Wells Fargo Directed Ira Investment Options

Wells fargo directed ira investment options

Wells fargo directed ira investment options

Roth Individual Retirement Accounts (IRAs) are a good choice if you’re seeking tax-free withdrawals in retirement, want to avoid required minimum distributions (RMDs) beginning at age 70 1/2, or feel you’ll be in the same or a higher tax bracket in retirement. Roth IRAs offer you an opportunity to create tax-free income during retirement.

Features

  • Offers tax-free growth potential 
  • Qualified distributions, which are tax-free and not included in gross income, can be taken when your account has been opened for more than five years and you are at least age 59 1/2, or as a result of your death, disability, or if using the qualified first-time homebuyer exception.
  • Because Roth contributions are not deductible, they are not subject to tax and can be withdrawn at any time.
  • No RMDs at age 70 1/2

Things to consider

  • Your Modified Adjusted Gross Income (MAGI) determines your eligibility to contribute.
  • Contributions to a Roth IRA are not tax-deductible, so there is no tax deduction, regardless of income.
  • Nonqualified distributions may be included in gross income, and you may owe a 10% additional tax (some exceptions apply).

Roth conversion

A Roth IRA conversion occurs when you take savings from a Traditional, SEP or SIMPLE IRA, or qualified employer-sponsored retirement plan (QRP), such as a 401(k), and move them to a Roth IRA.

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At the time of conversion, you will pay the appropriate taxes due on before-tax dollars converted; the 10% additional tax does not apply. The benefits of tax-free income in retirement may justify the conversion. Be sure to talk to your tax advisor to discuss your specific situation before you decide to convert.

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Roth conversions are not eligible to be "undone" or recharacterized.

Individuals at any age with earned income, and their non‑working spouse, if filing a joint tax return, are eligible to contribute to a Roth IRA as long as their Modified Adjusted Gross Income (MAGI) meets the following limits:

  • During the 2019 tax year, your eligibility to make a Roth IRA contribution is phased out based on MAGI:
    • Full contribution if MAGI is less than $122,000 (single) or $193,000 (joint)
    • Partial contribution if MAGI is between $122,000 and $137,000 (single) or $193,000 and $203,000 (joint)
    • No contribution if MAGI is over $137,000 (single) or $203,000 (joint)
  • During the 2018 tax year, your eligibility to make a Roth IRA contribution is phased out based on MAGI:
    • Full contribution if MAGI is less than $120,000 (single) or $189,000 (joint)
    • Partial contribution if MAGI is between $120,000 and $135,000 (single) or $189,000 and $199,000 (joint)
    • No contribution if MAGI is over $135,000 (single) or $199,000 (joint)

Individuals under age 50 can contribute up to $5,500 for 2018 and $6,000 for 2019, based on Roth IRA MAGI limits.

Wells fargo directed ira investment options

Eligible individuals age 50 or older, within a particular tax year, can make an additional catch-up contribution of $1,000.

Roth IRAs have two types of distributions: qualified and nonqualified.

Qualified distributions, which are tax-free and not included in gross income, can be taken when your account has been open for more than five years and you are at least age 59½, or as a result of your death, disability, or using the first-time homebuyer exception.

There are ordering rules when taking nonqualified distributions.

All of your Roth IRAs are aggregated when applying the distribution ordering rules.

Contributions come first—The first amounts distributed from any of your Roth IRAs, if you have several accounts, are annual contributions.

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Because Roth contributions are not deductible, they are not subject to tax and can be withdrawn at any time.

Converted dollars are next—After you have exhausted all of your contributions, the next amounts distributed are from any conversions you have completed.

These conversion amounts are distributed tax-free on a first-in, first-out basis. Converted amounts taken before the five-year holding period or you are age 59½ or older, whichever is first, may have a 10% additional tax, unless an exception applies.

Wells fargo directed ira investment options

Each conversion is subject to a separate five-year holding period.

Earnings are last—The last amount is distributed from earnings. Earnings taken before the account has been open for longer than five years and you are at least age 59½, or for your death, disability, or using the first-time homebuyer exemption, are included in gross income and subject to the 10% additional tax on early distributions, unless an exception applies.

Exceptions to the 10% additional tax—The exceptions are for distributions after reaching age 59½, death, disability, eligible medical expenses, certain unemployed individuals’ health insurance premiums, qualified first-time homebuyer ($10,000 lifetime maximum), qualified higher education expenses, Substantially Equal Periodic Payments (SEPP), Roth conversion, qualified reservist distribution, or IRS levy.

Need to know more?

Wells fargo directed ira investment options

Take a look at some frequently asked questions about IRAs.