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Information on IRAs

Individual Retirement Accounts (also known as Individual Retirement Arrangements) allow you to invest with significant tax advantages. The specific advantages depends on which account you choose.

Who may open a Traditional IRA?

Anyone under age 70 and 1/2 who earns wages or a salary (even if self-employed) can open and contribute to an IRA. If you have a working spouse, you can both open an IRA. If you have a non-wage earning spouse (i.e., one who received no compensation during the year) and file a joint return, that spouse can open a separate IRA.

How much may I contribute to a Traditional IRA?

You may contribute $5,500 for 2013 and for 2014 if you are under age 50. Individuals who have attained age 50 may contribute up to $6,500 for 2013 and for 2014. If you file a joint return, the same amount may also be contributed to a spousal IRA even if one spouse has little or no compensation. The maximum combined contribution is limited to the previously mentioned contribution limits or 100% of your combined earned income, whichever is less.

How do I know if I may take a deduction?

You may deduct the entire contribution if:

  • Neither you nor your spouse participates in a retirement program where you work. This is true regardless of your income; or
  • You are single, actively participate in a retirement program and your adjusted gross income is less than the minimum amount indicated in the phase-out range in the chart below; or
  • You are married, either you or your spouse actively participates in a retirement plan, you file a joint return and your adjusted gross income is less than the minimum amount indicated in the phase-out range in the chart below.

You may take a partial deduction if:

  • You are single, participate in a retirement plan and your adjusted gross income is within the phase-out range; or
  • You are married, file a joint return, one or both of you participate in a retirement plan and your adjusted gross income is within the phase-out range; or
  • You are married and you file a separate return or your spouse participates in a retirement plan and your income is less then $10,000.
  • The Adjusted Gross Income (AGI) phase-out limits gradually increase each year. The maximum deduction available to active participants in an employer-sponsored retirement plan is reduced proportionately over the "phase-out" range. Active participants with income above the phase-out range are not entitled to any deduction.

The phase-out limits are as follows:

Year Single Taxpayers Married Taxpayers Filing Jointly
2013 $59,000-$69,000 $95,000-$115,000
2014 $60,000-$70,000 $96,000-$116,000

In all cases, refer to a qualified tax professional or the Internal Revenue Service for specific information.

May I contribute to a Traditional IRA even if I cannot deduct it?

Yes, if you have earned income, you can always contribute to an IRA regardless of the deductibility.

When may I withdraw?

You may withdraw from your IRA at any time; however withdrawals before age 59 and 1/2 may be subject to a 10% penalty tax. Please refer to the section on Distributions in the Disclosure Statement.

May I transfer an existing IRA to Parnassus?

Yes. There are no tax penalties and no limits on the amount you can transfer. Just fill out the IRA Transfer Request Form and mail it back to us and we will handle the transfer for you.

May I rollover an existing IRA to Parnassus?

Yes. If you elect to receive a cash distribution from another IRA, you can avoid paying current taxes on the distribution by "rolling it over" into a Parnassus IRA. The rollover must be completed within 60 days. However, there are certain restrictions imposed by the Internal Revenue Code on multiple rollovers within a 12-month period.

What's the difference between an "IRA rollover" and an "IRA transfer"?

An "IRA rollover" occurs when you receive a lump sum distribution from one IRA in cash and you reinvest that cash into another IRA within a 60-day period. An "IRA transfer" occurs when you have one IRA custodian/trustee transfer your money directly into another IRA and you never touch the money. So, if you already have the money in your possession and you want to start a Parnassus IRA, you'll be opening a "rollover" IRA. If your IRA is with another custodian and you want to move that money into a Parnassus IRA, you can arrange for a "custodial transfer" by filling out the IRA Transfer Request Form.

What about a "direct rollover" from my company's retirement plan such as a 401(k) or 403(b) plan?

If you receive a distribution from your employer's qualified retirement plan, you may avoid paying current taxes or having the mandatory 20% federal withholding tax applied to your distribution by "directly rolling over" your distribution from your current custodian into a Parnassus IRA. There are no limits on the amount. Some distributions, such as a required minimum distribution after your attainment of age 70 and 1/2 and distributions payable in substantially equal periodic payments over ten or more years, are not eligible for a "direct rollover." You can arrange for a "direct rollover" by contacting your current plan administrator and requesting the proper paperwork.

Can I make contributions to my IRA automatically?

Yes. Parnassus offers automatic investment plans. You may arrange to have contributions of $50 or more automatically deducted from your checking or savings account and invested in your IRA. All automatic contributions are considered contributions for the current tax year. When setting up your investment plan, make sure not to exceed your annual contribution limit.

Are there any special fees?

There is a custodial fee of $15.00 a year or a onetime lifetime fee of $60.00 for maintaining the IRA per participant. This means that even though you have multiple accounts in your Roth, Traditional IRA or SEP, you are charged only a single $15 per year fee or $60 lifetime fee.

