 Savings Accounts With Your Future In Mind!
A Summit Credit Union Individual Retirement Account (IRA) is a special type of account that permits members to save money during their employment years to cover expenses after retirement and to help with their children's education. The Credit Union offers three IRA products: The Traditional IRA, the Roth IRA and the Education Savings Account (ESA).
TRADITIONAL IRA
An individuals under age 70½ who has earned income or a nonworking spouse of a wage earner up to the year the nonworking spouse turns age 70½ may be eligible to contribute to a Traditional IRA. The money deposited is exempt from federal taxes until you withdraw it during retirement.* The money you place in your IRA may be deducted from your taxable gross income each year under certain criteria, so consult a tax advisor. Your IRA dollars through the Traditional IRA can be invested in our IRA Certificate or IRA Accumulator accounts.
ROTH IRA
Unlike traditional IRAs, your contributions to a Roth IRA are made with after-tax dollars, and your withdrawals after retirement are tax-free, providing you conform to the plan requirements.* The Roth IRA can offer an advantage over a traditional IRA, but it depends on factors such as your income, tax bracket and years until retirement. Consult your tax advisor to decide which plan best suits your needs. Your IRA dollars through the Roth IRA can be invested in our IRA Certificate or IRA Accumulator accounts.
EDUCATION SAVINGS ACCOUNT
Education Savings Accounts, also known as Coverdell Education Savings Accounts, help contributors save for the costs of a child's education, primary school, high school, college, or beyond. You may contribute up to $2,000 a year in an account to pay for qualified education expenses at an eligible educational institution.*
Contributions to an Education Savings Account are made in after tax dollars. However, the credit union dividends are not taxed and there is no tax on withdrawals used for education. Consult your financial planner regarding aggregate annual contribution limitations, adjusted gross income related phase-outs and pre-paid college restrictions.
*See IRS Publication 590, Individual Retirement Arrangements, for more information on IRA rules, penalties, and exceptions. You may also want to visit the IRS web site (www.irs.gov).
BACK TO CONTENTS
MINIMUM BALANCE
There is no minimum deposit requirement to open any IRA.
DIVIDEND RATE
You can open a high yielding IRA Certificate or IRA Accumulator account. Dividend rates are compounded and paid quarterly. The dividend rate for IRA Certificates are fixed for the duration of the Certificate and will not fluctuate. The dividend rate for the IRA Accumulator account is subject to change monthly based current economic conditions.
SERVICE CHARGE
Unlike many financial institutions, Summit Credit Union will open and service your IRA at no charge. As a result, your entire contribution goes toward your retirement savings.
INFORMATION SERVICES
Summit Credit Union provides monthly or quarterly statements showing the status of your IRA including contributions for the current year, balance, dividends earned and any withdrawals or transfers. Summit Credit Union sends a notice prior to age 70 ½ to remind you to start taking minimum distributions on Traditional IRAs only.
SAVING AUTOMATICALLY
Members may have periodic contributions automatically deducted from their salary and deposited into a Credit Union IRA. Payroll Deduction and Direct Deposit transfers eliminates the inconvenience and expense of bringing deposits to the office.
CONTRIBUTIONS AND DEADLINES
The maximum annual contribution is the lesser of 100% of earned income or the tax year contribution limit set by the IRS as follows:
Tax Year Contribution Limit
$4,000 for tax year 2007
$5,000 for tax year 2008
After 2008: limit adjusted for inflation in $500 increments
Catch-up contributions for workers age 50 and older (as of year's end): $1,000 extra
One individual may open both a Roth and a traditional IRA or multiple IRAs of either type; however, the combined contribution per calendar year to all these accounts cannot exceed the IRS limit.
Individuals with a non-working spouse or one who has minimal income may make an IRA contribution for their spouse up to the same annual contribution limit listed above. Contributions may be made to a Roth and/or traditional IRA from January 1st of the given tax year until April 15th of the following year. The April 15th deadline is not extended for making contributions even if taxpayers receive an extension for filing their return.
There are additional restrictions on contributions depending on whether they are being made to a Roth or a traditional IRA. Please See IRS Publication 590, Individual Retirement Arrangements, for more information on IRA rules, penalties, and exceptions. You may also want to visit the IRS web site (www.irs.gov).
DISTRIBUTIONS
From a Traditional IRA you may not receive distributions from your IRA before age 59 ½ without paying a 10% tax penalty on the amount disbursed except for the following reasons: disability, some medical expenses and medical insurance costs. Under certain stringent calculations, the tax penalty can be avoided with the distribution of substantially equal payments before age 59 ½. At age 59 ½ you may withdraw the entire amount, arrange for regular withdrawals or make random withdrawals. Distributions are taxed as ordinary income. Taxes are paid only on the amount withdrawn each year, depending on the deductibility of the original contributions.
