Individual Retirement Plans
Why Invest in an IRA?
Investing through an Individual Retirement Account offers significant tax advantages that can help you make the most of your investment dollars. In particular, your earnings (the money you make on your IRA contributions) are not taxed until you withdraw them at a later date or, in some cases, not taxed at all. As your contributions and earnings grow tax-free, you have more money to re-invest, which may lead to much greater capital appreciation over time. This phenomenon is known as tax-deferred compounding.
Let's look at a simple example. If you contributed $400 at the beginning of each month to a Traditional IRA, and assumed a 5% rate of return for 30 years, your IRA would be worth $332,903 at the end of year thirty. If you made the same investment in a non-tax-deferred environment (where the 5% is considered taxable income), assuming a 31% tax rate, it would be worth $245,760. That's a difference of $87,143.
This hypothetical example is for demonstration purposes only and does not represent the past or future performance of any specific investment. This example does not account for applicable fees, expenses, or taxes. Lower maximum income tax rates on capital gains and dividends may reduce the difference in performance between the two accounts by improving the return for the taxable account. Investors should consider their own personal investment horizons and tax brackets, both current and anticipated, when making an investment decision. Withdrawals from a Traditional IRA are generally taxable in the year of withdrawal and may be subject to a 10% penalty if taken prior to age 59½.
The sooner you begin, the more time your money has to grow. Experts generally estimate that you will need to replace at least 85% of your pre-retirement annual income in order to maintain your present quality of life.¹ Sobering statistics now show an upward trend in the number of retirees who continue to work beyond the time when they begin claiming Social Security benefits.² For some, a "working retirement" may be a personal choice, but unfortunately for many, full retirement remains elusive due to insufficient income.
You can take steps now to help secure your future with a minimum investment of $100. Please use this brochure to help you choose a strategy that best fits your personal investment needs. A knowledgeable IRA specialist is available to help you get started in a Saturna IRA account today.
The government periodically adjusts the limits on contributions to both Traditional IRAs and Roth IRAs. The contribution limit for 2015 and 2016 is $5,500. Any adjustments generally apply to all IRAs, including those for spouses who do not have earned income. A married couple with one wage earner and one person staying at home may be able to contribute a total of $11,000 to their two IRAs in 2015 and 2016 (if they file jointly).
Age 50+ IRA Contributions. Workers age 50 and older (as of the end of the year) are able to make additional "catch up" contributions on a phased-in basis. For 2015 and 2016, the catch-up contribution limit is $1,000.
|Tax Year||Contribution Limit||Catch-Up|
IRA Investments Have Flexibility
IRAs are not limited to investment in banks, CDs, or mutual funds. Few people realize they have the option to self-direct their IRAs into stocks, bonds, and even real estate. If you have further questions regarding IRA investment opportunities, please contact a Saturna Capital representative.
Investing Your Contributions
Your contributions will be deposited in a separate IRA custodial account. The money you contribute to your IRA may be invested in one or a combination of mutual funds for which Saturna Trust Company, a wholly-owned subsidiary of Saturna Capital, provides custodial services as a trustee. Please be sure to review the IRA Custodial Agreement contained in the application packet.
Choosing Between a Traditional and a Roth IRA
Scroll right to see more. > >
|Traditional IRA||Roth IRA|
|Maximum Annual Contribution?||$5,500||$5,500|
|Maximum Age Limit for Contributions?||70½||No Maximum|
|Early Withdrawal Penalty?||10% penalty on most early withdrawals
(see below for exemptions)
|10% penalty on earnings,
no penalty for contributions
(see below for exemptions)
|Income Limits?||Yes (see Traditional IRA)||Yes (see Roth IRA)|
|Required Minimum Distributions?||Yes||No|
Scroll right to see more. > >
Saturna's IRA Fees
Scroll right to see more. > >
|Invested in Saturna's
affiliated mutual funds only
Saturna Brokerage IRA³
|Account Fees||Investments in mutual funds are subject to ongoing expenses that shareowners
pay indirectly. Please consult a fund's prospectus or summary prospectus.
|Account Maintenance||None||Potential inactive account fee4|
|Low Balance Fee||None||None|
|Contributions||None||Subject to Commission Schedule|
|Distributions / Withdrawals5||None||Subject to Commission Schedule|
|Outgoing wire transfers and overnight delivery
of proceeds from sales are subject to prevailing rates.
|Trades / Exchanges||None||Subject to Commission Schedule|
|Account Transfers||None||In: None6 Out: $75|
Scroll right to see more. > >
Converting From a Traditional IRA to a Roth IRA
Currently, anyone who has a Traditional IRA is eligible to convert it to a Roth IRA. In 2010, the legislation placing income limits on Roth IRA conversions expired; currently there are no income limits on conversions. Converted assets must remain in the Roth IRA for five years before they can be withdrawn without penalty (even after age 59½). To simplify the identification of converted assets, you are encouraged to establish a separate Roth IRA for converted assets.
