Introduction to IRAs

A beginner's guide to individual retirement accounts

An individual retirement account (IRA) is a tax-deferred account set up by an individual.

IRAs can give you a tax advantage and complement other retirement funds. Finding the most appropriate IRA vehicle for you can depend on your investment goals, income, and age, personal tax situation and retirement options available at your employer.

There are several types of IRAs available. Some of the most popular are listed below. There are other options available, so check with your tax advisor to determine what is best for your situation.

Traditional IRA

In this, IRA investors who have earned income and are under age 50 in 2015 can contribute up to $5,500. Investors 50 and over can contribute up to $6,500 assuming they have that much earned income for the year. This may or may not be tax deductible depending on your modified adjusted gross income and filing status.

If you are the owner of a traditional IRA, you must begin taking required minimum distributions from the IRA by April 1 of the year following the year in which you turn 70½.

Roth IRA

A Roth IRA is an Individual Retirement Account where contributions are made on a non-deductible basis. Contributions are made with dollars that have already been taxed. Withdrawals of contributions or earnings are income-tax free if the account is held for at least five years and you are 59½ or older upon withdrawal.

An individual under age 50 in 2015 can contribute up to $5,500 per year to a Roth IRA as long as you, or your spouse, have earned income and your adjusted gross income is within established income limits. As with a traditional IRA, investors over 50 can contribute an additional $1,000 catch-up contribution.

You are not required to take distributions from a Roth IRA at any age.

Rollover IRA

If you are retiring or changing jobs, IRAs can be a good vehicle for your tax-deferred investments. Rollover IRAs are an option for people receiving a distribution from an employer's qualified retirement savings plan and for those who don't want to re-invest in a new employer's plan. Beginning after January 1, 2015, you can make only one rollover from an IRA to another (or the same) IRA in any 12-month period, regardless of the number of IRAs you own.

Direct rollover IRAs from a qualified retirement plan enable you to avoid the mandatory 20% federal income tax withholding and the 10% penalty for withdrawing if under age 59½. Your money continues to compound, tax-deferred, until you need it for living expenses during retirement.

Rules and investment options vary among retirement plans, and not all plans accept rollovers. One additional option to consider: if your account balance exceeds $5,000, you may elect to leave the money in your previous employer's plan.

You cannot roll over a distribution from a qualified retirement savings plan, such as a 401(k), directly into a Roth IRA. A traditional IRA must be established to receive the distribution and then converted to a Roth IRA. Converting from a traditional IRA to a Roth requires you to pay ordinary income tax on any converted amount that was previously tax-deductible as well as the associated earnings. The converted amount and its earnings are then tax-free upon withdrawal from the Roth IRA.

Unless you convert your rollover traditional IRA to a Roth, you must begin required minimum distributions on April 1 of the year after you turn 70½.


The types of investments included in an IRA depend on the investment professional you work with, but most allow mutual funds, annuities, securities, or certificates of deposits.

You have until the April 15 tax-filing deadline to contribute to an IRA for the previous year if you qualify. Please consult your tax advisor or financial professional for more information.

Taxing of withdrawals

To the extent withdrawals from a Traditional IRA are income taxable, they may be subject to a 10% premature withdrawal penalty.

There are several exceptions to the age 59½ rule. Even if you receive a distribution before you are age 59½, you may not have to pay the 10% additional tax if you are in one of the following situations:

  • You have unreimbursed medical expenses that are more than 7.5% of your adjusted gross income (10% if under the age of 65).
  • You are disabled.
  • The distributions are not more than the cost of your medical insurance.
  • You are the beneficiary of a deceased IRA owner.
  • You are receiving distributions in the form of an annuity (substantially equal periodic payments).
  • The distributions are not more than your qualified higher education expenses.
  • You use the distributions to buy, build, or rebuild a first home (up to $10,000).
  • The distribution is due to an IRS levy of the qualified plan.

For more information about IRA vehicles, consult a tax or financial advisor. More information on individual retirement accounts is also available via IRS Publication 590. Coverdell details are documented in IRS Publication 970. You can visit the IRS at

Request a referral to a financial advisor who can help.