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FAQs

 

FAQS
IRA Basics
  • What is an IRA?

    An Individual Retirement Account (IRA) is a custodial account created to provide individuals a simple tax-advantaged way to accumulate funds for retirement. There are two basic types of IRAs — traditional and Roth.

  • What is the contribution limit?

    The maximum annual combined contribution you may make to traditional and Roth IRAs is $5,500 for 2013. The $5,500 limit is subject to annual increases for inflation in $500 increments. If you are age 50 or older during the year, the maximum annual combined contribution you may make to traditional and Roth IRAs is increased to $6,500 for 2013. Thereafter, the maximum contribution is $1,000 more than the maximum contribution for the year if you were under age 50.

  • What is the difference between a traditional IRA and a Roth IRA?

    With a traditional IRA, you may contribute up to the maximum contribution limit for the year, for each year until the year you reach age 70½, and you may be able to deduct the contribution from taxable income, thereby reducing your current income taxes. Taxes on investment earnings are deferred until the money is withdrawn. Withdrawals are taxed as additional ordinary income when received. Nondeductible contributions, if any, are withdrawn tax free. Withdrawals before age 59½ are assessed a 10% premature withdrawal penalty in addition to income tax, unless an exception applies. You are required to begin taking withdrawals from your traditional IRA after you reach age 70½.

    With a Roth IRA, the contribution limits are essentially the same as for a traditional IRA, but there isno tax deduction for contributions. All earnings in the account are tax free. Most importantly, you do not pay income taxes on qualified withdrawals from your Roth IRA, if certain requirements are met. Additionally, unlike a traditional IRA, there is no prohibition on making contributions to Roth IRAs after reaching age 70½, and there is no requirement that you begin making minimum withdrawals at that age.

  • Which is better, a Roth IRA or a traditional IRA?

    This depends upon your individual situation. A contribution to a traditional IRA may be tax deductible, while a contribution to a Roth IRA is not deductible. Also, the benefits of a traditional IRA versus Roth IRA may depend upon a number of other factors including: your current income tax bracket vs. your expected income tax bracket when you make withdrawals from your IRA, whether you expect to be able to make nontaxable withdrawals from your Roth IRA, how long you expect to leave your contributions in the IRA, and how much you expect the IRA to earn in the meantime.

    We suggest that you consult with a financial or tax advisor to determine whether you should establish a traditional or Roth IRA or convert any or all of an existing traditional IRA to a Roth IRA. Your tax advisor can also advise you as to the state tax consequences that may affect whether a traditional or Roth IRA is better for you.

Eligibility Requirements
  • What are the eligibility requirements for a traditional IRA?

    You are eligible to establish and contribute to a traditional IRA for a year if:

    • You received compensation (or earned income, if you are self-employed) during the year for personal services you rendered. If you received taxable alimony, this is treated like compensation for IRA purposes. Compensation does not include amounts received as a pension or annuity, amounts received as deferred compensation, amounts derived from or received as earnings or profits from property, such as interest, dividends and rent, or any amount not includable in gross income.
    • You did not reach age 70½ during the year.
  • What are the eligibility requirements for Roth IRA?

    You are eligible to establish and contribute to a Roth IRA for a given year if:

    • You received compensation (or earned income, if you are self-employed), subject to certain income limits, during the year for personal services you rendered. If you received taxable alimony, this is considered compensation for IRA purposes. Compensation does not include amounts received as a pension or annuity, amounts received as deferred compensation, amounts derived from or received as earnings or profits from property, such as interest, dividends and rent, or any amount not includable in gross income.
    • In contrast to a traditional IRA, you may continue making contributions to a Roth IRA after you reach age 70½.
Rules and Tax Matters
  • How are my IRA contributions invested?

    You control the investment and reinvestment of contributions to your Dodge & Cox Funds — State Street Bank and Trust Company IRA. Investments must be in one or more of the Dodge & Cox Funds. You direct the investment of your IRA by giving your investment instructions to the Transfer Agent for the Fund(s). Since you control the investment of your IRA, you are responsible for any losses; neither the Funds, the Custodian, nor the Transfer Agent has any responsibility for any loss or diminution in value occasioned by your exercise of investment control. Transactions for your IRA will generally be at the applicable net asset value per share for shares of the Fund(s) involved next established after the Transfer Agent receives proper investment instructions from you. You should consult the current prospectus for the Dodge & Cox Funds for additional information.