Who may open a Contributory Roth IRA?

Anyone who earns wages or a salary (even if self-employed) can open and contribute to a Roth IRA provided you don't exceed the adjusted gross income limits in the chart below. Also, there are no age limits as with a Traditional IRA. If you are married and file a joint return, you and your spouse can both open a Parnassus Roth IRA even though your spouse has no earned income. You may contribute to a Roth IRA even though you are an active participant in an employer-sponsored retirement plan, a government retirement plan, the social security system or the railroad retirement system, or are receiving any type of retirement benefits.

How much may I contribute to a Roth IRA?

You may contribute $5,500 for 2013 and 2014 if you are under age 50. Individuals who have attained age 50 may contribute up to $6,500 for 2013 and 2014. If you file a joint return, the same amount may also be contributed to a Spousal Roth IRA even if one spouse has little or no compensation. The maximum combined contribution is limited to 100% of your combined earned income. The annual limit is reduced by any of your contribution made to a Traditional IRA. Also, contributions to a Roth IRA are phased out based on your adjusted gross income (AGI) for the taxable year as follows:

Year Married Taxpayers Filing Jointly Single Taxpayers Married Taxpayers Filing Separately
2013 $178,000-$188,000 $112,000-$127,000 $0-$10,000
2014 $181,000-$191,000 $114,000-$129,000 $0-$10,000

Earned income is considered:

  • All wages and salary you earn from employment;
  • Income from tips, professional fees, bonuses, and commissions;
  • Money earned as sole proprietor or partner for personal services rendered; and
  • Alimony which you report on your taxes.

Earned income does not include:

  • Money you receive from pensions, annuities or other types of deferred compensation; and
  • Earnings on investments, interest, dividends or rental income, and proceeds from the sale of investments.

What is a Rollover Roth IRA?

There are two types of Rollover Roth IRAs: Roth IRA to Roth IRA and Traditional IRA to Roth IRA. There is no yearly limit on the amount that may be rolled into a Rollover Roth IRA. Balances in an employer's qualified retirement plan may not be rolled over into a Roth IRA.

Roth IRA to Roth IRA Rollover

This transaction involves a distribution from one Roth IRA and a subsequent purchase of another Roth IRA. The entire transaction must take place within 60 days, and you are allowed to make a Roth IRA to Roth IRA rollover only once in any 12-month period.

Traditional IRA to Roth IRA Rollover

An IRA holder may roll over (convert) their Traditional IRA to a Roth IRA. The 60-day rule does apply; however, the rule allowing only one rollover per 12-month period does not. You cannot make a Traditional IRA to Roth IRA rollover if:

  • Your Adjusted Gross Income for the taxable year exceeds $100,000, or
  • You are married, but file separate income tax returns.

IMPORTANT NOTE: The IRA holder must pay tax on all pre-tax dollars distributed from the Traditional IRA.

An individual cannot roll over a qualified retirement plan or 403(b) plan distribution to a Roth IRA. However, an individual can roll from a qualified plan to a Traditional IRA and then roll (convert) the amounts in the Traditional IRA into a Roth IRA.

Can I transfer my Roth IRA?

Yes. There are no tax penalties and no limits on the amount you can transfer. Just fill out the IRA Transfer Request Form and mail it back to us and we will handle the transfer for you.

If I cannot take a deduction for my Roth IRA contribution, why should I contribute?

The greatest benefit of a Roth IRA is that all earnings will be tax-free upon distribution. This can make a big difference. The longer the contribution is in the IRA and the more it earns, the bigger the benefit. Also, consider the goal of an IRA which is to provide enough money to live comfortably during retirement.

When can I withdraw?

You can withdraw from your Roth IRA at any time, but withdrawals of earnings that do not meet certain criteria (i.e., a non-qualified distribution) would be taxed and may incur a 10% distribution penalty.

What is a Qualified Distribution?

A distribution of assets from a Roth IRA may be taken tax free for qualified distributions. A qualified distribution is a distribution of assets that are held in a Roth IRA for at least five taxable years (beginning with the first taxable year for which the Roth IRA holder made a contribution) and one of the following events occurs:

  • Attainment of age 59 and 1/2
  • Disability
  • The purchase of a first home up to a $10,000 lifetime limit
  • Death

What is a Non-Qualified Distribution?

