Harbor Funds | Frequently Asked Questions - Roth IRA

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Roth IRA
Do shareholders have to pay Harbor an annual custodial fee for their IRA accounts? Show
No. As a Harbor Funds shareholder you pay no annual custodial fees for your IRA investment with Harbor. This means that the full amount of your IRA contribution is credited to your account. This distinguishes Harbor from those mutual fund families that charge annual custodial fees on IRA accounts. However, other fees and expenses do apply to a continued investment in a fund and are described in the current prospectus.
How much may I contribute to a Roth IRA? Show
Contribution limits are based on your Modified Adjusted Gross Income (MAGI).

Generally, individual annual contributions are limited to 100% of earned income, up to $5,500 ($6,500 if age 50 or older) for tax year 2013.

Spousal Contributions are allowed if married and filing jointly, and are generally limited to 100% of earned income, up to $5,500 ($6,500 if age 50 or older) for tax year 2013.

To be eligible to make the maximum contribution to a Roth IRA, your Modified Adjusted Gross Income (MAGI) must fall within a certain range.

For more information, refer to our chart on Retirement Plan Limits.
When must Roth IRA contributions be made? Show
Contributions must be made before the filing date for an individual's income tax return in the following year, not including extensions (generally, April 15th).
Are there age restrictions on making Roth IRA contributions? Show
No.
I opened a Roth IRA but just found out my MAGI is too high; what can I do? Show
If you converted all or a portion of your Traditional IRA to a Roth IRA you must complete and file Form 8606 (Nondeductible IRA's) with your Federal tax return. If you did not qualify for such a conversion due to income limitations, filing status or another reason, then you may be required to recharacterize the amount converted.
Can I contribute to both a Traditional and Roth IRA? Show
Yes, as long as the aggregate contributions do not exceed annual IRA contribution limits for the applicable tax year of the contribution.
Do I have to wait until the day I reach the age of 50 to take advantage of making a catch up contribution? Show
No, you may make the catch up contribution at any time during the calendar year in which you reach age 50.
I am an active participant in my employer's 401(k) plan, does this affect my ability to contribute to a Roth IRA? Show
No. An individual may actively participate in an employer-sponsored 401(k) plan or in any other type of defined contribution or defined benefit plan without affecting the ability to make a Roth IRA contribution.
Do the required minimum distribution (RMD) rules applicable to a Traditional IRA apply to a Roth IRA? Show
No, the RMD rules applicable to a Traditional IRA do not apply to a Roth IRA.
When are Roth IRA distributions considered qualified? Show
A distribution from a Roth IRA is a considered a qualified distribution (with earnings that are tax- and penalty-free) if it is paid after the Roth IRA owner reaches age 59½, or due to disability, death, or for first-time home purchase, and it is paid at least five tax-years after the account was established.
What is an IRA conversion? Show
A conversion is a movement of assets from a Traditional IRA into a Roth IRA. A conversion is a taxable event. There is no rule that says you have to convert your entire IRA at once. You can convert part of an IRA if you choose.

Eligibility for a Roth conversion was greatly simplified when Congress eliminated the $100,000 income limitation as of 2010. There are still some important requirements and rules concerning conversion eligibility, however. The general rule is that if you're able to take a distribution that is eligible for a rollover, you are also allowed to do a conversion.

Rollover within 12 months
Normally you aren't allowed to do more than one rollover from or to the same IRA within a 12-month period. This rule applies to Roth IRAs, too, but with a special exception. For purposes of this rule you're permitted to disregard a conversion from a traditional IRA to a Roth IRA, even if the conversion takes the form of a rollover.

For more information on Rollovers, click here.

For information that is specific to your situation, please consult your tax adviser.
Is a conversion an exception to the 10% premature distribution penalty? Show
Yes. An individual who converts a Traditional IRA to a Roth IRA is not subject to the 10% premature distribution penalty normally associated with distributions before age 59½ for the conversion transaction, provided it is held in the Roth IRA for at least 5 tax years.
Do I have to file any special tax forms because of my conversion? Show
If you converted all or a portion of your Traditional IRA to a Roth IRA you must complete and file Form 8606 (Nondeductible IRA's) with your Federal tax return.
What is a contribution recharacterization? Show
A contribution recharacterization is either the "reversal" of a current year regular contribution (plus earnings) to a Roth IRA, or the "reversal" of a conversion or failed conversion to a Roth IRA with a subsequent transfer of the amount plus earnings back into a Traditional IRA.
May I convert, recharacterize, and then convert again? Show
Yes, however there are restrictions. In order to re-convert after a previous conversion and recharacterization, you must wait until either the tax year after your original conversion or 30 days after your recharacterization, whichever is later.
How do I calculate NIA? Show
Generally, individuals determine NIA by allocating to the contribution a pro rata portion of the net income (or loss) on the assets in the IRA during the period the IRA held the contribution. A negative NIA is permitted under this calculation for removal of excess contributions or recharacterizations.

The formula for calculating NIA is shown below:

If you would like to estimate the NIA for your IRA contribution, please click on the link below and complete the Net Attributable form as accurately as possible.

Net Attributable Form


Clarifications to NIA Method

In addition to considering transfers and recharacterizations in the NIA formula, the regulations make other clarifications as follows.
  • If an IRA is not valued on a daily basis, the fair market value at the beginning of the computation period is deemed to be the most recent, regularly determined, fair market value of the asset.
  • If an individual owns more than one IRA, the NIA calculation is performed on the IRA containing the excess contribution being returned, and the distribution must be made from that IRA.
  • If an IRA has received more than one regular contribution for a particular tax year, the last regular contribution (not transfer or rollover) made to the IRA is deemed to be the contribution that is distributed, and a single computation period applies.
  • In the case of a recharacterization of a contribution(s) where multiple contributions have been made, the IRA owner can choose (by date and by dollar amount, but not by specific assets) which contribution or portion thereof is to be recharacterized. If recharacterizing multiple contributions that were consecutive contributions in a series, only one NIA calculation is required using a computation period based on the first contribution in the series. If recharacterizing more than one contribution that is not part of a consecutive series, separate NIA calculations must be made on each.
  • NIA is based on the overall dollar value of the IRA, not on the return of specific assets.

For further questions on Net Income Attributable, please contact a Shareholder Services Representative at 800-422-1050, Monday through Friday between the hours of 8:00 a.m. and 6:00 p.m. Eastern time.

What are the IRS Regulations for calculating NIA? Show
The IRS provides the formula for calculating NIA in Treasury Regulation (Treas. Reg.) 1.408-11 (26 CFR 1.408-11).
What does the phrase Net Income Attributable (NIA) mean? Show
Net Income Attributable is a concept in the Internal Revenue Code for calculating the net gain or loss generated by an excess IRA contribution or for a Roth conversion or recharacterization. When an excess IRA contribution (Roth recharacterization) is removed, not only the excess contribution (or conversion) amount itself needs to be removed, but also any income that was generated by that contribution while it was in that account. If an IRA decreased in value while it contained an excess contribution, the loss that can be attributed to the excess contribution does not need to be removed from the account.