Individual Retirement Accounts (IRA)
Members CU offers three types of Individual Retirement Accounts (IRAs). IRAs are special savings accounts authorized by the US Government. Typically these accounts are key components to ones Retirement Plan or Education Savings Plan and provide tax advantages to qualifying account holders. Each type of IRA account has different rules that the account holder must satisfy to receive the tax advantage. If rules are not followed, a tax penalty might occur.
- Traditional IRA: Deposits, dividends, and capital gains into this account are tax deductible. Withdrawals from the account are subject to federal income taxes. This account can provide an immediate tax benefit for qualifying account holders. To be eligible, you must be under age 70 1/2 at the end of the calendar and have some form of compensation (wages, salaries, bonuses, and commissions) to contribute. Withdrawals from a Traditional IRA cannot begin until age 59 1/2 without penalty, and it is mandatory that the account holder begins withdrawals the same year he or she turns 70 ½.
The maximum total contribution to both Traditional and Roth IRAs is $6,000 for an individual or $12,000 for a married couple filing jointly. In addition, those over the age of 50 may contribute an extra $1,000 per year.
- Roth IRAs: Unlike Traditional IRAs, Roth IRA contributions are not tax deductible. However, withdrawals are tax-free if the account has been opened for at least five years and the account holder has reached age 59 ½. There is not a mandatory withdrawal age. Eligibility is still subject to income limitations. You are entitled to withdraw from your IRA entirely tax free at age 59 ½.
- Coverdell Education Savings Account (ESA): The Education Savings Account provides a tax savings vehicle for college education. Deposits are considered a gift to the beneficiary (a minor) and must be withdrawn for qualified education expenses. Eligibility is based on the contributor’s income and the maximum contribution is $2,000 per year, per beneficiary. Contributions to Coverdell Education Savings Accounts do not affect the ability to contribute to a Traditional or Roth IRA.
Because of their complexity and the likelihood of changes in tax laws, we recommend that you speak with your personal tax advisor, or our partner MEMBERS Financial Services, about eligibility and tax deductibility before making any IRA deposits.
Talk to a Financial Advisor at Members CU to find out how to plan and prevail in your future.