    Before making any investment, read carefully the current prospectus for any Fund you are considering as an investment for your traditional or Roth IRA. The prospectus will contain information about the Fund’s investment objectives and policies, as well as minimum initial investment requirements and any other charges.

    Because you control the selection of investments for your IRA and because mutual fund shares fluctuate in value, the growth in value of your IRA cannot be guaranteed or projected.

  • What IRA reports does the Custodian issue?

    The Custodian will report all withdrawals to the IRS and the recipient on the appropriate form. For reporting purposes, a direct transfer of assets to a successor custodian or trustee is not considered a withdrawal (except for a direct transfer that effects a conversion of a traditional IRA to a Roth IRA, or a recharacterization of a Roth IRA back to a traditional IRA).

    The Custodian will report to the IRS the year-end value of your account and the amount of any rollover (including conversions from a traditional IRA to a Roth IRA) or regular contributions made during a calendar year, as well as the tax year for which a contribution is made.

    Unless the Custodian receives an indication from you to the contrary, it will treat an amount received as a contribution for the tax year in which it is received. It is important that a contribution made between January 1 and April 15 for the prior year be clearly designated as such.

  • Are the earnings on my traditional IRA taxed?

    Any earnings on the investments held in your traditional IRA are generally exempt from federal income taxes and will not be taxed until withdrawn by you, unless the tax-exempt status of your traditional IRA is revoked.

Conversions
  • Can I convert an existing traditional IRA into a Roth IRA?

    Conversion may be accomplished in two ways. You can initiate a “direct transfer” from your traditional IRA to a Roth IRA, or you may choose to withdraw the amount you want to convert and roll it over to a Roth IRA.

    Caution: If you have reached age 70½ by the year in which you convert a traditional IRA to a Roth IRA, be careful not to convert any amount that would be a required minimum distribution. Required minimum distributions may not be converted to a Roth IRA.

  • What happens if I change my mind about converting?

    Recharacterizations
    You can undo a conversion (or change the character of a contribution) by transferring the amount you converted (or contributed) to a Roth IRA back to a traditional IRA. To do so, you must notify both the custodian of the traditional IRA and the custodian of the Roth IRA. The amount you want to undo will be treated as if it had not been converted (or that the contribution was made to the traditional IRA). This is called a “recharacterization.”

    If you want to recharacterize an amount, you must do so before the due date (including any extensions) for your federal income tax return for the year of the conversion or contribution. Also, any earnings on the recharacterized amount must be returned to the traditional IRA. The IRS automatically grants taxpayers who file their taxes by the deadline (on or about April 15th) a six-month extension of time to recharacterize or remove the excess contribution for the tax year covered by that filing.

    Reconversions
    If you convert and then recharacterize during a year, you can reconvert again to a Roth IRA (a “reconversion”) provided: If you convert from a traditional IRA to a Roth IRA and then recharacterize back to a traditional IRA, you must wait until the later of 30 days or until the next tax year after your original conversion before you will be allowed to reconvert. If you convert an amount more than once in a year, any additional conversion transactions will be considered invalid and subject to the rules for excess contributions.

  • What are the tax implications of converting?

    The amount you convert of your traditional IRA to a Roth IRA will be considered taxable income on your federal income tax return for the year of the conversion. All amounts converted from your traditional IRA are taxable except for your nondeductible contributions to the traditional IRA.

    If you convert a traditional IRA (or a SEP IRA or SIMPLE IRA) to a Roth IRA, under IRS rules income tax withholding will apply unless you elect not to have withholding. However, withholding income taxes from the amount converted (instead of paying applicable income taxes from another source) may adversely affect the anticipated financial benefits of converting. Consult your financial advisor for more information.

  • Can I convert a SEP IRA or SIMPLE IRA to a Roth IRA?

    If you have a SEP IRA or a SIMPLE IRA, you may convert it to a Roth IRA. However, with a SIMPLE IRA, this can be done only after the SIMPLE IRA has been in existence for at least two years.

  • Should I convert my traditional IRA to a Roth IRA?

