General Overview Roth Conversions Excess Contributions Premature Distributions – Withdrawals prior to age 59 ½ Recharacterization Required Minimum Distributions (RMD)

Statistics indicate that Americans are living longer lives. With that in mind, many of us will be thinking about saving for retirement. Investors may have some questions regarding their accounts and taxes. We cover some of the most basic topics.

• The contribution deadline is April 15th for the tax year, so it is best not to wait until the very last minute.
• Original contributions can only be made in cash. Therefore, an investor cannot deposit shares of stock or mutual funds from a taxable account to their IRA as a contribution.
• A margin account and loan are not permitted. Remember, you are accumulating funds towards a comfortable retirement nest.
• With every new account application, you will also be required to specify beneficiaries in the event of your passing.
• You may purchase stocks, mutual funds, bonds, and CDs just like a regular investment account. This gives you the opportunity to have your contributions grow and increase the value of your account.
• A Form 5498 is mailed out by the end of May to all customers who have made a contribution for the previous tax year
• We also receive the following question often: "Can I pay separately for any commissions incurred in my IRA account?" The answer is "no". The commission must come from your contribution and cannot be paid from an outside source.

• Conversions are not subject to the 10% early distribution penalty.
• In order for a Roth Conversion to be considered for the current tax year, the deadline is December 31.
• Roth Conversions are subject to a five year rule. If a distribution is requested before the five year anniversary, a 10% early withdrawal penalty may apply. After the five year anniversary, there may not be any penalties charged.
• Partial Conversions are permitted.
• A Form 1099-R will be provided by the end of January indicating the amount of the conversion. You will be required to report taxes on the converted amount. If you convert certain securities, the calculation is based on the market value on the close of the previous business day prior to the conversion.

Excess Contributions
If you deposited more than the maximum contribution amount for the year, or you recently found out that you no longer qualify based on your income, you may withdraw the funds from the account. As long as the Distribution request is processed by April 15th, you will not be responsible for any penalties.

Premature Distributions – Withdrawals prior to age 59 ½
Traditional IRA: Withdrawals prior to age 59 ½ will be subject to an early withdrawal penalty of 10% and the amount will be reported as taxable income.

Roth IRA: If you are withdrawing from the original contributions, there will not be any penalties charged. If you are withdrawing from the profits made in the account, a 10% penalty will apply on the amount.

• Please remember to report the transaction to the IRS. Consult your tax advisor for further information.
• A Form 1099-R will be provided.

401K, 403B, & other Qualified Retirement Plans: If you are considering rolling over your retirement plan, please contact your plan administrator for the paperwork and procedures required. Please have them make the check payable to Firstrade Securities and mail it directly to Firstrade’s offices ( 133-25 37th Avenue, Flushing NY 11354). No penalties will be charged for a rollover request.

Recharacterization
You may find out that you have unexpected extra income from a bonus or your accountant may have informed you that you are eligible to make a contribution towards a Roth or a Traditional IRA. The contribution is essentially moved from IRA account A to IRA account B.

• Must be processed by October 15th of the following tax year. (six months after the unextended due date of the tax return for the year for which the contribution was made.)
• A Letter of Authorization (LOA) must be submitted to Firstrade.
• Eligible accounts: Roth IRA, Traditional IRA.
• Ineligible accounts: Tax Free Rollovers, employer contributions from a SEP or SIMPLE IRA.
• Any related earnings must be recharacterized as well.
• Can be cash and/or securities (in-kind). The recharacterization must be exact.

Required Minimum Distribution (RMD)
Once you reach age 70 ½, you must withdraw a minimum amount – your Required Minimum Distribution (RMD) – each year from your tax-deferred retirement savings accounts. This includes your IRAs (with the exception of Roth IRAs) and any qualified retirement accounts you hold with a former employer.

• Generally, your RMD is determined by dividing the adjusted market value of your tax-deferred retirement account as of December 31st of the prior year, by an applicable life expectancy factor taken from the Uniform Lifetime Table as issued by the IRS.
• If your spouse is more than 10 years younger than you, and he/she will be the sole primary beneficiary for the entire distribution year, you should use the Joint Life Expectancy Table (as issued by the IRS) to calculate your RMD. This will result in a smaller RMD than with the Uniform Lifetime Table.
• You may withdraw your annual RMD in one lump sum or make withdrawals periodically throughout the year, but the total annual minimum amount must be withdrawn by the deadline of December 31 st each year (except for your first RMD as explained below).
• The penalty for taking less than your minimum required distribution can be severe. If you withdraw less than the minimum required amount, the IRS may assess a penalty equal to 50% of the amount of the RMD not taken.
• For the first RMD, you generally have until April 1st of the year following the calendar year you turn 70½ to take your first annual RMD. This is known as your required beginning date, or RBD. In subsequent years, the deadline is December 31st.