You must begin making withdrawals from a Traditional IRA by April 1st of the following year in which you become 70 ½. If you have more than one IRA, you may choose to withdraw from each account or make withdrawals from a specific account based on an aggregate balance. Your withdrawal of accumulated funds must meet the required minimum distribution based on a single or joint life expectancy as defined by the IRS. Failure to take adequate deductions after age 70 ½ may result in a 50% penalty on the amount required to be withdrawn.
Distributions from a Roth IRA are tax free and penalty free if the account has met the five year holding period and the distributions qualify. Qualifying distributions include 1) distributions made after age 59 ½, 2) distributions made due to death, 3) distributions made due to disability and 4) distributions for qualified first time home purchase.
Non-qualifying distributions of earnings are taxed and a 10% premature distribution penalty applies. The following types of Roth IRA distributions are subject to taxes on earnings withdrawn; however, the 10% premature distribution penalty does not apply:
1. Substantially equal period payments.
2. Eligible medical expenses in excess of 7.5% of AGI.
3. Medical insurance premiums for eligible unemployed individuals.
4. Higher education expense distributions.
5. Distributions taken within the first five years dues to age 59 ½, death, disability or a first time home purchase.
Distributions withdrawn from an Education Savings Account are tax free if they are for a qualifying educational expense. Qualifying expenses include tuition, fees, books, supplies and equipment required for the enrollment or attendance at an eligible higher education institution. Qualifying Education IRA distributions do include room and board (generally the schools posted room and board charge) or $2,500 for students living off campus and not at home.
The Credit Union may withhold a portion of any distribution to be applied to your federal income tax; however, you may choose not to have the tax withheld by filing an exemption notice with the Credit Union.
Withdrawals may be initiated by completing a Withdrawal Request form available in the Credit Union office.
EXCESS CONTRIBUTIONS
If you make an excess contribution to your IRA, a non-deductible 6% federal excise tax must be paid on the excess contribution for each year it remains in your account. This tax will not be charged if you withdraw the excess contribution and any earnings on it by the time you file your tax return for the year. You may want to consult your tax advisor on the tax liability associated with removing an excess contribution.
PROHIBITED TRANSACTIONS
Generally, a prohibited transaction is any improper use of your IRA. Examples of prohibited transactions include borrowing money from the IRA or using the IRA as security for a loan. A prohibited transaction on an IRA may cause the IRS to disqualify your IRA and remove its tax preference.
BACK TO CONTENTS
OTHER TYPES OF TRADITIONAL AND ROTH IRAs
SPOUSAL IRA
If your spouse was not employed during the year, you may also make contributions to a separate Spousal IRA.
ROLLOVER IRA
You may establish a rollover IRA by withdrawing all or part of the funds in one IRA and reinvesting them in another IRA. The same funds may be rolled only once in a 12 month period, excluding conversions to a Roth IRA.
Rollover IRAs are for members who want to move or consolidate an IRA(s) from one financial institution to another or to convert funds from a Traditional IRA to a Roth IRA. Traditional Rollover IRAs may be used to reinvest premature pension and/or other retirement distributions received prior to your need of these funds. These lump sum distributions may occur when you retire or terminate a job as a participant in an employer-sponsored plan. These funds cannot be rolled directly into a Roth IRA; however, the funds can be rolled to a Traditional IRA. Funds in a Traditional IRA may be rolled into a Roth IRA. All or a portion of the funds may be subject to taxes.
You must deposit all or part of the rollover amount in your new IRA within 60 days. Any portion not deposited within 60 days may be subject to income tax and the IRS could impose a tax penalty for a premature withdrawal.
Funds received as the result of a lump sum distribution should be deposited into a conduit Traditional Rollover IRA, separate from funds in a Contributory Traditional IRA. By keeping these monies in a separate account, you afford yourself the flexibility to rollover these funds into other qualified pension or profit sharing plan at a later date.
Rollover IRA funds do not count toward your annual contribution limit for a Contributory IRA and cannot be deducted from gross income as a tax deduction.
Monies rolled from a Traditional IRA into a Roth IRA should also be maintained in a separate account.
Recipients of eligible rollover distributions from a qualified pension (under IRS Secs 401(a), 401(k) and 403 may choose to have the distribution directly rolled over to a Traditional IRA (not a Roth IRA) or other qualified plan. Any eligible rollover distribution which is not directly rolled over will be subject to a 20% federal income tax withholding.
ROLLOVER FROM A TRADITIONAL IRA TO A ROTH IRA
You may convert a Traditional IRA to a Roth IRA if your adjusted gross income (AGI) is less than $100,000 and your tax filing status is married filing jointly. You may convert a Traditional IRA to a Roth IRA if your adjusted gross income (AGI) is less than $60,000 and your tax filing status is single. The amount you convert is subject to ordinary income taxes in the year of conversion.
CUSTODIAN TRANSFER
With a custodian transfer, you authorize the present custodian of your IRA to transfer funds to another trustee or custodian. A custodian transfer differs from a rollover in that you do not receive the funds. Transfers may be made as often as you like without a tax penalty. There is no transfer penalty and no minimum deposit limit with a Credit Union IRA.
BACK TO CONTENTS
.
|
