IRA FAQs

General IRAs
What is an IRA?
What types of IRAs are available?
How do I know if I am eligible to make a contribution?
When may I withdraw funds from my IRA?
What is an IRA Rollover?
Is there a maximum IRA transfer or rollover?
Can I deduct losses in my IRA accounts on my income tax return?
What is a mandatory distribution?
What is the tax consequence of taking a distribution?
What are the tax consequences of an "early" withdrawal?
Are IRA accounts subject to any restrictions?
What Happens to My IRA in the Event of My Death?
Is there a contribution deadline for funding an IRA?

Traditional IRAs
What is a Traditional IRA?
Can I contribute to a Traditional IRA if I have other retirement plans?
How much can I contribute to a Traditional IRA each year?
I'm over age 50. May I contribute more than $3,000 to my Traditional IRA?
When am I required to begin taking distributions from a Traditional IRA?

Roth IRAs
What is a Roth IRA?
Can I still contribute to a Roth IRA if I'm older than 70 ½ and I'm still working?
When may I withdraw my Roth IRA earnings income tax free?
Can I have both a Traditional and a Roth IRA?
When am I required to begin taking distributions from my Roth IRA?

SEP IRAs
If an employer maintains a SEP for its employees, can the employees also make contributions to Individual Retirement Accounts?
Can an employee eligible to participate in a SEP choose not to participate?
When are income taxes paid on money in a SEP account?
When can money be withdrawn from a SEP account?

Q: What is an IRA?
A: An IRA is a tax-deferred retirement account which allows an individual to set aside a certain amount per year with earnings tax-deferred until withdrawals begin at age 59 ½ or later. Only those who do not participate in a pension plan at work or who do participate and meet certain income guidelines can make deductible contributions to an IRA. All others can make contributions to an IRA on a non-deductible basis. This non-deductible type of contribution does not qualify as a deduction against income earned that year, but interest accumulates tax-deferred until the funds are withdrawn.

Q: What types of IRAs are available?
A: First South Bank offers a wide range of IRAs, including Traditional, Roth, and Rollover IRAs.

Q: How do I know if I am eligible to make a contribution?
A: You can contribute to a Traditional IRA if you have earned income and are under the age of 70 ½. If you are not employed, but have a spouse who is, your spouse may be able to make a contribution on your behalf.

Q: When may I withdraw funds from my IRA?
A: In general, withdrawing your IRA prior to age 59 ½ means you'll have to pay a 10% early withdrawal penalty. You may avoid the penalty if you're withdrawing because of:

Q: What is an IRA Rollover?
A: A rollover requires a distribution from an IRA or qualified plan, which is then rolled over into an IRA account within a 60 day period to complete the rollover transaction. While the rules for rollovers and transfers differ, they accomplish similar objectives. Both rollovers and transfers facilitate the tax-free movement of IRA monies from one trustee or custodian to another.

Q: Is there a maximum IRA transfer or rollover?
A: In most cases there is no limit on the amount you may transfer or roll over into an IRA because you are simply moving the money from one type of retirement plan to another. You may transfer or roll over your IRA regardless of your age. However, if you are 70½ or older, you must receive a minimum required distribution from your IRA each year. This should be taken into account in planning your rollover.

Q: Can I deduct losses in my IRA accounts on my income tax return?
A: No, neither IRA losses nor IRA gains are taken into account on your tax return.

Q: What is a mandatory distribution?
A: In a Traditional IRA, you are required by law to begin taking distributions from your IRA in the year you reach age 70½. The amount of the distribution is based on your age and the value of your account. Internal Revenue Service Publication 590 provides the information to calculate the minimum distribution. Required minimum distributions must start no later than April 1 of the year following the year in which you attain age 70½. Failure to take the required minimum distribution results in an IRS penalty tax of 50% of the amount that should have been distributed.

Q: What is the tax consequence of taking a distribution?
A: Distributions from a Traditional IRA are treated as income to you. You will receive an IRS form 1099R each January summarizing the amount distributed and the taxes withheld, if any. In a Roth IRA, if you take a distribution after the account has been open five years, the distribution will not be included in your income. If taken within the 5-year period, it will be taxable, like a Traditional IRA distribution.

Q: What are the tax consequences of an "early" withdrawal?
A: An "early" withdrawal is generally one taken before age 59½ in a Traditional IRA or within the first five years of a Roth IRA. In addition to the amount added to your income, the IRS may assess an additional 10% penalty. You should consult with your tax advisor regarding the tax consequences.