    Only you can answer this question, in consultation with your tax or financial advisor. A number of factors, including the following, may be relevant: Conversion may be advantageous if you expect to leave the converted funds in your Roth IRA for at least five years and would like to be able to withdraw the funds under circumstances that will not be taxable (see below). The benefits of converting will also depend on whether you expect to be in the same tax bracket when you withdraw funds from your Roth IRA as the one you are in now.

    Note: There are important differences in the tax rules for Roth IRA assets attributable to annual contributions vs. assets that were converted from a traditional IRA. Therefore, to simplify your record keeping for tax purposes, you may want to hold your Roth IRA annual contributions and Roth IRA conversion amounts in separate Roth IRA accounts.

Transfers and Rollovers
  • Can I transfer or roll over a distribution I receive from my employer’s qualified retirement plan into a traditional IRA?

    Almost all distributions from employer plans or 403(b) arrangements are eligible for rollover to a traditional IRA. The main exceptions are: payments over the lifetime or life expectancy of the participant (or participant and a designated beneficiary), installment payments for a period of 10 years or more, a loan treated as a distribution, required distributions from your retirement plan, and hardship withdrawals.

    All or part of an eligible rollover distribution may be transferred directly into your traditional IRA. This is called a “direct rollover.” Alternatively, you may receive the distribution and make a regular rollover to your traditional IRA within 60 days. By making a direct or regular rollover, you can defer income taxes on the amount rolled over until you make withdrawals from your traditional IRA.

    Note: A qualified retirement plan administrator or 403(b) sponsor must withhold 20% of your taxable distribution for federal income taxes unless you elect a direct rollover. Your plan sponsor is required to provide you with information about direct and regular rollovers and withholding taxes before you receive your distribution and must comply with your directions to make a direct rollover.

    The rules governing rollovers are complicated. Be sure to consult your financial or tax advisor or IRS Publication 590 if you have questions about rollovers.

  • Can I make a regular rollover from my traditional IRA to another traditional IRA?

    Yes. If you have not rolled over the assets from another traditional IRA within the previous 365 days, such a regular rollover must be completed within 60 days after the withdrawal from your first traditional IRA. After making a rollover from one traditional IRA to another, you must wait one full year (365 days) before you can make another such rollover. However, at any time you may instruct a traditional IRA custodian to transfer assets directly to another traditional IRA custodian; this is called a “direct transfer” and is not considered a regular rollover. Accordingly, a direct transfer is not subject to the 365 day waiting period described above.

  • How do rollovers affect my traditional IRA contribution or deduction limits?

    Rollovers, if properly made, do not count toward the maximum contribution limits. Also, rollovers are not deductible and they do not affect your deduction limits as described above.

  • Can I transfer or roll over a taxable distribution from my employer’s qualified retirement plan into a Roth IRA?

    Yes, taxable distributions from qualified retirement plans or 403(b) arrangements are eligible for rollover or direct transfer to a Roth IRA. Under certain circumstances it may also be possible to make a direct transfer or rollover of a taxable distribution to a traditional IRA and then convert the traditional IRA to a Roth IRA. Consult your tax or financial advisor for further information.

  • Can I transfer or roll over a nontaxable distribution I receive from my employer’s qualified retirement plan into a Roth IRA?

    You may currently transfer or rollover after-tax deferrals from a Roth account under an employer’s 401(k) plan or 403(b) arrangement to a Roth IRA. If such amounts are rolled over to a Roth IRA, they are subject to standard rules for the start date and holding period that apply to the owner’s Roth IRA(s).

  • Can I make a rollover from my Roth IRA to another Roth IRA?

    Yes, if you have not received and rolled over the assets from another Roth IRA within the previous 365 days. Such a regular rollover must be completed within 60 days after the withdrawal from your first Roth IRA. After making a rollover from one Roth IRA to another, you must wait one full year (365 days) before you can make another such rollover. However, at any time you may instruct a Roth IRA custodian to transfer assets directly to another Roth IRA custodian; this is called a “direct transfer” and is not considered a rollover. Accordingly, a direct transfer is not subject to the 365 day waiting period described above.

  • How do rollovers affect my Roth IRA contribution limits?

    Rollovers, if properly made, do not count toward the maximum contribution limits. Also, you may make a rollover from one Roth IRA to another even during a year when you are not eligible to contribute to a Roth IRA.

Contributions and Deductions
  • Can I contribute to a traditional IRA for my spouse?

