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IRA – Frequently Asked Questions

Introduction to Individual Retirement Accounts

Here are some important questions and answers to help you start learning about Traditional and Roth IRAs, the most common Individual Retirement Accounts (IRAs) for individuals. Before you start, see if you’re eligible to start using this tax-advantaged account to start saving for your retirement.

Top 5 Frequently Asked Questions

What is an IRA?

An Individual Retirement Account (IRA) is a type of savings account that is designed to help you save for retirement and offers many tax advantages. There are two different types of IRAs: Traditional and Roth IRAs.

What is the difference between a Traditional and Roth IRA?

The primary difference between a Traditional IRA and Roth IRA is the type of tax benefit each delivers. With a Roth IRA, you get no deduction for contributions, but if you follow all the rules your investment earnings will be distributed tax- and penalty-free in retirement. Traditional IRAs can provide a deduction for contributions and delay taxes on investment earnings until funds are withdrawn, typically in retirement. For more information about the two types of IRAs, including details about eligibility, visit the Traditional vs. Roth section of our IRA Center.

How do I open an IRA?

The first step in opening an IRA is to select the retirement solution that fits your individual investment style. It’s important to know that application instructions vary based on the type of investing style you choose. For additional details on bank or brokerage solutions, you can also call us at 1-877-493-4727.

What is my Modified Adjusted Gross Income (MAGI)?

Your Modified Adjusted Gross Income (MAGI) is an income tax term that refers to the amount used to calculate your annual income tax liability. It's also used to determine whether or not you’re allowed certain tax benefits. Need more information? Review IRS information on IRAs, which is also known as IRS Publication 590, or contact your tax advisor.

Once I open my IRA, how should I invest the funds within my account?

You can choose from a full range of investments, including stocks, bonds, CDs and savings, Exchange-Traded Funds (ETFs), and mutual funds.

Whether you prefer to make your investment decisions independently, receive investment guidance, or leave all the decision-making to a team of professionals, we have a retirement solution.

Contributing to an IRA

What is the annual contribution limit for an IRA?

If you are under age 50 you can contribute up to $5,500 in 2015 and 2016, and if you're age 50 or older, you can contribute up to $6,500.

What are "catch-up" contributions?

Once you reach age 50, contribution limits on IRAs and employer-sponsored retirement accounts increase, allowing you to "catch up" on your savings by contributing an amount over the standard contribution limit. In 2015 and 2016, you can contribute up to $6,500, which is $1,000 over the limit for younger savers.

Can I contribute to both a Traditional and a Roth IRA in the same year?

Yes, you may make contributions to both a Traditional and a Roth IRA in the same year, provided the combined total contribution does not exceed your contribution limit for the year, including any catch-up contributions. For example, in 2016, the total amount you can contribute to both a Traditional IRA and a Roth IRA combined cannot exceed $5,500 ($6,500 if age 50 or older).

Can I contribute to an IRA if I'm already contributing to a plan at work?

Yes, you can open and fund a Traditional or a Roth IRA even if you already contribute to an employer-sponsored retirement plan, helping you save more than you could in your plan at work alone. You may want to discuss this option with your tax advisor, however, since participation in an employer plan may impact deductibility in a Traditional IRA.

Withdrawing money from an IRA

What are the taxes and penalties for an early distribution from my IRA?

Before you reach age 59 ½, you may owe a 10% IRS tax penalty in addition to federal and state taxes on distributions from Traditional IRAs and withdrawals of earnings from Roth IRAs. Roth IRA contributions can be withdrawn at any time without tax or penalty. If IRS requirements are met, distributions of Roth earnings and from Traditional IRAs are penalty-free under these circumstances: death, disability, qualified first home buyer (lifetime limit of $10,000); eligible medical expenses; certain unemployed individuals' health insurance premiums; substantially equal periodic payments; qualified higher education expenses, Roth conversions, qualified reservist distribution or IRS levy.