When an IRA holder takes a distribution from their Roth IRA that is not "qualified," the distribution is considered "non-qualified" and may be subject to tax and/or IRS penalty. Whether it is subject or not depends on the type of assets that are deemed distributed. The "ordering rules" specify that if you made both contributory and conversion contributions (even if the contributions have been maintained in separate IRA's), the assets distributed will be considered taken in the following order:

1. Roth IRA annual contributory amounts
2. Converted assets that were taxable prior to the conversion
3. Converted assets that were non-taxable prior to the conversion
4. Roth IRA earnings

This distribution sequence allows you to withdraw, at any time, an amount equal to or less than your annual contributory amounts without tax or IRS penalty. Once the contributory assets have been depleted, your conversion assets will be distributed. All converted assets are tax-free, however, a 10 percent penalty will apply if you withdraw the taxable converted assets (#2 above) within five years of the conversion and do not meet one of the exceptions (attainment of age 59 and 1/2, death, disability, substantially equal periodic payments, health insurance, medical expenses, education expenses and first-time home buyer). After the conversion assets have been exhausted, the Roth earnings are distributed which may be fully taxable and may incur a 10% IRS penalty.

Tax Questions about Roth IRAs?

The customer service representatives at Parnassus are happy to help you with your questions about IRAs, however, Parnassus Investments is not responsible for determining or maintaining records regarding your eligibility for tax benefits. You may want to contact a qualified tax professional before opening a Roth IRA. For more information, you may contact your local office of the Internal Revenue Service. For more detailed information request IRS Publication 590, Individual Retirement Arrangements, by calling the IRS at 1-800-TAX-FORM or going to their website at www.irs.gov.

Can I make contributions to my IRA automatically?

Yes. Parnassus offers automatic investment plans. You may arrange to have contributions of $50 or more automatically deducted from your checking or savings account and invested in your IRA. All automatic contributions are considered contributions for the current tax year. When setting up your investment plan, make sure not to exceed your annual contribution limit.

Are there any special fees?

There is a custodial fee of $15.00 a year or a onetime lifetime fee of $60.00 for maintaining the IRA per participant. This means that even though you have multiple accounts in your ROTH, Traditional IRA or SEP, you are charged only a single $15 per year fee or $60 lifetime fee.

An IRA transfer occurs when you have one IRA institution transfer your money directly into another IRA institution and you never touch the money. An IRA rollover occurs when you receive a lump sum distribution from one IRA in cash and you reinvest that cash into another IRA within a 60-day period. So, if you already have the money in your possession and you want to start a Parnassus IRA, you'll be opening a IRA rollover. If your IRA is with another custodian and you want to move that money into a Parnassus IRA, you can arrange for an IRA transfer and Parnassus will manage the transfer process for you.

IRA Transfer

To have Parnassus transfer your IRA for you, just fill out the IRA Transfer Request Form and an IRA Application and mail them to us. We will handle the rest of the transfer for you. You should check with your existing IRA custodian/financial institution to see if they require a Signature Guarantee to complete the transfer. Transfers can not be done online.

IRA Rollover

If you elect to receive a cash distribution from another IRA, you can avoid paying current taxes on the distribution by "rolling it over" into a Parnassus IRA. The rollover must be completed within 60 days. However, there are certain restrictions imposed by the Internal Revenue Code on multiple rollovers within a 12-month period. To open an IRA rollover account at Parnassus, fill out an IRA Application, indicate it's an IRA rollover, and send it to us by mail with your check.

If you would like to move assets out of a former employer's qualified retirement plan, such as a 401(k) or 403(b) plan, you may "directly roll over" your distribution from your retirement plan to a Parnassus IRA. There are no limits on the amount. If you conduct a direct rollover to a Parnassus IRA, you can avoid paying current taxes or federal withholding (20%) that would occur if the distribution were made directly to you in your name.

Follow these steps to arrange for a direct rollover:

  • Contact your current plan administrator and complete the proper paperwork with them.
  • Your plan administrator will then write a check to Parnassus for the benefit of your account. They will send this check either to Parnassus directly or to you. Both of these are considered direct rollovers and do not have adverse tax consequences if the rollover is completed in 60 days.
  • Send us a completed IRA Application indicating a direct rollover. If your institution sends you a check, include it with your application. Otherwise, instruct your institution to send us the check directly and send us your application without the check. We will finalize your account once we receive the proceeds and send a confirmation letter when the process is complete.

A SEP-IRA allows employers, usually small businesses and self-employed individuals, to offer their employees tax-deferred retirement accounts with the flexibility of an IRA. It avoids a lot of the paperwork and regulatory complexity that comes with a 401(k) program. The employer receives a tax deduction for the contribution, and each employee has their own Traditional IRA. Here are some highlights of a SEP-IRA plan:

  • An employer can contribute up to the greater of 25% of an employee's compensation or $51,000 for 2013 and $52,000 for 2014.
  • The employee doesn't pay taxes on the SEP-IRA until the employee makes a distribution.
  • Just like regular IRAs, the contribution deadline for the prior year is April 15 or next business day or October 15 if you file an extension.
  • There are no forms to file with the IRS or plan agreements to keep.
  • For more information on SEP-IRA, read IRS Form 5305-SEP.

Create a SEP-IRA at Parnassus through our online system. It takes about 10 minutes. Or you may download an IRA Application and send the application back to us.