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Traditional IRA


Am I Eligible to Have an IRA?
If you are under age 70 for the entire tax year and have compensation, you are eligible to establish an IRA, even if you already participate in any type of government plan, tax-sheltered annuity, simplified employee pension (SEP) plan, Savings Incentive Match Plan for Employees of Small Employers (SIMPLE), or qualified plan (pension or profit sharing) established by an employer.

What Is Compensation?
Compensation is the salary or wages you receive as an employee. If you are self-employed, compensation is your net income for personal services performed for the business. All taxable alimony is considered compensation.

How much can I contribute?
You may contribute any amount up to 100 percent of your compensation or $5,000, whichever is less, to a traditional IRA (or divide between a traditional and a Roth IRA). For those over the age of 50, you are allowed to contribute an additional $1,000 as a "catch-up" contribution.

Do I Pay Taxes on the Earnings of My IRA?
All earnings on your IRA contributions (deductible and/or nondeductible) remain tax deferred until you make withdrawals from the account.

Do I Get a Tax Deduction for My Contribution?
Deductibility of your contribution is based on whether or not you or your spouse are an active participant in an employer-maintained retirement plan. If you are not an active participant and are not married to an active participant, you are eligible for a full $5,000 deduction no matter how large your income. If you are an active participant or married to an active participant, the deductible amount is dependent on your MAGI and income tax-filling status. You may be eligible for the maximum deduction, a partial deduction, or no deduction. See a bank representative to determine your deduction limits.

What if I'm not Eligible for a Deductible IRA Contribution?
You can still make nondeductible contributions to your IRA. You may also be eligible for a Roth IRA.

When Can I Withdraw Funds From My IRA Without Incurring Any IRS Penalties?
You can withdraw funds from your IRA without the 10 percent IRS premature-distribution penalty any time after you reach age 59. You can also avoid the premature-distribution penalty before age 59 if you become disabled or die, if the distributions are part of certain periodic payments, for medical expenses in excess of 7.5 percent of your adjusted gross income, for health care insurance if you've been receiving unemployment compensation for at least 12 weeks, for qualified higher education expenses, or for a first-time home purchase. When you reach age 70, you must begin to take your minimum required distributions or severe penalties will be imposed.

How Are the Funds Taxed at Distribution?
If you are over age 59, simply include the taxable portion of the amount withdrawn (generally, deductible contributions and all earnings) as income. However, if you are under age 59 and do not meet one of the exceptions, you must also pay a 10 percent IRS penalty for premature distribution. The nondeductible portion of the distribution is not taxable when withdrawn nor is it subject to the 10 percent premature-distribution penalty.

What happens to My IRA in the Event of My Death?
Your named beneficiary(ies) will receive the entire proceeds of the IRA. Your beneficiary(ies) will not be subject to the IRS 10 percent premature-distribution penalty. The manner in which your beneficiary(ies) receives the funds is determined by the election made by you or your beneficiary(ies) within the guidelines of the law.

What Is a Spousal IRA?
The spousal IRA rules allow a married person to make an IRA contribution for his/her spouse. A couple can contribute up to 100 percent of their combined earned incomes or $10,000, whichever is less. The amounts can be divided in any manner between the two IRAs, as long as no more than $5,000 is contributed to either IRA.

How Do I Move Funds From One IRA to Another?
There are two methods you can use to move funds from one IRA to another: rollover and transfer. For a rollover, you have 60 calendar days from the date of receipt to roll over the distribution to another IRA. Rollovers from IRAs may not occur more than once over a 12 month period (this rule applies to each separate IRA you own). A transfer occurs when the funds are moved from one IRA to another without you having control or custody of the funds. There are no time or frequency limits on the number of transfers permitted.

How do I Move Funds From a Qualified Plan (QP) or a Tax-Sheltered Annuity (TSA) to an IRA?
An eligible QP or TSA distribution may be a direct rollover or a rollover into an IRA. Generally, an eligible rollover distribution is any distribution except one that is (1) one of a series of substantially equal periodic payments over the single or joint life expectancy of the employee and beneficiary or for a specified period of ten years or more and (2) a required distribution for an employee age 70 or older.

A rollover occurs when funds distributed from your QP or TSA are paid directly to you then subsequently rolled over by you into an IRA within 60 calendar days.

A direct rollover is a QP or TSA distribution that is sent directly from the plan administrator (employer) to an IRA.

QP and TSA distributions paid directly to you are subject to a mandatory 20 percent federal income tax withholding at the time of distribution.

Funds moved to an IRA via a direct rollover are not subject to withholding.

As with an IRA-to-IRA rollover, a QP or TSA recipient has 60 calendar days from the date of the receipt to roll over the taxable portion of the distribution to an IRA. The 12-month limitation does not apply to rollovers from a QP or TSA into an IRA.

When Is the Contribution Deadline for Funding an IRA?
IRAs for the taxable year can be opened and funded any time between January 1 and the date you tax return is due for the year, excluding extensions. This due date is normally April 15 of the following year.