    For each year before the year when your spouse attains age 70½, you may contribute to a separate traditional IRA for your spouse, regardless of whether your spouse had any compensation or earned income in that year. This is called a “Spousal traditional IRA.” To make a contribution to a Spousal traditional IRA, you and your spouse must file a joint tax return for the year in which the contribution applies. For a Spousal traditional IRA, your spouse must establish his or her own traditional IRA, separate from yours, to which you contribute.

    Of course, if your spouse has compensation or earned income, your spouse can establish his or her own traditional IRA and make contributions to it in accordance with the rules and limits described in Part One of the IRA Disclosure Statement.

  • When can I make contributions to a traditional IRA?

    You may make a contribution to your existing traditional IRA or establish a new traditional IRA for a taxable year by the due date (not including any extensions) for your federal income tax return for the year. Usually this is April 15 of the following year. Contributions are voluntary and do not have to be made every year.

  • How much can I contribute to my traditional IRA?

    For each year you are eligible, you may contribute up to the lesser of the maximum dollar amount allowed for the year or 100% of your compensation (or earned income, if you are self-employed). However, under the tax laws, all or a portion of your contribution may not be deductible.

    The maximum amount allowed if you are under age 50 is $5,500 for 2013 and thereafter (subject to increases for inflation in $500 increments). The maximum amount allowed if you are age 50 or older is $6,500 for 2013. Thereafter, the maximum amount is $1,000 more than the maximum amount for the year for those under age 50.

    If you make contributions to both traditional and Roth IRAs, the combined limit on contributions for a single calendar year is the maximum dollar amount indicated above.

    If you are married and file a joint tax return, you and your spouse can each make IRA contributions even if only one of you has taxable compensation. The amount of your combined contributions can’t be more than the taxable compensation reported on your joint return. It doesn’t matter which spouse earned the compensation.

  • How do I know if my contribution is tax deductible?

    The deductibility of your contribution depends upon whether you were an active participant in any employersponsored retirement plan during the year for which the contribution was made. If you were not an active participant in such a plan, the entire contribution to your traditional IRA is deductible.

    If you were an active participant in an employersponsored retirement plan, your traditional IRA contribution may still be completely or partly deductible on your tax return. The amount you may deduct depends on the amount of your income.

    Similarly, the deductibility of a contribution to a traditional IRA for your spouse depends upon whether your spouse was an active participant in any employer-sponsored retirement plan during the year for which the contribution was made. If your spouse was not an active participant in such a plan, the contribution to your spouse’s traditional IRA generally will be deductible. If your spouse was an active participant, the traditional IRA contribution will be completely, partly, or not deductible depending upon your combined income.

    An exception to the preceding rules applies to highincome married taxpayers, where one spouse is an active participant in an employer-sponsored retirement plan and the other spouse is not. A contribution to the non-active participant spouse’s traditional IRA is only partly deductible starting at an adjusted gross income (AGI) level on the joint tax return of $178,000 for 2013. The deductibility is phased out as described below over the next $10,000 so that there will be no deduction allowed with an AGI level of $188,000 or higher for 2013.

  • How do I determine my or my spouse's active participant status?

    Your (or your spouse’s) Form W-2 should indicate if you (or your spouse) were an active participant in an employer-sponsored retirement plan during the year. If you have a question about your status, you should consult your employer or plan administrator.

    In addition, regardless of income level, your spouse’s active participant status will not affect the deductibility of your contributions to your traditional IRA if you and your spouse file separate tax returns for the taxable year and lived apart at all times during the taxable year.

  • What are the deduction restrictions for active participants?

    If you (or your spouse) are an active participant in an employer-sponsored retirement plan during a year, the contribution to the active participant’s traditional IRA for the year may be completely, partly, or not deductible depending upon your filing status and your amount of AGI.

  • How do I calculate my deduction if I fall in the “partially-deductible” range?

    If your modified AGI falls in the partially deductible range, (i.e., between the lower and upper limits) you must calculate the portion of your contribution that is deductible. To do this, see IRS Publication 590. The section “How much can you deduct” provides an explanation of how to determine your modified AGI, your coverage and filing status for purposes of deductibility, and a worksheet to help you figure if your IRA contribution is partly deductible or not deductible.

