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IRA – Frequently Asked Questions

Introduction to IRAs

Here are some important questions and answers to help you start learning about Traditional and Roth IRAs, the most common types of IRAs. See if you’re eligible to use this tax-advantaged account to save for your retirement.

Top 5 Frequently Asked Questions

What is an IRA?

An Individual Retirement Account (IRA) is designed to help you save for retirement and take advantage of tax benefits. There are two main 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 offers. Roth IRAs offer tax-free growth potential. Investment earnings are distributed tax-free in retirement, if a five-year waiting period has been met and you are at least age 59½, or as a result of your death, disability, or using the first time homebuyer exception. Since contributions to a Roth IRA are made with after-tax dollars, there is no tax deduction regardless of income. Traditional IRAs offer tax-deferred growth potential. You pay no taxes on any investment earnings until you withdraw or “distribute” the money from your account, presumably in retirement. Additionally, depending on your income, your contribution may be tax deductible. Deferring taxes allows for a potentially greater accumulation of wealth. For more information about these 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 option 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 options, 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. It is your adjusted gross income (AGI) with certain deductions and exclusions added back. It's used to determine whether or not you’re allowed certain tax benefits like being able to deduct your Traditional IRA contribution or qualify to make a Roth IRA contribution. Need more information? Review IRS information on IRAs, IRS Publication 590-A, 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 from Wells Fargo Advisors (stocks, bonds, Exchange-Traded Funds (ETFs), and mutual funds) and Wells Fargo Bank (CD and savings accounts). And, you can invest your way — make your own investment decisions, receive investment guidance, or leave all the decision-making to a team of professionals.

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 2018 and $6,000 in 2019, and if you're age 50 or older, in a particular tax year, you can contribute an additional $1,000 catch-up contribution for a total of up to $6,500 in 2018 and $7,000 in 2019.

What are "catch-up" contributions?

A catch-up contribution is an elective deferral to a qualified employer sponsored retirement plan (QRP), such as a 401(k), 403(b), or governmental 457(b), that is made by a participant age 50 or older that exceeds a statutory limit, a plan-imposed limit, or the actual deferral percentage test limit for highly compensated employees. Visit irs.gov for more information.

If you are age 50 or older, you can contribute an extra $1,000 catch-up contribution to an IRA.

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

Yes, if you meet the eligibility requirements for contributing to a Traditional IRA and Roth IRA you may make contributions to both a Traditional IRA and a Roth IRA in the same year, provided the combined total contribution does not exceed your contribution limit, or 100% of earned income, whichever is less, for the year, including any catch-up contributions. For example, in 2019, the total amount you can contribute to both a Traditional IRA and a Roth IRA combined cannot exceed $6,000 ($7,000 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 a workplace retirement plan (WRP) such as a 401(k), 403(b), SEP, and SIMPLE IRA, 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 a WRP may impact deductibility in a Traditional IRA.

Taking a Distribution from an IRA

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

Taxable distributions from Traditional and Roth IRAs before age 59½ may be subject to an IRS 10% additional tax. The exceptions to the 10% additional tax are for age 59½, death, disability, eligible medical expenses, certain unemployed individuals' health insurance premiums, qualified first homebuyer (lifetime maximum of $10,000), qualified higher education expenses, substantially equal periodic payments (SEPP), Roth conversions, qualified reservist distribution or IRS levy.

Can I take a loan from my IRA?

No. Loans are not permitted from IRAs.

How do I request an IRA distribution?

You must call us at the numbers indicated below to request a distribution from your IRA — be sure to have your account number(s) handy.

Wells Fargo Bank IRA – you can call the Best IRA service team at 1-800-237-8472 to complete reinvestment of a mature CD, Roth IRA conversions, and transfers due to divorce. For all other IRA distributions, please visit a Wells Fargo branch.

For a Wells Fargo Advisors IRA - call us at the phone number listed on your IRA statement. To access your statement, sign on to Wells Fargo Online® and select Statements and Documents in the More menu.

Other important things to know about IRAs

What are some possible benefits of consolidating IRAs with Wells Fargo?

Consolidating your IRAs offers many potential benefits, including one monthly statement, required minimum distribution (RMD) simplification, potentially fewer fees, and ease in managing your investment strategy. To explore whether this approach is a good choice for you, or to learn more about how to transfer or consolidate IRA 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 qualified employer-sponsored retirement plan (QRP), such as a 401(k), 403(b) or governmental 457(b), into a Roth IRA. Converting before-tax money to a Roth IRA is a taxable event in the year of the conversion; any after-tax amount converted is not included in gross income. Qualified distributions, which are tax-free and not included in gross income, are when your account has been opened for more than five years and you are at least age 59½, or for your death, disability, or using the qualified first time homebuyer exception. Learn more about converting to a Roth IRA.

What is a SIMPLE IRA?

A Savings Incentive Match Plan for Employees (SIMPLE) IRA allows employees and employers to contribute to an IRA based plan that is set up and designated as a SIMPLE IRA for employees' benefit. Under a SIMPLE IRA, employees can elect to defer a portion of their pay known as salary deferral or salary reduction contributions and the employer will make either a matching or non-elective contribution. All contributions, both employee and employer, must be deposited into a SIMPLE IRA for each employee. Distributions taken before age 59½ and within 2 years of the first deposit to the SIMPLE IRA are subject to a 25%, rather than a 10%, early distribution tax.

What is a SEP IRA?

A Simplified Employee Pension (SEP) plan can provide a significant source of income at retirement by allowing employers to set aside money in retirement accounts for themselves and their employees. Under a SEP, an employer contributes directly to a SEP IRA for all eligible employees (including themselves). A SEP allows for a contribution of up to 25% of each employee’s pay. The employee can also make their Traditional IRA contribution to their SEP IRA.

What is an inherited IRA?

An Inherited IRA allows beneficiaries a way to keep the funds growing tax-advantaged in an IRA while taking distributions. The account titling will always refer to the deceased IRA owner with you listed as the beneficiary. Since you aren’t the owner, you may not make contributions or 60-day rollover deposits to this account. The benefit of this arrangement is that you only need to take annual required minimum distributions (RMDs) based on your life expectancy using a divisor from the IRS Single Life Table and the prior year-end IRA value, on a term-certain basis and are taxed on that amount; this is often referred to as the stretch IRA strategy. For more information, please read IRS Publication 590-B.

How do I update my IRA beneficiaries?

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

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 of a child or grandchild, death of a beneficiary, divorce, or marriage — that doesn’t always happen. Only if your named beneficiaries have disclaimed, or dies prior to you, the IRA owner, and a per stirpes designation was not elected, 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, your estate

What are the impacts to my heirs if I list my estate as my IRA beneficiary?

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 (using the term-certain calculation method rather than over the life expectancy of the original IRA owner).
  • 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.