Q: Are IRA accounts subject to any restrictions?
A: Yes. The IRS does prohibit certain transactions on Traditional IRAs. Examples include: borrowing money from your IRA, contributing over your annual limit, rolling funds over from another IRA after the sixty (60) days has expired, or forgetting to take an annual distribution after you have reached 70 ½.

Q: What Happens to My IRA in the Event of My Death?
A: Your named beneficiary(ies) will receive the entire proceeds of the IRA. Your beneficiary(ies) will not be subject to the 10 percent premature-distribution penalty tax. Distributions to your beneficiary(ies) will be made in accordance with the required minimum distribution rules and your IRA agreement.

Q: Is there a contribution deadline for funding an IRA?
A: IRAs for a taxable year can be opened and funded any time between the first day of a tax year and the date a tax return is due for that year, excluding extensions. For most taxpayers, this due date is April 15 of the following year.

Q: What is a Traditional IRA?
A: A Traditional IRA (Individual Retirement Account) is a self-sponsored retirement savings plan. Contributions to an IRA may or may not be tax-deductible depending on your adjusted gross income. Consult your tax advisor to answer questions about your eligibility for tax deductions.

Q: Can I contribute to a Traditional IRA if I have other retirement plans?
A: Yes, you can contribute to a traditional IRA whether or not you are covered by another retirement plan. However, you may not be able to deduct all of your contributions if you or your spouse is covered by an employer-sponsored retirement plan.

Q: How much can I contribute to a Traditional IRA each year?
A: The maximum contribution to a Traditional IRA is $3,000 or 100% of earned income per tax year, whichever is less. You must reduce this contribution by the amount contributed to a Roth IRA in the same year.

Q: I'm over age 50. May I contribute more than $3,000 to my Traditional IRA?
A: Yes. IRA holders age 50 and older may contribute an extra $500 to their IRA in addition to their regular contribution.

Q: When am I required to begin taking distributions from a Traditional IRA?
A: By April 1 of the year after you become age 70 ½.

Q: What is a Roth IRA?
A: The Taxpayer Relief Act of 1997 created the Roth IRA, which allows tax-free withdrawals. Contributions to a Roth IRA are not deductible and the maximum annual contribution is the lesser of 100% of compensation or $3,000. Non-working spouses may also contribute up to $3,000 to a Roth IRA. For individuals age 50+, contributions may be increased by $500. Taxpayers with joint adjusted gross income under $150,000 (under $95,000 for single taxpayers) may make full Roth IRA contributions. Contributions may be made beyond age 70½ and qualified distributions from a Roth IRA are tax-free, subject to IRS limitations. There are no required minimum distributions on Roth IRAs.

To be eligible for conversion, adjusted gross income cannot exceed $100,000 (not counting the income from the conversion). The conversion amount is taxable at ordinary income rates, but the 10% premature distribution penalty tax does not apply.

Q: Can I still contribute to a Roth IRA if I'm older than 70 ½ and I'm still working?
A: Yes, provided the contribution does not exceed your earned income for the year and you meet AGI eligibility guidelines.

Q: When may I withdraw my Roth IRA earnings income tax free?
A: Roth IRA earnings may be withdrawn tax-free if your Roth IRA has been established for at least five years and one of the following apply:

Q: Can I have both a Traditional and a Roth IRA?
A: Yes, you can. But remember that you can only contribute up to $3,000 per year to any combination of Traditional and Roth IRAs that you have. You cannot contribute $3,000 to each.

Q: When am I required to begin taking distributions from my Roth IRA?
A: You're not required to take distributions from a Roth IRA as long as you live. You can allow your money to grow in a Roth IRA free of current taxes for as long as you choose.

Q: If an employer maintains a SEP for its employees, can the employees also make contributions to Individual Retirement Accounts?
A: Yes. If the employees choose to do so, they may combine IRA and SEP contributions in one account.

Q: Can an employee eligible to participate in a SEP choose not to participate?
A: No. All eligible employees must participate. An employer can set up an IRA for the employee at a financial institution and make the appropriate contribution.

Q: When are income taxes paid on money in a SEP account?
A: Income taxes are paid when money is withdrawn from a SEP account.

Q: When can money be withdrawn from a SEP account?
A: SEP money can be withdrawn without penalty at age 59½. Earlier withdrawals are generally subject to a 10% additional income tax unless the participant becomes disabled or receives distributions in the form of an annuity that are part of substantially equal payments over life or life expectancy.

View IRA Comparison Chart

Want to determine how much money you will need to retire. Use one of our calculators.

For more information on Personal Finance Options, click here to send us your questions, or contact us at 1-800-946-4178.