    Even if part or all of your contribution is not deductible, you may still contribute to your traditional IRA (and your spouse may contribute to your spouse’s traditional IRA) up to the IRA Contribution Limit for the year. When you file your tax return for the year, you must designate the amount of non-deductible contributions to your traditional IRA for the year. See IRS Form 8606 and IRS Publication 590 for more details.

  • How do I determine my Modified AGI?

    Modified AGI is your gross income minus those deductions which are available to you even if you do not itemize deductions on your tax return. Instructions to calculate your Modified AGI are provided with your income tax Form 1040 or 1040A.

  • Can I contribute to a Roth IRA for my spouse?

    If you meet the eligibility requirements you can not only contribute to your own Roth IRA, but also to a separate Roth IRA for your spouse out of your compensation or earned income, regardless of whether your spouse had any compensation or earned income in that year. This is called a “Spousal Roth IRA.” To make a contribution to a Spousal Roth IRA, you and your spouse must file a joint tax return for the year to which the contribution applies. For a Spousal Roth IRA, your spouse must establish his or her own Roth IRA, separate from yours, to which you contribute.

    Of course, if your spouse has compensation or earned income, your spouse can establish his or her own Roth IRA and make contributions to it in accordance with the rules and limits described in this section.

  • When can I make contributions to a Roth IRA?

    You may make a contribution to your existing Roth IRA or establish a new Roth IRA for a taxable year by the due date (not including any extensions) for your federal income tax return for the year. Usually this is April 15 of the following year. Contributions are voluntary, and do not have to be made every year.

  • How much can I contribute to my Roth IRA?

    For each year you are eligible, you may contribute up to the lesser of the maximum dollar amount allowed for the year or 100% of your compensation (or earned income, if you are self-employed). The maximum amount allowed if you are under age 50 is $5,500 for 2013 and thereafter (subject to increases for inflation in $500 increments). The maximum amount allowed if you are 50 or older is $6,500 for 2013. Thereafter, the maximum amount is $1,000 more than the maximum amount for the year for those under age 50. The overall annual limit for contributions to traditional and Roth IRAs combined (but not SEP or SIMPLE IRAs) is the maximum amount indicated above.

    If you are married and file a joint tax return, you and your spouse can each make Roth IRA contributions even if only one of you has taxable compensation. The amount of your combined contributions can’t be more than the taxable compensation reported on your joint return. It doesn’t matter which spouse earned the compensation.

    For taxpayers with high income levels, the contribution limits may be reduced or eliminated (see below).

  • Are contributions to a Roth IRA tax deductible?

    Contributions to a Roth IRA are not tax deductible. This is one of the major differences between Roth IRAs and traditional IRAs.

Withdrawals
  • When can I make withdrawals from my traditional IRA?

    You may withdraw amounts from your traditional IRA at any time. However, withdrawals before age 59½ may be subject to a 10% premature withdrawal penalty, in addition to regular income taxes.

  • When must I start making withdrawals?

    You must take your first required minimum distribution (RMD) from your traditional IRA for the calendar year you reach age 70½ by April 1 of the following calendar year. RMDs must continue to be taken annually by December 31st of each year subsequent to the year you reach age 70½. Therefore, if you elect to defer your first year’s RMD to April 1st of the following year you also must take your second year’s RMD by December 31st of that same year. If you maintain more than one traditional IRA, you may withdraw the required aggregate amount from any of the traditional IRAs. It is your responsibility to ensure that the required aggregate amount is taken each year.

    Your annual RMD amount is determined by dividing the prior year-end balance in your traditional IRA(s) by the combined deemed life expectancy of you and another hypothetical person who is 10 years younger than you. If you are married and your spouse is more than 10 years younger than you, the actual combined life expectancy of you and your spouse will be used if your spouse is your sole IRA beneficiary. The Custodian will calculate your RMD for you based on life expectancy tables published by the IRS. If you wish to take your RMD from your Dodge & Cox Funds—State Street Bank and Trust Company traditional IRA, call 800-621-3979 or request or download an IRA Required Minimum Distribution Form on this website.

  • What happens if I do not take my Required Minimum Distribution?

    The Internal Revenue Code imposes a severe 50% penalty on the difference between your RMD amount and your actual distributions during a given year. This penalty is applied each year you fail to take your RMD. The IRS may waive or reduce the penalty if you can show that your failure to receive your RMD was due to reasonable cause, and you are taking reasonable steps to remedy the problem.

