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IRAs

Please note: We provide this for informational purposes only. We do not provide tax advice.

*Note: Depending on your user access level, and if you have an advisor who can access your account, some of the functions described here may not be available to you, or may be performed by your advisor.

To which year do my IRA contributions apply?

IRA contributions we receive are designated as current year IRA contributions by default you send us a contribution check between January 1 and December 31 you can designate those contributions as prior year contributions by following the steps below.

If you wish to make a prior year contribution, please do the following:

  • When contributing by check, please write the tax year to which the contribution applies on the memo line. If you do not write anything in the memo line, the check amount will be applied as a current year contribution. Envelopes containing a prior year contribution must be postmarked by April 15.
  • When contributing by electronic deposit (EFT, wire, or bill pay) please send us an email when you send their contribution referencing the date you made the electronic deposit, the dollar amount, your account number with us and instructions that the contribution should apply to the prior tax year.

Can I open an IRA for the prior year in the current year?

You can open an IRA for the prior year from January 1 through April 15.

Can I convert a Traditional IRA to a Roth IRA?

You can convert your Traditional IRA to a Roth IRA by completing an IRA Distribution and Recharacterization Form. When we process your request we will convert the designated Traditional IRA to a Roth IRA.

How do I open a Beneficiary IRA?

To open a Beneficiary IRA:

  1. Open a Rollover IRA or Roth IRA through our online account opening path
  2. Then submit a completed and signed Beneficiary IRA Amendment Form.

Beneficiary IRAs are only allowed to hold IRA funds/assets inherited from a deceased person’s IRA or a retirement account on which you are listed as a beneficiary.

How do I request a check or wire distribution from an IRA?

The following online process may be used to request the following types of IRA distributions be made directly to you: Normal, Premature Without Exception and Beneficiary IRA death distributions. To request a distribution from an IRA:

  1. Go to your Accounts page
  2. In the menu next to the account, select Transfer Money
  3. Under Remove Money from this Account select Withdrawal Request
  4. Follow the instructions provided throughout the Withdrawal Request process to complete the request

If you are under 59½ you may be subject to IRS penalties for early withdrawal.

What is a recharacterization?

A recharacterization occurs when you contribute or convert funds into one IRA account type (Roth for example) and later wished to change the contribution or conversion to another IRA account type.

An IRA recharacterization can apply to the following:

  1. If you contributed money to your Traditional IRA, you can recharacterize the contribution so that the funds count toward a Roth IRA contribution for the same tax year.
  2. If you contributed money to a Roth IRA, can recharacterize the contribution so that the funds count instead toward a Traditional IRA contribution for the same tax year.
  3. If you converted a Traditional IRA to a Roth IRA, you can recharacterize the conversion and put the funds back into a Traditional IRA.

Why might I want to recharacterize an IRA contribution?

The following are common reasons why you may want to recharacterize an IRA contribution:

  • Contribution Mistakes: You might have made contributions for which you are not eligible. Recharacterizing the contribution allows you to correct the mistake and avoid undesired tax consequences.
  • Additional Tax Deductions: If you contribute to a Traditional IRA and later find out that it’s not a tax-deductible contribution, you can recharacterize the contribution and make it instead for a Roth IRA. Likewise, if you contribute to a Roth IRA and later find out that you could have claimed a deduction for a contribution to a Traditional IRA for that tax year, you may choose to recharacterize the contribution to one made to a Traditional IRA.
  • Higher Tax Bracket: If you convert a Traditional IRA to a Roth IRA, you will have to pay taxes on the amount contributed to the Roth IRA. If you discover that the conversion results in his being in a higher tax bracket, you might wish to recharacterize the IRA conversion. Using this approach the IRA will effectively remain a Traditional IRA and the former conversion will not affect your tax bracket.
  • Poor Investment Performance: If you convert a Traditional IRA to a Roth IRA, you will have to pay taxes on the amount converted to the Roth IRA even if the value of the Roth IRA declines. For example, you convert $50,000 to a Roth IRA and the value of the account falls to $25,000. you would still owe taxes on $50,000. To avoid this situation, you can recharacterize the $50,000 conversion reverting the balances to a Traditional IRA balance not subject to the taxes.

How do I recharacterize my IRA contribution/conversion?

Recharacterizations can currently only be submitted to us using a paper form. To recharacterize an IRA contribution or conversion, please complete the IRA Distribution and Recharacterization Form and choose the recharacterization option under Part 2: Reason for Withdrawal. To submit your recharacterization, sign and email/mail/fax the IRA Distribution and Recharacterization Form.

What is the deadline for recharacterizations?

Recharacterizations for prior year contributions or conversions must be completed by the tax filing deadline of the current year. Please seek advice from a tax professional before you decide to recharacterize his IRA contributions or conversions.

Can I make a partial recharacterization?

IRA owners may request a full or partial recharacterization of a contribution or conversion by completing our IRA Distribution and Recharacterization Form.

What is an excess contribution?

An excess contribution is any amount contributed to your IRA that is greater than your annual maximum allowable contribution limit. Please review the IRS IRA Contribution Limits for more information contribution limits. Excess contributions can also occur for IRA holders age 70½ and older, Beneficiary IRA holders who make contributions to their Beneficiary IRA, because of invalid rollovers or, due to failed Roth Conversions. Please see IRS Publication 590 for more detailed information.

Are penalties assessed if excess contributions are not removed?

Penalties are assessed if excess contributions are not withdrawn by the tax filing due date. You are subject to a 6% tax and must pay the 6% tax each year on excess amounts that remain in your IRA.

How do I correct my excess IRA contributions?

To correct an excess IRA contribution, you must withdraw the excess amount and any earnings attributable to the excess amount from the IRA by your tax filing deadline. Earnings attributable may be subject to a 10% early withdrawal penalty if you are under 59½ years old.

To withdraw excess contributions, complete the IRA Distribution and Recharacterization Form. Please specify the following:

  • The year in which the contribution was actually made
  • The tax year the contribution was intended for
  • The excess amount being removed
  • The net income (or loss) that is attributable

For additional information on how to correct excess contributions, please refer to IRS Publication 590: Individual Retirement Arrangements (IRA).

IMPORTANT: You must include your Net Income Attributable (NIA or earnings attributable) in his gross income. The NIA should be reported on your tax return for the year in which the excess contribution was made. The question below goes over the Net Income Attributable formula for your calculation.

How is Net Income Attributable (NIA) calculated?

The formula for calculating NIA is as follows:

NIA = (Excess Contribution × Total Earnings)/Adjusted Opening Balance

In some cases, this formula can result in a negative amount. When that happens, the loss is attributed to the excess contribution. Earnings attributable may be subject to a 10% early withdrawal penalty.

How is an excess contribution distribution reported?

Excess contribution distributions are reported on the Form 1099-R. The form will reflect the amount of the withdrawal and the proper IRS codes needed to indicate that the excess distribution(s) were removed.

What if my excess contribution is withdrawn after the tax filing due date?

An excess contribution distribution can take place at any time, even after your tax filing due date. In this case, the Net Income Attributable (NIA) cannot be withdrawn and you will owe the 6% penalty for each year that the excess contribution(s) remain in your account.

For more information and contribution limits please refer to Publication 590 at www.irs.gov