Types of Ownership

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Frequently Asked Questions for IRA's 

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What is an IRA?
Who can contribute to an IRA?
What's the difference between a Traditional IRA and a Roth IRA?
What are the eligibility requirements for a Traditional IRA?
What are the eligibility requirements for a Roth IRA?
How much can I contribute to my IRA?
Can I make contributions to both a Traditional and a Roth IRA in the same year?
What are the special catch-up contribution rules?
Can I contribute to a Traditional IRA or Roth IRA for my spouse?
Are contributions to an IRA tax deductible?
Are the earnings on my Roth IRA taxed?
Which is better, a Roth IRA or a Traditional IRA?
Are there any restrictions on contributions to my Roth IRA?
How can I convert a Traditional IRA or employer-sponsored retirement account to a Roth IRA?
What fees and expenses may I incur by establishing an IRA account?
What is the deadline for my IRA contributions?
Can a minor contribute to an IRA?
Can I contribute to an IRA even if I participate in my employer's retirement plan?
How can I receive information from the IRS?
Who receives IRS Form 5498?


Q.  What is an IRA?
A. An Individual Retirement Account (IRA) is a personal savings plan offering tax advantages to investors who set aside money for retirement. The type of IRA you select — Traditional IRA, Roth IRA or other — will determine whether your IRA investments are tax deductible at the time of investment or tax-free at withdrawal. You should examine the many IRA choices available to you and consult with a tax advisor to determine the type best suited to your needs. For more information, consult your tax advisor.


   
Q.  Who can contribute to an IRA?
A. A Traditional IRA can be opened by anyone with earned income who is under 70 1/2. "Earned income" includes compensation, self-employment income, and alimony or separate support payments, but does not include investment income. A Roth IRA can be opened by anyone with earned income, regardless of age, if their adjusted gross income in 2010 is below $120,000 (single) or $177,000 (married filing a joint return). Allowed contributions to a Roth IRA begin to phase out at $105,000 (single) and $167,000 (joint return). These limits are subject to annual adjustment for cost of living increases. You can contribute to both a Traditional IRA and a Roth IRA; however, the total contributions between the two accounts may not exceed the IRA Contribution Limit.


   
Q.  What's the difference between a Traditional IRA and a Roth IRA?
A. The following chart highlights some of the major differences between a Traditional IRA and a Roth IRA:

Characteristics Traditional IRA Roth IRA

Eligibility

  • Individuals (and their spouses) who receive compensation
  • Individuals age 70 1/2 and over may not contribute


  • Individuals (and their spouses) who receive compensation
  • Individuals age 70 1/2 and over may contribute


Tax Treatment of Contributions

  • Subject to limitations, contributions are deductible


  • No deduction permitted for amounts contributed


Contribution Limits

  • Individuals may contribute up to the tax law limit.*
  • Deductibility depends on income level for individuals who are active participants in an employer-sponsored retirement plan


  • Individuals may generally contribute up to the tax law limit.*
  • Ability to contribute phases out at income levels of $105,000 to $120,000 (individual taxpayer) and $167,000 to $177,000 (married taxpayers)**
  • The tax law limit* applies to combined contributions to Traditional and Roth IRAs (but not including SEP or SIMPLE IRAs)


Earnings

  • Earnings and interest are not taxed when received by your IRA


  • Earnings and interest are not taxed when received by your IRA


Rollover/Conversions

  • Individual may rollover amounts held in employer-sponsored retirement arrangements
    (401(k), SEP IRA, etc.) tax free to Traditional IRA
  • Individuals may rollover amounts held in Traditional IRA to employer-sponsored qualified plan


  • Rollovers from other Roth IRAs or Roth 401(k) accounts are tax free
  • Amounts rolled over (or converted) from a Traditional IRA or employer plan (other than Roth 401(k) account) are subject to income tax in the year rolled over or converted; tax on 2010 rollovers is payable in two annual installments
  • Amounts held in Roth IRAs may not be rolled over into employer-sponsored qualified plans


Withdrawals

  • Total (principal + earnings) taxable as income in year withdrawn (except for any prior non-deductible contributions)
  • Minimum withdrawals must begin after age 70 1/2


  • Not taxable as long as the withdrawal is a qualified distribution-generally, the individual has had a Roth IRA for 5 years, and the individual is age 59 1/2 or above, deceased or disabled
  • Minimum withdrawals not required after age 70 1/2


* The tax law limit is $4,000 for 2006-2007; and $5,000 for 2008 (with cost-of-living adjustments thereafter). For individuals age 50 or above at the end of a year, additional annual contributions of $1000 for 2006 and future years are allowed. The limit is 100% of compensation, if less.