Your conversion counts as a Traditional IRA distribution in the year it is completed, and as such may be subject to ordinary income taxes. Paying income taxes reduces your assets, which could lessen the burden of estate taxes later.
Further Information About IRAs
Any contribution in excess of the limits stated for Roth or Traditional IRAs are subject to an annual 6% excise tax. This tax is non-deductible. You can avoid the tax by removing the excess (and any earnings on it) before the due date for filing your return for that taxable year (including extensions). No income tax deduction is allowed for the excess. Also, you must include earnings on the excess in your income for the taxable year in which the contribution is made.
If you do not remove the excess contribution, you may apply it against the allowable contribution for the following year (note that this may result in a redemption and repurchase). If so applied, you may be able to avoid the 6% excise tax for future years.
If you have made an excess contribution, please contact a Saturna representative for assistance.
You should designate your beneficiary or beneficiaries on the Application. If you don't designate a beneficiary, your IRA may go into your estate and become subject to both income and estate taxes. A designation won't be valid unless you sign and date it, and we acknowledge it, before your death.
Unless otherwise stated on the designation, amounts payable because of your death:
- will be paid to your primary beneficiaries who survive you, in equal shares;
- if no primary beneficiary survives you, will be paid to your contingent beneficiaries who survive you, in equal shares; or
- if no designated beneficiary survives you, will be paid to your estate.
You can change your beneficiary designation at any time. The most current designation filed with your trustee revokes all prior designations. This provision, and the rights of persons claiming under your beneficiary designation, are governed by your signed IRA Application.
Inheriting an IRA
If you inherit an IRA, that IRA becomes subject to special rules. As a surviving spouse, you can treat an inherited IRA as your own and continue to make contributions. Other beneficiaries cannot make contributions (including rollover contributions) to the IRA and cannot roll it over. But, like the original owner, you generally will not owe tax on the IRA's assets until you receive distributions. Inherited IRAs can be transfered from one custodian to another.
You Can Cancel Your IRA
You can cancel an IRA you establish with Saturna, but only if you had not received this disclosure statement seven calendar days prior to the establishment of the IRA. This is done by mailing or delivering your written request to cancel to Saturna Capital Corporation within seven days after the account is opened. Should you cancel the account, you will get back the full amount you invested.
Early withdrawals are exempt from the 10% penalty in the following situations:
- Death or permanent disability
- Medical expenses that exceed 7.5% of your adjusted gross income
- Health insurance premiums for unemployed persons or their families
- Qualified higher education expenses for you or your spouse, or the children or grandchildren of you or your spouse7
- To buy, build, or rebuild a first home (up to a total of $10,000) that is the principal residence of you or your spouse, or the principal residence of the children, grandchildren, or ancestors of you or your spouse.
You must have established your Roth IRA for five years or more to take advantage of any of the above exemptions.
The Internal Revenue Code sets out certain prohibited transactions. If you (or your beneficiary) engage in any of these prohibited transactions, your IRA will lose its tax exemption and its fair market value must be included in gross income for that year. The amount of a prohibited transaction may be subject to a 15% penalty tax.
- IRA assets may not be invested in life insurance or commingled with other property except in a common trust fund or mutual fund.
- Transactions between yourself (or your beneficiary) and the assets held in the account are not allowed. The specific prohibited transactions include selling or exchanging property with the account, or borrowing from the account.
- You may not pledge or use your IRA as security for a loan.
Saturna has been providing IRAs for quite a few years now. Check out this blast from the past.
¹ Estimates of how much income to replace typically vary from 75% to 95%. A 1981 Report of the President's Commission on Pension Policy suggested 75% to 80%. A 2007 study by Investment Company Institute Senior Economist Peter J. Brady suggested replacement rates of 83% to 103%.
² According to the Bureau of Labor Statistics, the fastest growing segment of workers are those over age 65 – up 25% between 2000 and 2008. Social Security records indicate the average age people begin claiming benefits is 64.
³ Self-Directed Brokerage IRAs may be subject to fees for services not listed in this chart. Please the Saturna Brokerage Services Commission Schedule for more details.
4 Inactive accounts have effected no trades from January 1 through December 31 and have had one or more security positions for the entire year, not including sweep account money market funds. Please see the Saturna Brokerage Services Commission Schedule for more details.
5 Withdrawals may be subject to income taxes, and if taken before age 59½, may be subject to tax penalties.
6 While Saturna does not have a specific charge for inbound transfers, the previous custodian may charge for the outbound transfer.
7 Qualified higher education expenses include: tuition, fees, books, supplies, and equipment required for the enrollee.