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Individual Retirement Accounts (IRA)

Choose the IRA that meets your needs.

 

 

Below are the details and advantages of the accounts. If you are eligible for a Traditional IRA or a Roth IRA and are still unsure which account is right for you, follow these rules-of-thumb:

Traditional IRA

A Traditional IRA offers tax-deferred earnings and the possibility for tax-deductible contributions. Earnings in a Traditional IRA are not taxed until they are withdrawn. The ability to defer taxes on earnings, and to withdraw in a year when you may be in a lower tax bracket, can mean more after-tax dollars for your retirement. These tax advantages make the Traditional IRA a powerful tool in creating a balanced, long-term savings plan.

Who can contribute?

Anyone under age 70½ who earns compensation from employment (or who is filing jointly with a spouse who earns compensation). Contributions cannot exceed compensation.

How much can I contribute?

If you are under age 50, your annual contribution limit is:  $5,500.00 for Tax Year 2016 and $5,500.00 for Tax Year 2017.

If you are age 50 and older, your annual contribution limit is:  $6,500.00 for Tax Year 2016 and $6,500.00 for Tax Year 2017.

Many people can deduct contributions on their tax returns. However, certain rules do apply.

When can I withdraw funds from the IRA?

In general, you must pay a 10% tax penalty on withdrawals before age 59½. But the early withdrawal tax does not apply in the following situations:

  • Withdrawal of up to $10,000 for a first-time home purchase
  • Amount is used to pay for qualified post-secondary education expenses
  • Distribution is for medical insurance premiums during unemployment that lasts 12 weeks or longer
  • Distribution is to an owner who is disabled (as defined by the IRS code)
  • Amount is used to pay for medical expenses in excess of 10% of Adjusted Gross Income (AGI)
  • Payment is made to your beneficiaries after your death
  • Payment of a federal tax levy.

Please consult a tax professional for a complete list of all exclusions.

When must I begin receiving Distributions from my Traditional IRA?

You must begin receiving required minimum distributions from your Traditional IRA at age 70½. The minimum distributions each year will be computed using an IRS formula. You are allowed to delay the first year's payment until April 1st of the following year, but you will receive two years worth of payments in that year if you choose to delay.

Please consult a tax professional for an interpretation of current figures, information and how these rules apply to you.

Roth IRA

Unlike traditional IRAs, contributions to a Roth IRA are never tax-deductible. However, the money in your Roth IRA, including earnings, can be withdrawn tax-free. Of course, you must conform to certain tax requirements to get this tax-free advantage.

Who can contribute?

Anyone who earns compensation from employment (or who is filing jointly with a spouse who earns compensation) with income less than or within the applicable IRS limits. Contributions cannot exceed compensation.

How much can I contribute?

If you are under age 50, your annual contribution limit is:  $5,500.00 for Tax Year 2016 and $5,500.00 for Tax Year 2017.

If you are age 50 and older, your annual contribution limit is:  $6,500.00 for Tax Year 2016 and $6,500.00 for Tax Year 2017.

Note: Contributions to a Roth IRA are never tax-deductible.

When can I withdraw funds from the Roth IRA?

You can withdraw regular contributions without paying income tax at any time.
There are two requirements to qualify for tax-free withdrawals of the income your Roth IRA has earned.

  • The Roth IRA must meet the Five-Year-Test. In other words, it must be five years after the first year for which Roth contributions were made.
  • One of the following conditions must apply:
    • You are over age 59 1/2
    • Funds are going to your beneficiary upon your death
    • You have become disabled
    • You are using the funds for a first time home purchase (lifetime limit $10,000 per person)

What if I make a withdrawal from the Roth IRA and I am not age 59½ or covered by any exceptions?

Unless an exception applies, earnings distributed before age 59½ are subject to the 10% early distribution tax.

Do I have to receive minimum distributions at age 70½?

No. Unlike the Traditional IRA on the Roth IRA you are not required to receive minimum distributions at age 70½. If you don't need the cash, you can let your money continue to grow tax-free for as long as you like.

Please consult a tax professional for an interpretation of current figures, information and how these rules apply to you.

 

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