Saving For Retirement:
- Must generally be from employment compensation.
- Are fully tax-deferred; may also be tax-deductible, potentially lowering your taxable income.
- Must generally be from employment compensation.
- Grow tax-free.
- Do not lower your taxable income, and contributions are from taxable income.
For current contribution limits to both visit: IRS
Grow on a tax–deferred basis but are taxed upon withdrawal—typically during retirement, when most individuals are in a lower tax bracket.
- Can begin at age 59½ and a half without penalty; withdrawals taken before age 59½ and a half may incur a 10% penalty.*
- IRA owners age 70½ and a half or older can still transfer up to $100,000 each year directly to a charity unless they contributed to their IRA after age 70½ and a half, and then SECURE Act limitations apply.
- Are tax-free provided they meet certain qualifications and requirements.
- If you've held a Roth IRA, including converted accounts, for less than five years and withdraw earnings before reaching age 59½ and a half, you may be subject to income tax and a 10% early withdrawal penalty.* Exceptions to the penalty for early withdrawal are the same as those with a traditional IRA, and qualified birth or adoption distributions may similarly be repaid without regard to the 60 day rollover time limit.
Required Minimum Distributions
- Initial required minimum distribution must be taken by April 1 of the year following the year you turn 72 and be taken by December 31 each year thereafter. However, if you turned 70½ and a half on or before December 31, 2019, your initial required minimum distribution must have been taken by April 1 of the year following the year you turn 70 ½ and a half and be taken by December 31 each year thereafter, which will continue.*
- No required minimum distributions. The absence of RMDs can help with estate building.*
Income Eligibility Limits
- None, but if covered by a workplace retirement plan or your spouse is covered by one, income limits apply for deducting annual contributions.
- Various limits apply
- Please see IRS website for current information. Go to: IRS
Benefits Common to Both
Accessing Your Money
Withdrawals are permitted at any time and subject to ordinary income tax. But withdrawals taken before age 59 ½ and a half will also incur a 10% penalty for early withdrawal.*
Penalty–free conditions include:
- Death or disability
- Qualified higher education expenses
- Qualified birth or adoption distributions of not more than $5,000 within 1 year of the birth or adoption which may be repaid without regard to the 60 day rollover time limit.
- First-time home purchase (up to $10,000)
- Health insurance premium payments after 12 consecutive weeks of unemployment
- Qualified reservist distribution
Contributions can be withdrawn at any time without taxes or penalties. If you've held a Roth IRA, including converted accounts, for less than five years and withdraw earnings before reaching age 59 ½ and a half, you may be subject to income tax and a 10% early withdrawal penalty.* Exceptions to the penalty for early withdrawal are the same as those with a traditional IRA, and qualified birth or adoption distributions may similarly be repaid without regard to the 60 day rollover time limit.
Before You Act
Know the Rules on IRA and Retirement Plan Rollovers
If you're considering rolling over money from an Individual Retirement Account (IRA) or employer retirement plan, make sure you understand the rules before making a decision, including that you may be able to leave your money where it is. Here's a brief summary:
Employer Retirement Plans
When leaving an employer, you typically have four options on what to do with your retirement benefit in an employer sponsored retirement plan (and may engage in a combination of these options):
- Leave the money in the former employer's plan, if permitted;
- Roll over the assets to a new employer's plan, if one is available and rollovers are permitted;
- Roll over to an IRA (traditional or Roth); or
- Cash out the account value.
In many cases, you don't have to act immediately upon switching jobs or retiring. The decision to transfer funds out of an employer's plan is irrevocable. Before making a decision, take time to assess factors such as your age, financial needs, personal situation, fees and expenses, investment options and services.
Unlike employer retirement plans, IRAs have different rules on rollovers, including that you can make only one rollover from an IRA to another (or the same) IRA in any 12-month period, regardless of the number of IRAs you own.
To learn more about rollover rules, speak with one of our Citi Personal Wealth Management Financial Advisors, who follow practices and procedures to ensure clients are receiving the most appropriate guidance for their individual situations.
The transfer, rollover and withdrawal of retirement assets in IRAs, 401ks and other types of qualified accounts are governed by specific rules and laws and may involve significant tax consequences and limitations. Before making any decisions regarding the disposition of your retirement accounts, please consult your tax advisor or accountant.