    Because you may maintain other traditional IRAs in addition to a Dodge & Cox Funds—State Street Bank and Trust Company traditional IRA, it is your responsibility to ensure that your distributions are timely and in amounts which satisfy the IRS requirements. The RMD rules are complex; you may wish to consult your financial or tax advisor for assistance.

  • How are withdrawals from my traditional IRA taxed?

    Withdrawals of previously untaxed amounts are includable in your gross income in the taxable year that you receive them and are taxable as ordinary income. If you have made both deductible and non-deductible contributions, please refer to the question below. Amounts withdrawn will be subject to income tax withholding by the Custodian unless you elect not to have withholding. (See Part Three of this Disclosure Statement for additional information on withholding.) Amounts withdrawn before you reach age 59½ will be subject to a 10% premature withdrawal penalty, unless an exception applies (see below).

  • What are the exceptions to the 10% premature withdrawal penalty?

    Your receipt or use of any portion of your traditional IRA before you attain age 59½ generally will be treated as a premature withdrawal, subject to a 10% penalty.

    The 10% penalty will not apply if any of the following exceptions apply:

    • The withdrawal does not exceed the amount of your deductible unreimbursed medical expenses for the year (generally speaking, medical expenses paid during a year are deductible if they are greater than 7.5% of your adjusted gross income for that year).
    • The withdrawal does not exceed the amount you paid for health insurance coverage for you, your spouse, and dependents. This exception applies only if you have been unemployed and received federal or state unemployment compensation payments for at least 12 consecutive weeks. This exception applies to distributions during the year in which you received the unemployment compensation and during the following year, but not to any distributions received after you have been re-employed for at least 60 days.
    • The distribution is made pursuant to an IRS levy to pay overdue taxes.
    • The withdrawal is a qualified reservist distribution.

    In addition, amounts converted from a traditional IRA to a Roth IRA are includable in income, but exempt from the premature withdrawal penalty. Refer to Part Two of this Disclosure Statement for more information about converting your traditional IRA to a Roth IRA.

  • How are nondeductible contributions taxed when they are withdrawn?

    Withdrawal of nondeductible contributions (not including earnings) are tax free and are not subject to the 10% premature withdrawal penalty. However, if you made both deductible and nondeductible contributions to your traditional IRA, then each withdrawal will be treated as partly a distribution of your nondeductible contributions (not taxable) and partly a distribution of deductible contributions and earnings (taxable). The nontaxable amount is the portion of the amount withdrawn which bears the same ratio as your total nondeductible traditional IRA contributions bear to the total balance of all your traditional IRAs (including SEP IRAs, but not including Roth IRAs).

  • When can I make withdrawals from my Roth IRA?

    You may withdraw amounts from your Roth IRA at any time. If the withdrawal meets the requirements discussed below, it is tax free. Therefore, you pay no income tax on the withdrawal even though the withdrawal may include earnings on your contributions while they were held in your Roth IRA.

  • When must I start making withdrawals from my Roth IRA?

    In contrast to a traditional IRA, there are no requirements on when you must start making withdrawals from your Roth IRA or on minimum required withdrawal amounts during your lifetime.

  • What are the requirements for a tax-free Roth IRA withdrawal?

    To be tax free, a withdrawal from your Roth IRA must meet two requirements. First, the withdrawal must occur more than five years after the year for which you first made a contribution to your Roth IRA. This requirement takes into consideration all of your Roth IRAs. Once any of your Roth IRAs have been in existence for five years, this requirement is considered satisfied. For annual contribution Roth IRAs, the five-year period starts with the year for which you made the initial annual contribution. For conversion Roth IRAs, the five-year period starts with the year in which the conversion was made. A separate five year period applies to each conversion.

