It is never too late to begin thinking and planning for your retirement and enjoyment of time after many years of hard laborious work. Social Security monthly allotment is not sufficient to carry you through life. You need additional sources of funds to maintain your current moderate life style. How can you accomplish this? Here are some suggestions.
United Credit Union can help you in establishing an IRA account to get you on your way to future financial independence.
IRA FEATURES |
Features |
Traditional |
Roth |
Tax-deductive contribution |
Yes, if eligible (depending on income level) |
No |
Maximum contribution |
$4,000 (2007)
$5,000 (2008+) |
$4,000 (2007) |
Additional catch-up (age 50 or over) |
$2,000 plus $1,000 - $5,000 |
$4,000 plus $1,000 - $5,000 |
Tax deferred growth |
Yes |
Yes |
Tax-free distributions |
No |
Yes, if held for five tax years and conditions are met (must be at least 59½ years old). |
Penalty-free distributions |
Yes, if conditions are met (must be at least 59½ years old). |
Yes, if conditions are met (earnings must be on deposit for five successive tax years and must meet income requirements and limits). |
Contribution eligibility |
Anyone with earned income; received alimony; $150,000 adjusted gross income for individuals (non-member of an employer sponsored retirement plan) married to an active participant (member of an employer sponsored retirement plan). Eligibility phases out between $150,000 to $160,000. |
Anyone with earned income; received alimony who meets the income eligibility requirements. Eligibility with income levels of $95,000 to $110,000 for singles and for married couples with levels of $150,000 to $160,000. |
Penalty for early withdrawal |
10% penalty for withdrawing all or any part of the account before age 59½. Penalty does not apply if individual is deceased, disabled, for college expenses or first time home purchase up to $10,000 and certain medical expenses. |
Penalty free withdrawals of your contributions are permitted at any time. Earnings are subject to 10% penalty prior to age 59½. Penalty does not apply if individual is deceased, disabled, for college expenses or first time home purchase up to $10,000 and certain medical expenses. |
Required minimum distributions |
Starts at age 70½ |
None |
Deductibility of contributions |
Single Taxpayer: Full deduction if you are not a participant in an employer sponsored retirement plan, regardless of income. If you are a participant in an employer sponsored retirement plan, eligibility phases out with adjusted gross income $50,000 to $60,000.
Married Taxpayer: Full deduction if neither person participates in an employer-sponsored retirement plan, regardless of income. Full deduction if you are not in an employer-sponsored retirement plan and married to someone who is. Eligibility phases out with adjusted gross income $80,000 to $90,000. |
Non-tax deductible and must be made with after-tax dollars. |
Don’t procrastinate!
Call or come into any of our Member Financial Services Centers and review your needs and establish a retirement program.
You will be glad you did!
What is an IRA?
An Individual Retirement Account (IRA) is a special savings plan authorized by the Federal government to help you accumulate funds for your retirement.
Who is Eligible to Contribute to an IRA?
Every individual who has earned income or received alimony may contribute to an IRA. Income from other sources such as investments or inheritances does not qualify. Contributions may not be made for or after the year in which you reach 70½ years old.
May I Deduct IRA Contributions if I am NOT an Active Participant in an Employer Sponsored Retirement Plan?
If you are not an active participant in an employer-sponsored pension or profit-sharing plan, you can deduct 100% of your IRA contribution regardless of your income level. However, if your spouse is an active participant and your joint income is $150,000 or more, you cannot fully deduct your contribution. Partial deductions are allowed for joint incomes between $150,000 and $160,000.
May I Deduct IRA Contributions if I am an Active Participant in an Employer Sponsored Retirement Plan?
If you are an active participant in an employer-sponsored pension or profit-sharing plan, your IRA contribution deduction will depend on your level of adjusted income.
Is IRA Interest and Dividends Tax-Deferred?
All earnings accumulated in your IRA remain tax-sheltered until withdrawn.
Must I Contribute the Full Amount Every Year?
No. You can contribute any amount your budget allows, either in one or more contributions. You need not make a contribution every year.
When Can I Make Withdrawals?
Distributions are allowed any time after age 59½, but must start by April 1st following the year in which the participant reaches the age of 70½. After age 59 ½, you make withdrawals even if you are not retired.
Can I Make Early Withdrawals?
There is a 10% penalty for withdrawing all or any part of the account before age 59½, with the following exceptions:
- Death
- Total Disability
- Withdrawal of Non-deductible Contributions
-
Qualified First-time Home Buyer you may withdraw up to $10,000 during your lifetime.
- Must be used within 120 days to pay costs such as reasonable settlement, financing or other closing costs.
- To Pay for Qualified Higher Education Expenses
- To Pay for Medical Expenses in Excess of 7.5% of your Adjusted Gross Income.
- To Purchase Health Insurance after Receiving Unemployment Compensation for more than 12 weeks.
- Funds are Paid Out in a Series of Payments made over your Life Expectancy (or the joint life expectancy of you and your beneficiary)
When are Taxes Paid on IRAs?
When you begin making withdrawals, you will be taxed on only the amount you withdraw each year on which taxes have not been previously paid. The remaining funds continue to earn tax-deferred earnings.
What is the Deadline for Contributing to an IRA?
You can open or make contributions to your IRA any time up to and including the due date of your tax return for the previous tax year, normally April 15th.
Am I Eligible to Convert to a ROTH IRA?
Conversion is allowed if your adjusted gross income is $100,000 or less for the year in which the conversion occurs. It does not matter if your are a single taxpayer or married and filing jointly. However, conversion not permitted if your are married and are filing separately.
If I Convert a Traditional IRA to a ROTH IRA, do I Owe any Taxes?
Keep in mind that converting to a ROTH IRA requires you to pay taxes on funds moved from your Traditional IRA. If all of your contributions were tax deductable, you would owe taxes on the entire amount. If you made non-deductible contributions, your would not be taxed on those contributions that were previously taxed. However, the IRS 10% early distribution penalty will not apply to amounts that are converted to a ROTH IRA. If you are 59½ and use your IRA funds to pay the tax, the IRS would view this as a distribution and impose a 10% penalty on top of the income tax resulting from the conversion.
What Other Fees Should I be Aware of Before Converting to a ROTH IRA?
If your tax bracket will be lower when your start making withdrawals, it may be beneficial to keep your money in a Traditional IRA.
If you have many years until retirement, it may make sense to convert, as your money will have more time to accumulate tax-free earnings and more time to offset the impact of the taxes that were paid at the time of the conversion.
Recommend consulting a tax professional, as the decision is not an easy one. |
