified distribution in your specific circumstance.

Do I ever have to take money out of my Roth IRA?

No, there is no required minimum distribution for the Roth IRA.

What is the benefit of a Traditional IRA?

A Traditional IRA allows you to take tax deductions on the money you put into your IRA, however; you will have to pay taxes on money you withdraw later.

As always, check with your tax professional on the deductibility of IRA deposits and withdrawals.

Do I have to pay penalties on withdrawals from my Traditional IRA?

If your withdrawal is not one of the exceptions and if you are younger than 59 ½, then there is a 10% penalty. Bank fees may also apply. 

What are the exceptions?

An exception or qualified distribution is:

  • Distributions taken when and after you turn 59 ½
  • Distributions to your beneficiary after your death
  • Distributions taken if you are disabled
  • Distribution taken for first-time home buyer ($10,000 max)
  • Equal periodic payments
  • Qualified Reservist Distributions
  • Medical expenses over 7.5% of your adjusted gross income
  • Health insurance premiums for certain unemployed individuals
  • Higher education expenses
  • IRS levies
  • A Roth IRA rollover

As always, check with your tax professional before taking a distribution from your IRA to make sure it is a qualified distribution in your specific circumstance. 

When do I have to take money out of my IRA?

Once you turn 70 ½ years of age, you must take required minimum distributions from your Traditional IRA.

Can I have both a Roth and a Traditional IRA? 

Provided you meet the criteria for a Roth, yes you can have both a Roth and a Traditional IRA.

What if I have a 401k I want to roll over?

We can do that for you. Bring in the information about your current 401k and we take care of the paperwork to get it moved here.

What if I want to move my existing IRA to FSB?

We can take care of that for you. Bring in the information on your current IRA and we take care of the paperwork to move it here.

How do I set up an IRA at Farmers State Bank? 

We can set up an IRA with as little as $500. Rates are great right now.

With a CD IRA, you pick your term and your rate. If you want to see what rates do before you commit, you can open a Money Market IRA. You need to decide what works better for you and your specific circumstance. We are here to help; however, it is always best to check with your tax professional about deductibility of withdrawals and deposits.

What if I have more questions?

Please contact us — we are here to help. Our qualified staff is ready to give you the information you need to make your decisions.