Hold on to More of Your Retirement Savings


US Individual Income Tax Return April 15 5 tips to help keep your IRA in compliance with IRS rules

The Internal Revenue Service is starting to refocus its attention on taxpayers who make contribution or withdrawal errors on their IRAs. So, to hold on to more of your retirement savings and avoid IRS penalties, be sure to reach out to your tax advisor.

While we don’t offer tax advice, we suggest you keep the following tips in mind when contributing to or withdrawing from your own IRA:

  • Know your annual contribution limits. If you over contribute, a six percent excess contribution penalty will be levied if you do not remove the excess contributions timely. The maximum Traditional IRA or Roth IRA contribution is $5,500 for 2015 ($1,000 more if you're age 50 or older).1 If you want to contribute the maximum amount to a Roth IRA, your adjusted gross income (AGI) in 2015 must be below $116,000 if you’re single and $183,000 if you’re married, filing jointly.
  • Follow the 60-Day Rollover Rule. The IRS gives you 60 days to complete a rollover2 from any qualified employer plan/other IRA to an IRA. If you exceed that time, the transaction will be treated as a distribution, and considered ordinary taxable income. Additionally, you may even receive a 10 percent penalty on the withdrawal, if you’re under 59½.3
  • Withdraw funds after you reach 59½ years. With Traditional IRAs, any distribution of earnings (and contributions if you took a tax deduction) is considered taxable. However, if you make withdrawals of earnings prior to age 59½ from either a Traditional IRA or Roth IRA, you may incur a 10 percent penalty. Distributions of earnings from Roth IRAs are tax-free starting at 59½, as long as you’ve had the Roth IRA for five years (and you've met one of the following exemptions: 59½ or disabled). If needed, you can withdraw your Roth contributions tax free before age 59½.
  • Take those required minimum distributions. If you’re age 70½ or older — the designated age for required minimum distributions from IRAs and retirement plans — you can incur a 50 percent penalty for the amount you should have withdrawn. Some exceptions apply, such as for any pre-1987 contributions to a retirement plan, and for a retirement plan where you’re still working after age 70½. Please note: The rules for required minimum distributions can be complicated, so consult your tax advisor for additional support.
  • Take a hardship distribution to cover extreme financial needs. The IRA makes early-distribution provisions for those experiencing major health-related costs or other financial burdens. For example, you can withdraw monies to cover medical expenses that are not covered by health insurance and that exceed 7.5 percent of your annual income, or deduct up to $10,000 (the lifetime maximum) to help purchase your first home or pay college expenses.

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