** The income limits for contributions to a Roth IRA are subject to annual adjustment for cost of living increases, and the limits given are those in effect for 2010. Beginning in 2010, there is no income limit for taxable rollovers or conversions - the former $100,000 income limit has been repealed.
With a Traditional IRA, an individual may be able to deduct the contribution from taxable income (up to the annual contribution limit for the year), reducing current income taxes. Taxes on investment growth and dividends 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 59 1/2 are assessed a 10% penalty in addition to income tax, unless an exception applies. With a Roth IRA, the contribution limits are essentially the same as Traditional IRAs, but there is no tax deduction for contributions. All dividends and investment growth in the account are tax-free. Most important with a Roth IRA: there is no income tax on qualified withdrawals from your Roth IRA. Additionally, unlike a Traditional IRA, there is no rule against making contributions to Roth IRAs after turning age 70 1/2, and there's no requirement that you begin making minimum withdrawals at that age.


   
Q.  What are the eligibility requirements for a Traditional IRA?
A. 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.
  • You did not reach age 70 1/2 during the year.
Whether your contributions are tax-deductible depends on your income level and whether you or your spouse is a participant in a qualified retirement plan.


   
Q.  What are the eligibility requirements for a Roth IRA?
A. You are eligible to establish and contribute to a Roth 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 Roth IRA purposes.
  • Your income for the year is not more than $120,000 (if single) or $177,000 (if married filing a joint return) (2010 limits).
The income requirements don't apply to a Roth IRA funded with a rollover or conversion. In contrast to a Traditional IRA, with a Roth IRA you may continue making contributions after you reach age 70 1/2.


   
Q.  How much can I contribute to my IRA?
A. For each year when you are eligible, you can contribute up to the lesser of your IRA Contribution Limit (see the following table) or 100% of your compensation (or earned income, if you are self-employed). You may make contributions to both Traditional IRA and a Roth IRA; however, the combined limit on contributions to both your Traditional IRA and Roth IRA for a single calendar year is the IRA Contribution Limit. Note that under the tax laws, all or a portion of your contribution to a Traditional IRA may not be deductible.

Year Limit
2006-2007 $4,000
2008 $5,000
2009 and future years $5,000 increased by
cost-of-living adjustments
(in $500 increments)


   
Q.  Can I make contributions to both a Traditional and a Roth IRA in the same year?
A. You may make contributions to both a Traditional IRA and a Roth IRA in the same year; however, the combined limit on contributions to both your Traditional IRA and Roth IRA for a single calendar year is the IRA Contribution Limit discussed above.


   
Q.  What are the special catch-up contribution rules?
A. Individuals who are age 50 and over by the end of any year may make special "catch-up" contributions to a Traditional IRA for that year. From 2006 on, the special "catch-up" contribution is $1,000 per year. If you are over 50 by the end of a year, your catch-up limit is added to your normal IRA Contribution Limit for that year. Note that the rules for determining whether a contribution is tax-deductible (see below) also apply to special "catch-up" contributions.


   
Q.  Can I contribute to a Traditional IRA or Roth IRA for my spouse?
A. If you meet the eligibility requirements you can not only contribute to your own Traditional IRA or Roth IRA, but also to a separate Traditional IRA or 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 IRA" or "spousal Roth IRA." To make a contribution to a Traditional IRA or Roth IRA for your spouse, you must file a joint tax return for the year with your spouse and your spouse must set up a different Traditional IRA or Roth IRA, separate from yours, to which you can contribute.

Of course, if your spouse has compensation or earned income, your spouse can establish his or her own Traditional IRA or Roth IRA.


   
Q.  Are contributions to an IRA tax deductible?
A. Contributions to a Roth IRA are not deductible. This is a major difference between Roth IRAs and Traditional IRAs. Contributions to a Traditional IRA may be deductible on your federal income tax return depending on whether or not you or your spouse is an active participant in an employer-sponsored plan and on your income level.


   
Q.  Are the earnings on my Roth IRA taxed?
A. Any dividends on or growth of investments held in your Roth IRA are generally exempt from federal income taxes and will not be taxed until withdrawn by you, unless the tax-exempt status of your Roth IRA is revoked. If the withdrawal qualifies as a tax-free withdrawal (see the Artisan Funds IRA Disclosure Statement and Custodial Agreement), amounts reflecting earnings or growth of assets in your Roth IRA will not be subject to federal income tax.


