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Choosing an IRA

 
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Learn the differences between Traditional and Roth IRAs, and the Education Savings Account*:

Who is eligible to Invest?

  • Traditional IRA - Anyone under age 70 ½ who has earned income, regardless of income level
  • Roth IRA – Full contributions can be made by single filers with a modified adjusted gross income (MAGI) less than $114,000 or married/joint filers with a MAGI less than $181,000. Partial contributions can be made by single filers with a MAGI between $114,000 and $129,000 or married/joint filers with a MAGI between $181,000 and $191,000
  • Education Savings Account – Single filers with a MAGI less than $95,000 or married/joint filers with a MAGI less than $190,000 can contribute up to $2,000 per year per child


What is the maximum annual contribution allowed?

  • Traditional IRA - $5,500 or 100% of your earned income, whichever is less ($6,500 for individuals age 50 or older)
  • Roth IRA - $5,500 or 100% of your earned income, whichever is less ($6,500 for individuals age 50 or older)
  • Education Savings Account - $2,000 per child, up to age 18
    Extra contributions can be made for those individuals designated with "special needs" and can be made past age 18


Are there any tax advantages with IRA investments?

  • Traditional IRA - Tax-deferred growth of contributions and investment earnings
  • Roth IRA - Tax-free growth of investment earnings
  • Education Savings Account - Tax-free growth of investment earnings as long as the account is used for qualified elementary, secondary or higher education expenses


Are there any deductible contributions?

  • Traditional IRA - Yes, if your income is below certain limits or if you are not an active participant in an employer-sponsored retirement plan
  • Roth IRA - No, contributions must be made with after-tax dollars
  • Education Savings Account - No, contributions must be made with after-tax dollars


Are penalty-free withdrawals allowed prior to age 59½?

  • Traditional IRA - Yes, if "substantially equal periodic payments" are taken, or if used for first-time home expenses ($10,000 lifetime maximum), qualified higher education costs or for certain hardships
  • Roth IRA - Yes, contributions can be withdrawn free of penalties and taxes. Earnings can be withdrawn penalty-free if used for first-time home expenses ($10,000 lifetime maximum), qualified educational expenses or for certain hardships
  • Education Savings Account - Earnings and distributions are tax-and penalty-free, provided the funds are used for qualified elementary, secondary or higher education expenses, and that the amount of the withdrawal is not greater than the child's education expenses for that year.


Will a distribution be required at any point?

  • Traditional IRA - Yes, distributions must begin by April 1 following the year you attain age 70 ½
  • Roth IRA - No, you may continue contributions as long as you have earned income and postpone distributions for as long as you like during your lifetime
  • Education Savings Account - Yes, the account must be distributed by the time the beneficiary reaches age 30 or rolled over for the benefit of another child in the same family


*This information is based on current interpretation of the language in the 2013 Internal Revenue Service (IRS) Publication 590, Individual Retirement Arrangements (IRAs), and Publication 970, Tax Benefits for Education. Investors should consult with their tax adviser or legal counsel for advice and information concerning their particular tax situation and any updates to the tax law.

IRS CIRCULAR 230 NOTICE: This information is not intended to be used and cannot be used by a taxpayer for the purpose of avoiding penalties that may be imposed by law. For more information about this notice, see northerntrust.com/circular230.

Not FDIC insured | May lose value | No bank guarantee

An investment in Northern Funds is not insured by the FDIC, and is not a deposit or obligation of, or guaranteed by The Northern Trust Company or any affiliate. An investment in Northern Funds involves risks, including possible loss of principal.

Please carefully read the prospectus and summary prospectus and consider the investment objectives, risks, charges and expenses of Northern Funds before investing. Call 800-595-9111 to obtain a prospectus and summary prospectus, which contains this and other information about the funds.

Shares of the Northern Funds are offered only by a current Prospectus and are intended solely for persons to whom shares of US registered funds may be sold. This site shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of shares of the Northern Funds in any jurisdiction in which such offer, solicitation or sale would be unlawful.

©2014 Northern Funds | Northern Funds are distributed by Northern Funds Distributors, LLC, not affiliated with Northern Trust.