Traditional IRA
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 up to $4,000 per tax year if you are under age 50. Individuals who have attained age 50 may contribute up to $5,000 per tax year. 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:
| Tax Year | Single Taxpayers | Married Taxpayers Filing Jointly |
|---|---|---|
| 2005 | $50,000-$60,000 | $70,000-$80,000 |
| 2006 | $50,000-$60,000 | $75,000-$80,000 |
| 2007 and later | $50,000-$60,000 | $80,000-$100,000 |
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 [pdf].
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 [pdf] 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 [pdf].
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.
For more details see our IRA Disclosure Statement [pdf]