Why an IRA?
An Individual Retirement Account (IRA) provides you with an opportunity to control your retirement savings and future. IRAs are a great idea for everyone who is eligible, and UMB has a full line of IRA products so you will be able to find an IRA that is just right for you.
If you are self-employed or your employer does not offer any type of retirement savings, then an IRA will help you supplement your social security benefits. If you are not covered by a retirement plan, an IRA is one of the best ways to help you secure your financial future. Self-employed individuals may want to consider making SEP IRA contributions to build a retirement nest egg.
Even if you are covered at work by a retirement plan, an IRA is a good way for you to save additional funds for retirement. Traditional IRAs may be tax-deductible depending on your adjusted gross income. The IRS has established new, higher income levels that allow more people to qualify for a tax deduction. In addition, if you are married, the joint adjusted gross income level has been set even higher when making a deductible contribution for a non-working spouse.
If your adjusted gross income is over the allowable levels for a tax-deductible contribution to a traditional IRA, you may still qualify to make a Roth IRA contribution. You do not receive a tax deduction for making a Roth IRA contribution, but when you retire, your Roth IRA distributions can avoid income tax altogether. This means that the earnings in your Roth IRA are never exposed to income taxes. The most common way to qualify for a tax-free distribution from a Roth IRA is to be over age 59½ and have a Roth IRA for more than five years. If you meet these simple criteria or criterias, you will qualify for a tax-free distribution from your Roth IRA.
Retiring or changing jobs is a life-changing event and can be one of the most stressful times you’ll experience. A well-planned and properly administered retirement program can relieve the stress and allow you to reap the rewards of your hard labor. UMB offers a variety of investment options for rolling over your retirement savings and can assist you in developing a plan that achieves your financial and retirement goals.
To get you started, here are some of the most frequently asked rollover questions.
I’m preparing to retire. What are the first steps I should take regarding my retirement plan?
First, request an accounting of all workplace savings plans from your employer. These may include: Defined Benefit Pension, 401(k), Profit Sharing, Employee Stock Ownership Plan (ESOP), Money Purchase Pension, Thrift or other after-tax savings.
What is a rollover to a Traditional IRA?
A rollover is a transaction where funds in your employer-sponsored retirement plan are moved into a traditional IRA. Rollovers were designed for people who are leaving a job or retiring and receiving money accumulated in a retirement plan. Eligible distributions from such plans may be rolled over directly into a traditional IRA, tax-free.
How do I roll over my retirement plan directly to UMB?
A direct rollover is when your employer sends your vested retirement plan balance directly to your traditional IRA at UMB. This method allows you to avoid the 20 percent mandatory withholding imposed by the IRS if the distribution is paid directly to you.
What types of securities can be rolled over to my traditional IRA?
UMB offers a wide variety of investment options for your traditional IRA. For example, you can roll over mutual funds, stocks, bonds or other securities, including CDs and U.S. treasuries, or you can roll over cash and invest in these securities. This investment flexibility provides you with the opportunity to roll your savings into investments that meet your personal goals and tolerance for risk. A UMB IRA specialist can help walk you through the rollover process.
Can I roll over my retirement savings into an existing IRA I have with UMB?
Yes. If you already have a traditional IRA established, you can roll your retirement funds into it.
Can I roll over my retirement plan into a Roth IRA?
Not directly, but you can “convert” funds in a traditional IRA to a Roth IRA. Money from a retirement plan cannot be directly rolled over to a Roth IRA. First, the assets have to be rolled over into a traditional IRA. From the traditional IRA, you can then convert your assets to a Roth IRA. You should be aware that you are required to pay taxes on any amount that you convert to a Roth IRA. A UMB IRA specialist can help you determine your eligibility for this option.
Tip: Moving assets from your traditional IRA to a Roth IRA may serve as an effective estate-planning strategy. While the tax code requires you to begin taking minimum required distributions from a traditional IRA and most other retirement accounts (generally beginning by age 70½), no such requirement exists during the account holder’s lifetime for Roth IRAs – regardless of your age.
Can I combine my old retirement plans from other companies into a single traditional IRA?
Yes. If you have retirement funds at various companies, you can simplify your recordkeeping by combining them into one traditional IRA with UMB. The new retirement plan portability rules enhance your ability to consolidate your retirement funds into a single IRA. This option works well if you are retiring or just changing jobs.
I already received a check made payable to me, and 20 percent was withheld. If I reinvest my money now, will the 20 percent be returned to me?
Yes, provided that you rollover the amount withheld out of your own pocket along with the check you received. Even if you received a direct distribution of your retirement plan in the form of a check, you can still roll it over to a traditional IRA, avoid a 10 percent penalty (if you are under age 59½) and preserve the benefits of tax-deferral if you act within 60 days. Any portion of the 20 percent tax withholding that is not rolled over will remain taxable as income to you.
Visit with a UMB Financial Advisor about your IRA questions, or contact us by phone or e-mail.
You should consult your financial advisor prior to making any investment decisions.