IRA Savings (Retirement)

An IRA (Individual Retirement Account) is a personal savings plan that:

  • Offers you tax advantages just for setting aside money for your future
  • May be tax deductible depending on your circumstances
  • Allows you to enjoy earnings that are generally not taxed until you take a distribution
  • Allows you to open the account with any balance you choose


Traditional IRA

A Traditional IRA is a powerful tool for creating a balanced long-term savings plan. It allows you to benefit from significant upfront tax advantages, and with less money taken out for taxes you can earn much more on your savings.

Advantages of a Traditional IRA:

  • Earnings accumulate tax-deferred
  • Contributions may be tax-deductible
  • The amount you can contribute is increasing annually

Eligibility

You can contribute to a Traditional IRA:

  • If you earn compensation and will not reach age 70 by the end of the year
  • If you have a Modified Adjusted Gross Income (MAGI) of up to $50,000 (individual return) or $70,000 (joint return) and if you are an active participant in an employer-sponsored retirement plan, you may make fully deductible contributions regardless of MAGI.
  • If you are not an active participant in an employer-sponsored retirement plan, you may make fully deductible contributions regardless of MAGI.
  • If you do not qualify for the deductible IRA contribution, you may make annual non-deductible contributions and still take advantage of the tax-deferred earnings.
  • If only one spouse is deemed an active participant in a qualified retirement plan (QRP), the other “non-active” spouse may make a fully deductible contribution if the couple’s MAGI is $150,000 or less. A partially deductible contribution will be allowed for MAGIs between $150,000 and $160,000.

You can begin receiving distributions from your Traditional IRA at age 59. You are required to begin by April 1 of the year following the year you turn 70.

Distribution Exceptions:

Distributions taken prior to age 59 may be subject to a 10% IRS early withdrawal penalty, unless one of the following exceptions exists:

  • Purchase of a first home ($10,000 lifetime limit)
  • Qualified higher education expenses
  • Disability
  • Death
  • Substantially equal period payments (early retirement)
  • Medical exceptions

The deductible contributions and earnings are always subject to federal income tax at the time of distribution.

Your IRA funds are federally insured up to $250,000 with the NCUA.

Roth IRA

Roth IRAs provide you with unique savings opportunities and are a safe and easy way to plan for the future. Unlike Traditional IRAs, Roth IRAs are never tax-deductible. However, the money in your Roth IRA, including earnings, may offer some advantage when withdrawing based on the plan provisions.

Advantages of a Roth IRA:

  • Contributions are allowed at any age
  • Flexible withdrawal options are available
  • The amount you can contribute is increasing

Eligibility

You can contribute to a Roth IRA if:

  • You are an individual or a married couple currently earning income
  • You are a single individual with a Modified Adjusted Gross Income (MAGI) of $95,000 or less
  • You are a married couple with a MAGI of $150,000 or less

Contribution limits phase out for MAGIs between $95,000 and $110,000 for single individuals and between$150,000 and $160,000 for married couples filing jointly.

You may continue to contribute to a Roth IRA even if you participate in an employer-sponsored plan. A non-working spouse is also eligible even if the working spouse is
covered by an employer-sponsored plan.

Your IRA Funds are federally insured up to $250,000 with the NCUA.

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