Can I take a loan from my IRA?

No. Loans are never permitted from IRAs.

How do I request an IRA distribution?

To withdraw money (i.e., take a distribution) from your IRA, have your account number available and either visit your local store or call us at the phone number listed on your IRA statement (to access your statement online,  sign on to Wells Fargo Online® and click the Statements and Documents tab).

Other important things to know about IRAs

What are the advantages of consolidating retirement accounts with Wells Fargo?

Consolidating your retirement assets with us offers many potential benefits, including the convenience and control of managing just one account, reduced fees, and enhanced investing power. To explore whether this approach is a good choice for you, or to learn more about how to transfer or roll over retirement assets, call us at 1-877-493-4727 or request a retirement consultation

What is a Roth conversion?

A Roth conversion involves a transfer of assets from your Traditional IRA or pre-tax employer-sponsored plan, such as a 401(k), into a Roth IRA. Converting before-tax money to a Roth IRA triggers a taxable event; you will not owe tax on any after-tax amount converted.  Subsequent investment earnings can be tax- and penalty-free if you maintain the account at least five years and take withdrawals after age 59 1/2, or for your disability, death or using the qualified first time home buyer exception. Learn more about converting to a Roth IRA.

What is a SIMPLE IRA?

A Savings Incentive Match Plan (SIMPLE) IRA is an employer-sponsored retirement plan offered to small business owners (including self-employed individuals) and their employees. It allows you to offer your employees a salary-deferral plan.

What is a SEP IRA?

A Simplified Employee Pension (SEP) IRA is a low-cost, easy-to-set-up, employer-sponsored retirement plan for small business owners and their employees. With a SEP plan, you and your employees can make both SEP IRA and Traditional IRA contributions to the same account. You also have the flexibility to change how much your business contributes from year to year.

What is an inherited IRA?

An inherited IRA is an IRA account maintained by a death beneficiary of the person whose retirement savings originally went into the account. With inherited IRAs, beneficiaries can usually stretch the IRA distributions — and any taxes due — across their lifetimes. Stretching an IRA simply refers to the ability for the beneficiary to take just RMDs from both Inherited Traditional and Inherited Roth IRAs. This approach defers the tax bite, lengthens the time that potential earnings grow tax-deferred and/or tax-free, and can increase the value of the inheritance (if certain conditions are met).

How do I update my IRA beneficiaries?

Your beneficiary designations generally determine who will inherit your account and supersede instructions in your will or trust. To update your beneficiaries, have your account number available and either visit your local store or call us at the phone number listed on your IRA statement (to access your statement online, sign on to Wells Fargo Online and click the Statements and Documents tab).

What happens if I don't name beneficiaries or my beneficiary pre-deceases me?

While it is recommended that you review and update your beneficiaries listed on your retirement accounts, at any life event such as a birth, death, divorce, or marriage — that doesn’t always happen. Only if your named beneficiaries have predeceased you, disclaimed, or there is no valid beneficiary form on file, will the default provisions be used. The default beneficiaries on a Wells Fargo IRA are:

  • First, a surviving spouse
  • Second, surviving children (as defined under state law)
  • Third, the estate

Why is naming my estate my IRA beneficiary not the best option?

Having Estate listed as your IRA beneficiary may have impacts that could negatively affect your heirs as well as your overall Estate plan. These impacts may include the following:

  • Subject to probate - IRAs, which should be a non-probate asset, will become subject to probate and the related legal complications.
  • Limited distribution options - An Estate is not a “living” beneficiary, and therefore has no life expectancy, which generally means the heirs may lose the ability to take advantage of the stretch IRA strategy. Stretching an IRA simply refers to the ability to take required minimum distributions (RMDs) over the beneficiary’s single life expectancy (term-certain).
  • Tax implications - Distributions from the IRA to the Estate are usually taxed at the Estate federal income tax rate, which can be significantly higher than the tax rates to individual taxpayers.