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INDIVIDUAL RETIREMENT ACCOUNTS
An Individual Retirement Account (IRA)
is an excellent tool for retirement savings. Unlike most investments,
depending on the type of IRA you choose, contributions may
be tax deductible and will grow either tax-deferred or tax-free.
Perry Point Federal Credit Union offers both a Traditional
IRA and a Roth IRA. The National Credit Union Administration,
a U.S. Government agency, insures all of your IRA deposits in
our credit union up to $250,000. This is in addition to the $100,000 insurance on your non-IRA deposits.
We offer both an IRA Share Savings Account and IRA Share Certificates.
The IRA Share Savings Account is the ideal account when you're
just starting to save because there's no minimum balance required.
It’s also good to use when you begin withdrawing from
your IRA because it has no early withdrawal penalties as there
are with IRA Share Certificates. Our IRA Share Certificates
are available with terms of 6, 12, 18, 24, 30 and 36 months.
They're an ideal way to save long-term because they offer
a higher dividend rate than the IRA Share Savings Account.
You must have a minimum balance of $500 to open an IRA Share
Certificate. You can split your IRA between any combination
of Traditional, Roth, IRA Share Savings, and IRA Share Certificates
as long as you don’t exceed the maximum annual contribution
limits as noted in the chart below.
Traditional IRA
A Traditional IRA is a type of retirement account that has
been in existence since 1975. Traditional IRA’s offer
tax-deferred earnings and the possibility for tax-deductible
contributions. These tax advantages make the traditional IRA
a powerful tool in creating a balanced, long-term savings
plan.
Roth IRA
A Roth IRA is an individual retirement account created by
the Taxpayer Relief Act of 1997. Named for former Senate Finance
Committee Chairman William Roth, Jr., this IRA offers more
incentives to boost your retirement savings, as well as more
ways to use your nest egg.
The following chart is a summary of
the differences between Traditional and Roth IRA’s.
For more details, ask for our free IRA brochures. The following
information is not intended as tax advice. Please consult
a tax professional. (MAGI refers to the Modified Adjusted
Gross Income from your federal income tax return.)
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TRADITIONAL
IRA |
ROTH
IRA |
| Who
can contribute? |
Anyone with income from
compensation (or who is filing jointly with a spouse who
earns compensation) and who will not reach age 70 1/2
by the end of the year.
Anyone who has received a distribution from a qualified
retirement plan and decides to roll over the proceeds
of the plan into an IRA. |
Anyone
who has income from compensation (or who is filing jointly
with a spouse who earns compensation), with the following
MAGI:
- Up to $95,000 for single filers
- Up to $150,000 for joint filers
Reduced contributions are allowed
for higher incomes:
- Up to $110,000 for single filers
- Up to $160,000 for joint filers
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How much can
I contribute? |
$3,000 for 2004
$4,000 for 2005 thru 2007
For owners age 50 and older, your limits increase to $3,500
for 2004, $4,500 for 2005, and $5,000 for 2006 and 2007
Cannot exceed compensation
Reduces contributions that can be made to Roth IRA’s |
$3,000 for 2004
$4,000 for 2005 thru 2007
For owners age 50 and older, your limits increase to $3,500
for 2004, $4,500 for 2005, and $5,000 for 2006 and 2007
Cannot exceed compensation
Reduces contributions that can be made to Traditional
IRA’s |
| Who can make deductible
contributions? |
Fully
deductible contributions can be made by:
- Single individuals not active
in employer
retirement plans
- Single individuals active in
employer retirement plans with MAGI of less than:
- $45,000 (2004)
- $50,000 (2005 – 2010)
- Married couples with neither
spouse active in an employer retirement plan
- Married individuals active in
employer retirement plans with joint tax returns showing
MAGI of less than:
- $65,000 (2004)
- $70,000 (2005)
- $75,000 (2006)
- $80,000 (2007 – 2010)
- Married individuals not active
in employer retirement plans with spouses who are,
as long as MAGI is $150,000 or less
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No one can deduct contributions |
What are the
tax advantages? |
Earnings grow tax-deferred
until withdrawn
Contributions may be tax-deductible |
Earnings are tax-free
if account is open for five tax years and withdrawn for
a qualified reason (age 59 1/2, disability, death, or
a first-time home purchase [lifetime limit for exemption
on first-time home purchase is $10,000])
Not required to start withdrawals at age 70 1/2 |
| When can I withdraw without restrictions? |
Withdraw penalty-free for
any of the following reasons:
- Qualified higher-education expenses
- First time home purchase (lifetime limit for exemption
on first-time home purchase is $10,000)
- Age 59 1/2
- Disability
- Qualifying medical expenses exceeding 7.5% of adjusted
gross income
- Payment to beneficiaries upon owner’s death
- Payment of health insurance premiums while unemployed
for 12 weeks or longer
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Regular contributions can
be withdrawn tax-free and penalty-free at any time
After the account has been open five tax years, earnings
can be withdrawn tax-free and penalty-free for any of
these reasons:
- Age 59 1/2
- Disability
- Death
- First-time home purchase (lifetime limit for exemption
on first-time home purchase is $10,000)
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| When must I start making withdrawals? |
Must begin by April 1 of the year after
you reach age 70 1/2 |
You are not required to make withdrawals,
however, minimum distributions must be made to your beneficiaries
after your death |
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