Traditional Versus Roth IRA
When deciding between a Traditional IRA and a Roth IRA, you’ll want to compare the after-tax dollars that would be available to you under each plan. Several factors to consider include your tax bracket, how many years you have until retirement, and when you wish to begin making withdrawals. For many people, a Roth IRA will result in more after-tax income during retirement because qualified withdrawals from a Roth IRA are tax free, while withdrawals from a traditional IRA will be taxed. For people whose contributions to a traditional IRA are tax deductible and are in a higher tax bracket today than they will be during retirement, a traditional IRA may be a smart choice.
Make managing your retirement assets easier and more convenient with a 401k rollover. A TD Ameritrade IRA gives you flexibility—you can choose from a wide range of investment choices, have access to helpful online tools and calculators, investment seminars, third-party research, portfolio guidance and other resources you won't find with the typical employer-sponsored 401k plan. It's everything you need to plan for your own retirement. Plus, our trading platforms come with no platform fees, no data fees, and no trade minimums.*
Roth IRA Conversions
Thinking about converting all or part of your Traditional IRA to a Roth IRA? You should know Roth conversions can be advantageous for individuals with large traditional IRA accounts who expect their future tax bills to stay at the same level or grow at the time they plan to start withdrawing from their tax-advantaged account. Roth IRA’s also allow for tax-free withdrawals of qualified distributions. But remember, conversions trigger a tax bill, so it may be more attractive to convert the further you are from retirement. That way you have longer for your earnings to grow, giving you more time to compensate for the tax bill.
Open Your Account
TD Ameritrade offers IRA accounts to help you meet your goals based on your lifestyle and income. View all the retirement account types to determine the one that’s right for you. Once you’ve decided, you need to open your account to get started.
Rollovers: If applicable, select "Rollover" on your TD Ameritrade account application as the method to fund your account. You will also have to contact the plan administrator of your old retirement plan to complete and submit their paperwork. You can also have TD Ameritrade rollover consultant assist you in this process. Simply call 800-213-4583 to request this service.
Age Requirements: It varies by state, but the majority requires you to be 18 years of age. A select few do require you to be 19 to start an IRA. You should check the legal requirement in your state.
Choosing Your Investments
Once you've set up your IRA, you'll need to determine the investments you’d like to make going forward. You can pick and manage your investment by looking at your investment product options and some useful tools. TD Ameritrade offers many valuable tools for to help you select your retirement account investments. Three helpful places to start include:
The rules for IRA contributions may vary from year to year, so you should periodically check both the contribution rules and the income rules to ensure your eligibility to participate and contribute.
Traditional IRAs have no income limits as long as the account holder has taxable compensation and is younger than age 70½ by the end of the tax year. Contributions are deductible if the account holder meets IRS requirements and no contributions are allowed after age 70½. Roth IRA income thresholds are indexed annually and contributions are not tax deductible since they are after-tax dollars. Contributions to a Roth IRA are allowed after age 70 ½ if the owner has earned income.
The rules for Traditional and Roth IRA distributions differ significantly, so it’s good to educate yourself. Qualified distributions from Traditional IRAs are taxed as income and withdrawals before age 59½ may also be subject to a 10% penalty. Qualified distributions from a Roth IRA are tax free and withdrawals from accounts held less than five years or before age 59½ may be subject to taxes and a 10% penalty.
TD Ameritrade offers several methods for distributing your IRA funds. You can set up automatic distributions, transfer funds to another account or transfer holdings.
All funds coming into an IRA are reported to the IRS and also mailed to our clients on Form 5498. Form 5498 covers the period between January 1, 2015 and April 15, 2016 for the 2015 tax year. These forms are mailed by May 31, 2016 for the 2015 tax year.
If you remove funds from your account during the calendar year, you will receive a 1099-R form showing the amounts reported to the IRS. These forms are mailed by January 31 for the preceding calendar year.
Direct Transfers are not reported to the IRS and will not show on either of these forms.
If you have any additional questions on how your IRA transactions are reported, please consult your tax advisor or visit the IRS Web site.
Reporting Your Conversion
The value of your conversion to a Roth IRA will be reported on Form 1099-R from your Traditional IRA. It will also be reported as a conversion amount on Form 5498 from your Roth IRA. For more information on these forms, consult your tax advisor or visit the IRS Web site.
Reporting of Pension Plan and Keogh Plans
While TD Ameritrade does not handle the administrative aspects of employer-sponsored retirement plans, we are able to hold the assets in a tax-exempt trust account. In this case, the funds/assets would be held in the account here, and the trustee or trustees of the account (usually the benefits administrator of the sponsoring company) would be responsible for reporting the account activity to the IRS. For more information on trust accounts, please contact a New Client Consultant at 800-454-9272.