How Do I Open an IRA?
Simply see any of our IRA representatives. We will explain the nature of these accounts in more detail and help you complete the simple forms necessary to establish your IRA.

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Roth IRA

What Is a Roth IRA?
The Roth IRA is a nondeductible account that features tax-free withdrawals for certain distribution reasons after a five-year holding period.

Am I Eligible for a Roth IRA?
Basically, there are two requirements for eligibility to contribute to a Roth IRA: you must have earned income (or your spouse must have earned income) and your modified adjusted gross income (MAGI) cannot exceed certain limits (see table below).

How Much Can I Contribute?
You may contribute any amount up to 100 percent of your earned income or $5,000, whichever is less, as long as your MAGI is within prescribed limits. If over age 50, you can make "catch-up" contributions of $1,000. These prescribed limits for contribution are:

Single Filers
MAGI of $101,000
or Less
MAGI Between $101,000
and $116,000
MAGI of $116,000
or More
Full $5,000 Contribution Partial Contribution* No Contribution

Married, Joint Filers

MAGI of  $159,000
or Less
MAGI Between $159,000
and $169,000
MAGI of $169,000
or More
Full $5,000 Contribution Partial Contribution* No Contribution

It's important to note that $5,000 is the aggregate amount that you can contribute to any Roth and/or traditional IRA in a given year. For example, if you contribute $3,500 to a traditional IRA, you can only contribute $1,500 to a Roth IRA for that year.

Do I Pay Taxes on My Earnings?
No (provided you take the earnings as part of a qualified distribution). That's the best part of the Roth IRA. Unlike a traditional IRA, you cannot take a tax deduction for any of the contributions that you make to a Roth IRA. However, when you're ready to take a withdrawal and provided you have met the five year holding period, you pay no taxes on any of the earnings that your money has generated.

What Is a Qualified Distribution?
In order for earnings to be tax free, you must first meet a five-year holding period for your Roth IRA. This period begins with the tax year for which the first contribution is made. After that, any earnings you withdraw for a qualified distribution reason are tax free and IRS penalty free. Qualified distributions include:

  • Distributions made on or after the date on which you attain age 59,
  • Distributions made to your beneficiary (or your estate) upon your death,
  • Distributions attributable to your being disabled, and
  • Qualified first-time home buyer distributions (up to $10,000).

Does the 10 Percent IRS Premature Distribution Apply if I Withdraw My Money Before Age 59?
The 10 percent IRS penalty does not apply to earnings you withdraw when you take any of the qualified distributions listed above. In addition, the 10 percent penalty is also waived for certain other distribution reasons. But, for these distributions, taxes on any earnings will apply. Distributions that are subject to taxes (on any earnings withdrawn) but no penalty include:

  • Substantially equal periodic payments,
  • Eligible medical expenses in excess of 7.5 percent of your adjusted gross income (AGI),
  • Medical insurance premiums for eligible unemployed individuals,
  • Qualified education expenses, and
  • Distributions taken within the first five years for any of these reasons: age 59, death, disability, or first-time home purchase.

Distributions taken for any reason other than a qualified reason or one of the reasons listed here are subject to both taxes and a 10 percent IRS penalty on any earnings withdrawn.

What if I Need Access to My Money Now?
A helpful feature of the Roth IRA is that, for non-qualified distributions, original contribution amounts are returned first. Contributions (as opposed to earnings) are not subject to taxation or the 10 percent IRS premature-distribution penalty when distributed. In other words, you can always get back your principal tax free and IRS penalty free for any reason.

When Do I Have to Start Taking Distributions From My Roth IRA?
You never have to take distributions from your Roth IRA. That's another benefit of the Roth IRA over traditional IRAs. Assets held in a Roth IRA are not subject to age 70 required minimum distributions.

What Happens in the Event of My Death?
Your named beneficiary(ies) will receive the entire proceeds of your Roth IRA. The manner in which your beneficiary(ies) receives the funds is determined by the election made by your beneficiary(ies) within the guidelines of the law.

How Do I Move Funds From a Traditional IRA to a Roth IRA?
The law only allows people (single or married) with a MAGI of $100,000 or less to convert or roll over their traditional IRA into a Roth IRA. A married individual who files a separate income tax return is not allowed to convert a traditional IRA to a Roth. For a rollover or conversion to a Roth IRA, the amount rolled over or converted will be subject to full taxation. However, the funds will not be subject to a 10 percent premature-distribution penalty. Rollovers from a traditional IRA to a Roth IRA are not subject to the one rollover per 12-months rule.

Additionally, the law provides that for conversions / rollovers to Roth IRAs completed in 1998 the taxes will be paid ratably over a four-year period. After 1998, such conversions / rollovers are fully taxable in the year of the distribution.

When Is the Contribution Deadline for Funding a Roth IRA?
Roth IRAs for the taxable year can be opened and funded any time between January 1 and the date your tax return is due for the year, excluding extensions. This is normally April 15 of the following year.

How Do I Open a Roth IRA?
Simply see any of our IRA representatives. We will explain the nature of these accounts in more detail and help you complete the simple forms necessary to establish your Roth IRA.

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