• Self Directed IRAs
  • Types of IRAs
  • Investment Options
  • Funding Options
  • Converting to a Roth IRA
  • Distributions
  • Prohibited Transactions
• Health Savings Accounts
  • About HSAs
  • Qualified Medical Expenses
  • Features of HSA Manager
  • Investment Options
  • Funding Options
  • HSA Guidelines
• Solo 401(k)s
  • Eligible Businesses
  • Investment Options
  • Funding Options
  • Roth Solo 401(k)

Funding Options  

IRA Transfers

IRA transfers are the most common funding method for a new or existing IRA. A transfer is the movement of IRA assets directly from one trustee or IRA custodian to another. In IRAs, these types of transfers are unlimited since funds are transferred from one institution to another. The transaction is not reported to the IRS as a distribution.
 

IRA Rollovers

A rollover begins with a distribution, followed by a re-contribution of all, or a portion of, the assets to another plan. The distribution may occur between a qualified plan and an IRA. The rollover transaction must be completed within a 60-day period or the assets' eligibility to be returned to a tax-advantaged account is lost. The distribution will then be taxed as ordinary income in the year it was received, and if the individual that received the distribution is under age 59-1/2, the IRS will impose a 10% penalty on the distribution, subject to certain exceptions.

It is important for retirement plan owners considering a rollover to take extra precaution that the transaction is completed on a timely basis, as all transactions are reported to the IRS. If the IRS does not receive confirmation of re-contribution within the 60-day period, it will assume the transaction is a distribution, and therefore, taxable.

In some cases, rollovers are not permitted, including the following:
 

• More than one rollover in the same account, as in an IRA to an IRA, or more than one same-fund transfer within a 12 month period; 
• Rollovers from a SIMPLE IRA plan to a Traditional IRA during the first two years of a SIMPLE IRA’s plan participation;
• After age 70-1/2, IRA or qualified plan rollover amounts that represent a taxpayer’s required minimum distribution for that year; and,
• Rollover from a Roth IRA to a Traditional IRA or qualified plan.

Direct Rollover

Unlike a rollover, a “direct” rollover always originates with assets in a qualified plan, Traditional IRA or SIMPLE IRA, and involves movement to a Traditional IRA or another employer plan. At no time are the assets cashable or negotiable by the taxpayer. Also, while direct rollovers are reported to the IRS as distributions, a special code on the distribution report indicates the funds were transferred in a direct rollover to an IRA or employer plan and are, therefore, not taxable. We encourage IRA owners to consult with a tax advisor regarding these limitations before initiating a transaction. To view a Rollover Chart provided by the IRS, please click here.
 

IRA Contributions

IRAs are available to anyone who receives taxable compensation during the year. For IRA contribution purposes, compensation includes: wages, salaries, fees, tips, bonuses, commissions, taxable alimony and separate maintenance payments.

Husbands and wives are each eligible to have an IRA, even if one spouse is not working. One spouse’s annual contribution is limited to the lesser of total taxable compensation or to the yearly amount shown in the following tables. Participants age 50 or older may make an additional “catch-up” IRA contribution in the amounts indicated in the tables below.
 
2011 IRA Contribution Limits

Individual Retirement Accounts

Employer Sponsored Retirement Accounts^{3, 4}

1 Catch-up contributions are allowed for individuals age 50 or older   
2 Catch-up contributions cannot exceed the lesser of the catch-up contribution limit listed, or the  excess of your compensation over the elective deferrals that are not catch-up contributions   
3 The information in this chart does not apply to self-employed individuals   
4 Additional or smaller limitations may exist in plan documents   
5 Maximums shown here may not include catch-up contributions   

There are no minimum or required IRA contribution amounts, and all earnings on the amounts in a Traditional IRA are not taxed until withdrawn. In the case of Roth IRAs, withdrawals may be made on a tax-free basis provided certain conditions are met. To see Distributions for additional information, click here.