Individual Retirement Accounts
You can save on your present taxes with an Individual Retirement Account (IRA), by deducting your qualified contributions from your taxable income. Most Americans can deduct all or part of their IRA contributions. The deductible amount depends on your income, martial status, and whether you’re an active participant in an employer sponsored plan as defined by the Internal Revenue Service.
With an IRA, you can also defer taxes until you retire, when you may be in a lower tax bracket. You may want to consult your tax advisor to review your particular situation on the tax deductible status of an IRA. The IRA is a smart way to save for a secure retirement.
Are you eligible to have an IRA? If you are under age 70 1/2 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, or qualified plan (pension or profit sharing) established by an employer.
Are you retiring or changing jobs? If you are retiring or changing jobs and plan to withdraw money from your employer’s retirement plan, you may be interested in a “direct rollover” of your money into a new IRA account with us. A direct rollover is a Qualified Plan or tax-sheltered Annuity distribution that is sent directly from the plan administrator (employer) to an IRA. Funds moved to an IRA via a direct rollover are not subject to the mandatory 20 percent federal income tax withholding at time of distribution.
The Roth IRA
The 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.
Are you 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.
Do you pay taxes on your earnings? NO (provided that 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, you pay no taxes on any of the earnings that your money has generated.
What are Qualified Distributions? 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 1/2
- Distributions made to your beneficiary (or your estate) upon your death
- Distributions attributable to your being disabled
- Qualified first-time home buyer distributions (up to $10,000)