10 Frequently Asked IRA Questions

Must Ask IRA Questions - If I already have a 401(k), why do I need an IRA account? What if I retire before 59 ½?

Here is a list of answers to some of the most frequently asked questions (FAQs) about IRAs, self directed IRA, Roth IRA and other related investments. If you have any specific questions, please feel free to submit a question at the bottom.

1. What is a Self-Directed IRA?

The term “self- directed” was created in the industry to describe an IRA that allows the account holder to choose their investments. Often, these investments are private and not sold on the stock exchange. A common example is using your IRA for real estate. Any retirement vehicle can be “self-directed” provided the custodian/provider can facilitate the desired investment for the client.

2. How do I know what IRA account is right for me?

We recommend speaking to your accountant however the there are accounts that can grant you tax deductions, tax free growth, tax free health distributions and more!

3. Why should I open an IRA account?

Putting money towards retirement is a fundamental piece to proper finances. If you are looking to save money while potentially receiving tax benefits now, an IRA may be for you. If you are a business owner looking for tax incentives and employer benefits, an IRA could be for you! So many options, however this is a very important piece towards the route to retirement.

4. Can I get a tax deduction for my contributions?

There are accounts that offer tax deductibility such as Traditional IRA’s, SEP IRA’s and HSA’s. However, there are usually qualifications to meet before being eligible. We find this eligibility in IRS code 590-A where they discuss “contributions”. To ensure you qualify, ask your custodian what the income restrictions are or your accountant.

5. When is the deadline for IRA contributions?

Tax filing deadline is the deadline. If you file for an extension and have a SEP IRA, you have up until your extension.

6. Can I withdraw/pull/borrow money from my IRA?

You are eligible to take a “distribution” from your IRA at any time. However, this may cause tax and penalties. To avoid penalties, the distribution must be qualified. This generally means you are above the age of 59.5 or an exception applies. IRS publication 590B has detailed information on distributions from IRA’s. Unfortunately, IRA’s do not have a “loan to self” option.

7. Under what conditions can I use my IRA early?

You can take distributions from an IRA without penalty once you’ve reached 59 ½ years of age, or have had a Roth account for at least 5 years regardless of age (on contributions only, not earnings). Of course, there are a few exceptions to this rule which are explained further below. However, if you do not qualify for one of these exceptions, the penalties for early distribution is a 10% penalty and in some IRA’s 20%. Contact an IRA Specialist for more information on these exceptions.

8. Is the money I withdraw taxed/by how much?

Pre mature distributions are subject to a 10% penalty and taxation. The distribution amount is added to your gross income and taxed at your federal income tax rate.

9. What is a RMD, why am I required to withdraw money?

RMD stands for Required Minimum Distribution. At the age of 72 the IRS requires you distribute a minimum amount from any tax deferred IRA on an annual basis. Your first RMD is due by April 1st of the year following the year you turn 72.

10. How do I find my RMD?

Your RMD is calculated by taking your IRA’s previous year end balance and dividing it by a life expectancy divisor provided by the IRS. In most cases the divisor can be found on the “Uniform Lifetime Expectancy Table”. However, if you have a spouse that is younger than you by more than 10 years, you can use the “Joint Lifetime Expectancy Table” instead. This typically reduces your RMD amount.

***If you would like to get answers to your IRA questions, submit a question here.  Get answers from CPAs and IRA Experts. We can help with specific Self-Directed IRA issues and general IRA questions.***