- Retirement Planning
- IRAs
Individual retirement accounts (IRAs) are tax-advantaged retirement savings vehicles that you can set up yourself. Traditional, SEP, and SIMPLE (the only employer-established one) IRAs let you deduct contributions; Roth IRAs give you tax-free income; and all types let your investments grow tax-free until you withdraw them.
Frequently Asked Questions
Can I buy real estate in my IRA?
Yes, you can, but only if you have a self-directed IRA (SDIRA). The real estate has to be for investment purposes, not personal use by you or family members. It can include single-family or multiple dwellings, apartment buildings and all kinds of commercial properties, as well as raw land. There are complex rules to follow; your IRA could be disqualified if you violate them.
Learn MoreUsing Your IRA to Buy Real Estate
How do IRA rollovers work?
These transfers of funds from a retirement plan such as a 401(k) to an IRA require moving the assets either through direct transfer from custodian to custodian, or by liquidating the retirement account and sending you a check or direct deposit to a bank account (indirect rollover). Given stringent rules to keep rollovers tax free, a direct rollover is the better approach.
Learn MoreIRA Rollover
When can you withdraw from an IRA tax free?
The only time you can withdraw from an IRA without paying taxes is when you’re withdrawing funds from a Roth IRA. Even with a Roth, until you are 59½ you owe taxes and a penalty on withdrawals of Roth earnings (but not contributions). It’s important to learn the rules to minimize early withdrawal penalties, as well as taxes.
Learn MoreHow Much Are Taxes on an IRA Withdrawal?
How can I borrow from my IRA without paying a penalty?
You can withdraw money from an IRA but not borrow from one. However, there is a special way that what amounts to a short-term loan is permitted. What you do is withdraw the money from an IRA account and repay it to either the same account or another qualified account within 60 days. This is technically not a loan, but a distribution followed by a rollover. Generally, you can do this type of rollover only once in a 12-month period.
Learn MoreCan I Borrow From an IRA Without Penalty?
Can I donate money from my IRA to charity?
Yes, you can. And, if you’re taking money from an IRA on which you pay taxes on withdrawals (traditional, SEP, SIMPLE–but not Roth) there’s a tax benefit if you wait until you’re 70½ and withdraw IRA funds as a qualified charitable distribution (QCD). Even better, once you’re 72 and taking required minimum distributions (RMDs) from those accounts (again, not required from a Roth), your QCDs count toward your RMDs.That means you can take out less RMD money and owe less in taxes as a result. The recipient must be a qualified charitable organization. You can also make a charity a beneficiary of an IRA.
Learn MoreDonating to Charity Using Money From an IRA
Can I add money to my IRA after I retire?
It depends on how retired you are. If you are doing no work that qualifies as earned income, you can no longer add money to an IRA. However, if you are working part-time or have earnings from self-employment projects, those qualify. Investment, rental or pension income does not qualify as money you can add to an IRA.
Learn MoreCan a Person Who Is Retired Continue To Fund an IRA?
Key Terms
5-Year Rule
This rule deals with withdrawals from IRAs. There are two 5-year rules the apply to the waiting period for tax-free distributions from Roth IRAs and a third rule that governs the schedule of distributing funds from inherited Roth or traditional IRAs.
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Inherited IRA
An inherited IRA is an account opened when someone inherits an IRA or employer-sponsored retirement plan. Anyone–spouse, child, unrelated party including a trust–can open an inherited IRA account but the rules governing them differ for spouses and non-spouses.
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Spousal IRA
This is a strategy that allows a married individual with qualifying earned income to open an account for their spouse who lacks such income–an exception to the rule that a person must have earned income to contribute to an IRA. The income-earning spouse’s income must equal or exceed the total contributions made on behalf of both spouses.
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IRA Transfer
An IRA transfer, also called a rollover, involves transferring money from an IRA into another bank, brokerage, or other account. There’s no penalty or fee as long as the money goes into a similarly classified account and no distribution is made to the account holder.
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SIMPLE IRA
A SIMPLE (Savings Incentive Match Plan for Employees) IRA is available to companies with 100 or fewer employees, and is a type of tax-deferred retirement plan. Employers are required to contribute a minimum of 2% to each account and employees can contribute as well, though the amounts permitted are lower than for 401(k)s.
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Education IRA
Now formally known as a Coverdell Education Savings Account (ESA), an education IRA is a tax-advantaged savings account used to pay K-12 and higher education expenses. They are similar to a 529 plan but with more stringent rules. Also, the balance must be distributed to the beneficiary if not spent on college, and the account must be totally liquidated within 30 days after the beneficiary turns 30.
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Gold IRA
A gold IRA is a type of self-directed IRA account using a custodian or other broker-dealer that can hold gold coins or bullion, as well as precious-metals related securities. They usually have higher fees because of the need to purchase and store actual metal. The IRS regulates which precious metals can be held in an IRA.
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Page Sources
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U.S. Securities and Exchange Commission. “Investor Alert: Self-Directed IRAs and the Risk of Fraud.”
Internal Revenue Service. “Rollovers of Retirement Plan and IRA Distributions.”
Internal Revenue Service. “Topic no. 557, Additional Tax on Early Distributions from Traditional and Roth IRAs.”
Internal Revenue Service. “Qualified Charitable Distributions Allow Eligible Ira Owners up to $100,000 in Tax-Free Gifts to Charity.”
Internal Revenue Service. “Topic no. 451, Individual Retirement Arrangements (IRAs).”