    Second, at least one of the following conditions must be satisfied:

    • You are age 59½ or older when you make the withdrawal.
    • The withdrawal is made to your beneficiary or estate after your death.
    • You are disabled (as defined in the tax code) when you make the withdrawal.
    • You are using the withdrawal to cover eligible “first-time homebuyer” expenses. These are the costs of purchasing, building or rebuilding a principal residence (including customary settlement, financing or closing costs). The purchaser may be you, your spouse, or a child, grandchild, parent or grandparent of you or your spouse. An individual is considered a first-time homebuyer if the individual did not have (or, if married, neither spouse had) an ownership interest in a principal residence during the two-year period immediately preceding purchase of the home. The withdrawal must be used for eligible expenses within 120 days after the withdrawal (if there is an unexpected delay, or cancellation of the purchase of the home, a withdrawal may be redeposited as a rollover). There is a $10,000 lifetime limit on the aggregate amount of distributions the IRA owner may take under this exception.
  • How are withdrawals from my Roth IRA taxed if the tax-free requirements are not met?

    If the qualified withdrawal requirements are not met, the tax treatment of a withdrawal depends on the character of the amounts withdrawn. To determine this, all your Roth IRAs are treated as one, including any Roth IRAs you may have established with other Roth IRA custodians. Amounts withdrawn are considered to come out in the following order:

    1. All annual contributions.
    2. All traditional IRA conversion amounts (on a first-in, first-out basis).
    3. Earnings.

    A withdrawal treated as prior annual contributions to your Roth IRA will not be considered taxable income in the year you receive it, nor will the 10% premature withdrawal penalty apply. A withdrawal consisting of previously taxed traditional IRA conversion amounts also is not considered taxable income in the year of the withdrawal, and is not subject to the 10% premature withdrawal penalty. A withdrawal of previously untaxed traditional IRA conversion amounts is considered taxable income and may be subject to the 10% premature withdrawal penalty. To the extent that the nonqualified withdrawal consists of earnings while your annual contributions and/or conversion amounts were held in your Roth IRA, the withdrawal is considered taxable income and may be subject to the 10% premature withdrawal penalty.

    As discussed above, for purposes of determining what portion of any nonqualified withdrawal is includable in your taxable income, all of your Roth IRA accounts must be considered as one single account. Therefore, withdrawals from your Roth IRAs are not considered to be from earnings until an amount equal to all prior annual contributions and all previously taxed traditional IRA conversion amounts made to all your Roth IRA accounts are withdrawn.

  • Which withdrawals are subject to withholding?

    Traditional IRAs
    Federal income tax will be withheld at a flat rate of 10% from any withdrawal from your traditional IRA, unless you elect not to have tax withheld. State withholding may also apply.

    Roth IRAs
    Qualified distributions from your Roth IRA are not subject to the 10% withholding that applies to traditional IRAs.

Rules and Requirements
  • What happens to my IRA when I die?

    The assets remaining in your IRA will be distributed upon your death to the beneficiary(ies) that you designate when you establish your Dodge & Cox Funds—State Street Bank and Trust Company IRA. You may change your beneficiary(ies) at any time by notifying the Custodian in writing or by completing a Beneficiary Designation Form. If there is no beneficiary designated for your IRA in the Custodian’s records, upon your death your IRA will be paid to your estate (unless otherwise required by the laws of your state of residence). If there is no primary beneficiary(ies) living and you did not elect per stirpes designation at the time of your death, payment of your IRA will be made to the surviving alternate beneficiary(ies) designated by you.

    There are IRS rules on the timing and amount of distributions required after the IRA owner’s death. If you die before the date your traditional IRA distributions must begin (and for Roth IRAs, no matter when you die) your IRA balance, at the election of your designated beneficiary(ies), must be distributed either: (1) by December 31 of the calendar year that contains the fifth anniversary of the date of your death; (2) to a designated beneficiary beginning by the end of the year following the year of your death and paid over the life expectancy of the beneficiary or over a period of years that does not extend beyond the life expectancy of the designated beneficiary; or (3) to a surviving spouse under certain conditions. Your designated beneficiary for this purpose must be determined by September 30 of the year following the year of your death. If your spouse is your designated beneficiary, your spouse may defer the start of distributions until you would have reached age 701⁄2, had you lived, or your spouse may roll over the IRA into another IRA in your spouse’s name and treat the IRA as his or her own.

    If you die after the date your traditional IRA distributions must begin and your designated beneficiary is an individual, the remaining balance in your traditional IRA must be distributed to your designated beneficiary over his or her life expectancy. Your designated beneficiary must be determined by September 30 of the year following the year of your death. If your traditional IRA beneficiary is your surviving spouse, your spouse may roll over the traditional IRA into another traditional IRA in his or her name and treat the traditional IRA as his or her own.

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