Account Types

What is a Traditional IRA?

An IRA is a tax-deferred retirement account which allows an individual to set aside a certain amount per year with earnings tax-deferred until withdrawals begin at age 59 ½ or older. Only those who do not participate in a pension plan at work or who do participate and meet certain income guidelines can make deductible contributions to an IRA. All others who have (or who files a joint return with a spouse who) received taxable compensation can make contributions to an IRA on a non-deductible basis. This non-deductible type of contribution does not qualify as a deduction against income earned that year, but earnings accumulate on a tax-deferred basis until the funds are withdrawn.

When may I withdrawal from my Traditional IRA?

In general, withdrawing your IRA prior to age 59 ½ means you’ll have to pay a 10% early withdrawal penalty. You may avoid the penalty if you’re withdrawing because of:

  • First time home purchase ($10,000 lifetime limit)
  • Qualified education expenses
  • Substantially Equal Periodic Payments
  • To pay for health insurance premiums if you receive unemployment benefits for more than 12 consecutive weeks
  • Medical Expenses in excess of 7.5% of your AGI (Adjusted Gross Income)
  • Death
  • Disability
  • IRS Levy

Please speak to your tax advisor prior to taking a distribution to determine whether the 10% early withdrawal penalty will apply

Can I have both a traditional IRA and a Roth IRA?

Yes, you can. However, remember that you can only contribute up to $5,500 per year, or $6,500 per year if you are age 50 or older, to any combination of traditional and Roth IRAs that you have. You cannot contribute $5,000 to each. On the other hand, your annual $2,000 contributions to a Coverdell ESA are entirely separate from the $5,500 or $6,500 yearly contribution limit for traditional and Roth IRAs.

What is a Roth IRA?

The Taxpayer Relief Act of 1997 created the Roth IRA, which allows tax-free withdrawals. Contributions to a Roth IRA are not deductible and the maximum annual contribution is the littlest of 100% of compensation or $5,500 for 2015 and 2016. Taxpayers who age 50 or older may contribute an additional $1,000. Non-working spouses may also contribute up to $5,500 ($6,500 if age 50 or older) to a Roth IRA. Taxpayers with joint adjusted gross income under $181,000 for 2014 and $183,000 for 2015 (the threshold for single filers is $114,000 for 2014 and $116,000 for 2015) may make full Roth IRA contributions. Contributions may be made beyond age 70½ and qualified distributions from a Roth IRA are tax -free, subject to IRS limitations. There are no required minimum distributions on Roth IRAs. You can convert a traditional IRA to a Roth IRA. The amount that you convert is taxable at ordinary income rates, but the 10% premature distribution penalty tax does not apply.

What products can I invest in an IRA?

Stocks, covered call writing (covered shares are restricted), buying calls (funds equal to the aggregate exercise value of the long calls are restricted), and buying puts (shares subject to exercise are restricted), selling cash secured puts, spreads securities with European style expiration, long/short futures contracts, and long/short futures options (all combinations). The Zacks Trade IRA is structured as a Stock Cash Account (if you choose to trade only stocks) or as a Stock Options Level I Account (if you choose to trade options in your IRA).

Who is the custodian?

Interactive Brokers serves as trustee of your retirement plan, providing administration and compliance service. In addition, the plan trustee is required to notify you about your RMD. As Custodian, Interactive Brokers will handle certain functions, including acting as trustee for the retirement plan; maintaining such plans in compliance with applicable federal laws and regulations; maintaining account information, and preparing and filing IRS forms on behalf of Zacks Trade.

Are there any maintenance fees with my IRA account?

There are no fees for IRA accounts.

When may I withdraw my Roth IRA earnings income tax-free?

Roth IRA earnings may be withdrawn tax-free if your Roth IRA has been established for at least five years and one of the following apply: Age 59 ½, Disability, Death, or First time home purchase ($10,000 lifetime limit).

What is a mandatory distribution?

In a Traditional IRA, you are required by law to begin taking distributions from your IRA in the year you reach age 70½. The amount of the distribution is based on your age and the value of your account. Internal Revenue Service Publication 590 provides the information to calculate the minimum distribution. Required minimum distributions must start no later than April 1 of the year following the year in which you attain age 70½. Failure to take the required minimum distribution results in an IRS penalty tax of 50% of the amount that should have been distributed.

What is a direct IRA rollover?

A direct rollover is a distribution from a qualified retirement plan such as a pension, profit-sharing, Keogh (HR-10), or 403(b) Tax-Sheltered Annuity program, which is sent on your behalf directly to a new trustee/custodian. A direct IRA rollover can be accomplished by asking the administrator of your qualified plan to make the distribution directly to the new trustee/custodian. Only one direct rollover from an IRA account to another IRA account is permitted in any one-year period. Values distributed from a qualified retirement plan, which are not directly rolled over into an eligible qualified plan or IRA are subject to a 20% federal withholding tax.

Can I convert my Traditional or Rollover IRA to a Roth IRA?

You are eligible to convert to a Roth IRA, if your modified adjusted gross income (MAGI) does not exceed $100,000 (not including the IRA conversion amount) in the year you convert. This rule applies to both single and joint tax filers. Married individuals filing separate tax returns are not eligible to convert to a Roth IRA unless they have lived apart from their spouse for the entire tax year.

How do I transfer my existing IRA with another broker to my Zacks Trade IRA?

You may transfer via ACAT (Automated Client Account Transfer) by logging into Account Management and going to Funding > Fund Transfers.