   
Q.  Which is better, a Roth IRA or a Traditional IRA?
A. This will depend upon your individual situation. A Roth IRA may be better if you are an active participant in an employer-sponsored plan and your adjusted gross income is too high to make a deductible IRA contribution (but not too high to make a Roth IRA contribution). Also, the benefits of a Roth IRA compared to a Traditional 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, how much you expect the IRA to earn in the meantime, and possible future tax law changes.

Consult a qualified tax or financial advisor for assistance on this question.


   
Q.  Are there any restrictions on contributions to my Roth IRA?
A. Taxpayers with very high income levels may not be able to contribute to a Roth IRA at all, or their contribution may be limited to an amount less than the IRA Contribution Limit. This depends upon your filing status and the amount of your adjusted gross income (AGI). The following table shows how the contribution limits are restricted:

Roth IRA Contribution Limits

If You Are Single... If You Are Married Filing Jointly... Then You May Make

AGI up to $105,000


AGI up to $167,000


Full IRA Contribution Limit


AGI more than $105,000 but less than $120,000


AGI more than $167,000 but less than $177,000


Reduced IRA Contribution (see explanation below)


AGI $120,000 and up


AGI $177,000 and up


Zero (No Contribution)



Note: If you are a married taxpayer filing separately, your maximum Roth IRA contribution limit phases out over the first $10,000 of adjusted gross income. If your AGI is $10,000 or more you may not contribute to a Roth IRA for the year.


   
Q.  How can I convert a Traditional IRA or employer-sponsored retirement account to a Roth IRA?
A. You can convert all or a part of a Traditional IRA, or of your balance in an employer-sponsored plan such as a 401(k) plan (other than a Roth 401(k) account), to a Roth IRA by rolling over the balance that you wish to convert into a Roth IRA. (If you have an Artisan Funds Traditional IRA and wish to convert it, please contact Artisan Funds.) The amount that you convert will be taxable income, but the income you earn after the conversion may be completely tax free if withdrawn in a qualified distribution.

Prior to 2010, you were only permitted to convert a Traditional IRA or employer plan account to a Roth IRA if your income for the year was not more than $100,000. Beginning in 2010, this limit has been repealed. In addition, if you convert a Traditional IRA or employer plan account in 2010, you may be eligible to pay the tax on the conversion in two annual installments. Consult a qualified tax adviser to determine whether a Roth IRA conversion may be appropriate for you.


   
Q.  What fees and expenses may I incur by establishing an IRA account?
A. The following is a list of the fees generally charged by the Custodian for maintaining an Artisan Funds Traditional IRA or a Roth IRA.

Account Set Up Fee: $5.00
Annual Maintenance Fee, per Artisan Funds account: $15.00*
Termination, Rollover, or Transfer of Account to Successor Custodian: $10.00

* The annual maintenance fee is $15.00 per Artisan Funds account, but currently limited to $30.00 to shareholders who own two or more Artisan Funds IRA accounts.


   
Q.  What is the deadline for my IRA contributions?
A. Contributions can be made to your IRA at any time during the year or by the due date for filing your tax return for that year, not including extensions. If you make a contribution between January 1 and April 15, be sure to indicate whether you want it to be a contribution for the prior year or the current year.


   
Q.  Can a minor contribute to an IRA?
A. Although the tax law would permit a minor with earned income to open an IRA, Artisan Funds does not permit minors to establish IRA or other accounts with Artisan Funds.


   
Q.  Can I contribute to an IRA even if I participate in my employer's retirement plan?
A. Yes. Participation in an employer-sponsored plan does not prevent you from contributing to a Traditional IRA or Roth IRA. However, participation does affect your ability to deduct your Traditional IRA contributions. If you or your spouse were covered by an employer retirement plan at any time during the year for which contributions were made, you may not be able to deduct all of the contributions. Your deduction may be reduced or eliminated, depending on the amount of your income and your filing status.


   
Q.  How can I receive information from the IRS?
A. IRS pamphlets are available at many post offices and libraries, or may be requested by calling 800.829.3676. Most publications are also available online at www.irs.ustreas.gov. Publication 590 — Individual Retirement Arrangements (IRAs) may be particularly helpful. The IRS also offers a telephone number for listening to recorded topics — call 800.829.4477 to listen to the directory of topics. An IRS help line is also available by calling 800.829.1040.


   
Q.  Who receives IRS Form 5498?
A. Form 5498 confirms a prior year contribution to your Artisan Funds IRA. Roth IRA account recharacterizations and conversions of IRA accounts are considered contributions. Please note, you will receive only one Form 5498 for each account regardless of how many contributions including recharacterizations and/or conversions, were transacted.


   

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