Individual Retirement Accounts

To help you make the decision as to which IRA is right for you, we've provided this reference guide to explain some of the differences between the two types of IRA's. Remember that you are able to mix and match your contributions between the different types of accounts providing you follow some basic guidelines. Take a moment to read through this page and then drop by or call our home office to talk to a new account representative about your specific needs.

How are they different?

Traditional IRA - In this IRA, contributions you make to the account now are often tax deductible and then will be taxed upon withdrawal. This allows you to defer taxation until your retirement when you may be in a lower tax bracket.

Roth IRA - In this IRA, the newest one created by the Tax Payer Relief Act of 1997, contributions you make now are NOT tax-deductible, but can be withdrawn tax free for certain reasons after a five-year holding period. If you do not need the immediate tax break or expect to be in a higher tax bracket when you retire, this may be the account for you.

What are the eligibility requirements and how much can I contribute per year?

Traditional IRA - You must be under 70 and 1/2 years of age the entire tax year and have earned income to be eligible for the Traditional IRA. If you do not have earned income, but your spouse has earned income in the tax year for which you would like to contribute, you may still be eligible. You may contribute, per tax year, up to 100% of your earned income or the annual contribution limit, whichever is less.

 

Annual Contribution Limits for both Traditional & Roth IRAs

  2012 2013
Regular Contribution $5,000.00 $5,500.00
Catch-Up Contribution $1,000.00 $1,000.00

(Catch-Up Contribution = Additional annual contribution amount allowed if the IRA holder is 50 or older prior to the end of the taxable year)

 

Roth IRA - This account does not have an age restriction, however you must have earned income in the tax year for which you would like to contribute, AND your modified adjusted gross income (MAGI) cannot exceed certain limitations. You may contribute, per tax year, up to 100% of your earned income or the annual contribution limit, whichever is less.

Roth IRA
Single Filers - 2013 Tax Year
MAGI of $112,000
or less
MAGI between $112,000 and $127,000 MAGI of $127,000
or more
Full Contribution Partial Contribution No Contribution
Married and Joint Filers - 2013 Tax Year
MAGI of $178,000 or less MAGI between $178,000 and $188,000 MAGI of $188,000
or more
Full Contribution Partial Contribution No Contribution


Please note: You can contribute to BOTH a Roth and a Traditional IRA each tax year, BUT the total combined contribution must not exceed the regular or regular + catch-up limit.

When MUST I take distributions from my IRA and how do I withdraw funds without any tax penalty

Traditional IRA - You MUST begin to take distributions from a traditional IRA at age 70½ or you may face IRS penalties. After you reach age 59½ you can begin to withdraw your funds without the 10% IRS premature-distribution penalty tax (for early withdrawal).

Roth IRA - There is no required minimum distribution rule on the Roth IRA, therefore you may leave your money in a Roth IRA as long as you want. Distributions taken after you have had the Roth IRA for 5 tax years and you are at least age 59 ½ will be free of the 10% IRS premature-distribution penalty tax. Certain other qualified distributions are also exempt from the penalty tax.

What is a Direct Rollover?

A rollover is a tax-free way to move pre-tax assets from your retirement plan at work into a Traditional IRA. These funds will continue to grow on a tax-deferred basis until you withdraw them from your Traditional IRA.

 

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