Your IRA Involves Many Choices

If you are leaving a job, retiring, or changing employers, now is the time you must make a decision regarding your retirement savings.  Your options include:

•      Moving to a Rollover IRA

•      Leaving it where it is

•      Move it to your new employer’s plan

•      Taking it in cash

When you choose a Rollover IRA, you will have a wide variety of choices including various investment options. We can help guide you through these choices including the following:
 
•      Choice of funds and investments
 
•      Consideration of your need for guaranteed income
 
•      Evaluating if a Roth IRA conversion makes sense for you
 
•      Eligibility to maintain tax deferred status no matter what type of employer plan your funds were held in.
 
•      Flexibility for your beneficiary(s) and future generations
 
•      Evaluation of company stock distribution options.  Sometimes it does not make sense to liquidate and rollover company stock depending on the original cost basis.
 
•      Service and advice now and in the future from Marmaras & Smith, LLC.
 
 

IRAs Defined

Traditional IRA
 
A Traditional IRA offers tax-deferred growth potential, with investors being able to deduct all or part of their contributions from pretax income if certain conditions are met, making it an effective way to reduce current tax obligations.
 
All or part of your contributions may be tax-deductible, which may reduce your taxable income.
 
Your deductible contributions are taxed only when you make withdrawals, at a time when many investors are in a lower tax bracket.
 
There are no income restrictions to be eligable to contribute to a Traditional IRA; however, there are specific limitations for deducting the contribution from one's pre-tax income.
 
Spousal IRA
 
A Traditional IRA that is established and funded by someone for their spouse. These plans are typically used when a spouse has little or no income. The contribution limits are the same as for a Traditional IRA.
  
Rollover IRA
 
Funds that are transferred or rolled over from an Employer sponsored Qualified Plan such as a 401(k) plan to a Traditional IRA is often referred to as a rollover IRA.
 
Conduit IRA
 
A rollover IRA which holds funds rolled over from a former employer’s Qualified Plan and not comingled with other IRA funds. Some Qualified Plans will accept rollovers back to a qualified plan only if the IRA funds are held in a conduit IRA.
 
Inherited or Extended IRA
 
An IRA that allows a non-spouse second generation beneficiary to continue to distribute the IRA assets over the course of their lifetime. This is also referred to as a “Streach IRA”.
 
Roth IRA
 
An individual retirement account similar to a Traditional IRA, but the contributions are not tax deductable. Once an IRA owner reaches age 59 ½, withdrawals from a Roth IRA are tax free both for contributors and accumulated earnings. There are no required minimum distributions required after age 70½ in a Roth IRA.
 
Roth Conversion IRA
 
A traditional IRA that is converted to a Roth IRA. The IRA owner will be responsible to pay the income taxes on the value of the Traditional IRA at the time of conversion to a Roth IRA. The taxes are due for the year in which the Roth Conversion occurred.
 
SEP IRA
 
A Qualified retirement plan that an employer or self-employed individual may establish. Contributions to a SEP IRA are immediately vested for both the owner and employee participant.
 
Simple IRA
 
A qualified retirement plan that an employer or self-employed person can establish. Referred to as a Simple Plan, the employer makes either a matching or non elective contribution to each eligible employee’s account. The employees make salary deferred contributions. The plan works in a similar way to a 401(k) Plan and has lower contribution limits and is often self administered by an employer.
 
 
Glossary of Terms
  
Account Holder
The original owner of the IRA.
 
Affidavit of Domicile
A document that verifies the residence of a decedent prior to his/her date of death. This form determines legal residency. The affidavit indicates which state statutes will prevail.
 
Beneficiary
A person or entity-usually designated on the I RA application-entitled to receive IRA proceeds when the account holder dies.
 
Designated Beneficiary
The person or entity who is determined to be the designated beneficiary of the account by September 30 of the year following the death of the account holder (October 31 for trusts).
 
IRA
Individual Retirement Account.
 
Letters of Testamentary
Official document confirming the account holder's death and the legitimacy of the account, and naming the personal (legal) representative of the estate. Also known as Letters of Authorization.
Life Expectancy Calculations
The life expectancy factor used to calcu­late the Required Minimum Distribution (RMD) of an Inherited IRA depends on the identity and number of beneficiaries, the age of the original account holder at the time of death, the type of IRA being inherited.
 
Lump-Sum Distribution
Total distribution of your share of the assets in the decedent's retirement account. Typical choices include:
 
•      Transfer your share of the assets in-kind from the decedent's IRA to your own new or existing non-retirement account.
 
•      Liquidate your share of the assets in the decedent's IRA and request a distribution to your own new or existing non-retirement account.
 
•     Liquidate your share of the assets in the decedent's I RA and request a check.
 
Required Beginning Date (RBD)
The date when an IRA holder must begin taking a Required Minimum Distribution is April 1 following the year in which the account holder reaches age 70½.
Required Minimum Distribution (RMD) A dollar amount required to be taken by the original account holder from an IRA at age 70½ and older. The IRS publishes the factors to be used in the allocation each year.
 
Rollover
A reportable tax-free movement of cash or assets from one retirement plan to another. This can be IRA to IRA or Qualified Plan to IRA.
 
Separate Accounts
When multiple beneficiaries of an IRA exist, separate accounts must be estab­lished by December 31 following the original account holder's year of death for beneficiaries to have the option to open an Inherited IRA and receive distributions over each beneficiary's single life expectancy.
 
Single Life Expectancy Table Internal Revenue Service table used to calculate required distributions after death.
 
10% Early Withdrawal Penalty
A federal tax penalty assessed on any distribution made from an IRA-before the account holder reaches age 59½—which is not made due to death, disability or certain other exceptions.