Saving for the Future with IRAs
Individual Retirement Accounts (IRAs)provide one of the most effective ways of savings for retirement because they shelter earnings on savings from immediate taxation.*
Here are the general rules:
- For tax year 2013, your maximum contribution is $5,000. If you're age 50+, you can add an additional $1,000 under the catch-up provision
- You can withdraw from your IRA without penalty to pay for certain expenses, such as educational expenses or buying a first-time house. Otherwise, you can’t take money out without penalty before you reach age 59½
- You must begin withdrawing from your IRA by April 1st of the year following the year in which you reach age 70½
- You can often deduct IRA contributions from your income tax*
Chevron Valley offers Traditional, Roth and Education IRAs.
You can open an IRA savings or certificate account at Chevron Valley for as little as $500 and steadily add to it using payroll deduction. For rates and certificate terms, click here.
Traditional IRAs can range from a credit union share certificate to stocks held in a brokerage account. You must receive compensation, be married to someone who does, or get alimony, in order to contribute to an IRA.
Traditional IRAs offer tax-deferred earnings and the possibility for tax-deductible contributions. Unlike traditional IRAs, contributions to Roth IRAs are never tax-deductible. However, you can withdraw the money in a Roth IRA, including earnings tax- and penalty-free if certain tests are met.
Coverdell Education Savings Account
This plan, like the Roth IRA, is nondeductible and offers tax-deferred earnings. The Education IRA can be used for elementary and secondary school expenses, computer technology or equipment—even online access—that the beneficiary uses during the years in school, books, supplies, and so on. The annual contribution limit is $2,000 a year.
Frequently asked questions:
- Which is better, a traditional or a Roth?
It’s an easy answer if your income is too high to qualify for a tax-deductible IRA. A Roth IRA is much better than a nondeductible IRA because your earnings are forever, tax-free; earnings from a nondeductible IRA are tax deferred.
It’s a little more complicated if you’re eligible for either a deductible IRA or a Roth. There are a number of calculators on the Web including at www.rothira.com, which will lead you through a complex set of questions regarding income, tax bracket, life expectancy and so forth.
In general, the younger you are, the more attractive a Roth IRA is. That’s because you have a longer time I which to accumulate tax-free earnings. If you’re in excellent health, and plan to live a very long life, the Roth is for you.
Do you have to keep your IRA in the same account forever?
IRA rules permit you to transfer, tax-free, IRA assets to a different trustee (financial institution or broker). If you leave an employer, it may be possible to have your accumulated pension benefits moved into an IRA under your control. If you are switching jobs, you can also use an IRA as a holding account, or conduit IRA, for moving the funds to your new employer’s plan.
- What if you need some, but not all, of your IRA assets?
It’s possible to move part of the withdrawal tax-free into another IRA and keep the rest of it. Of course, the amount you keep will generally be taxable and may be subject to the 10 percent early withdrawal tax.
All shifts of funds are subject to certain rules that must be followed or you can face penalties. Consult with your financial institution for expert advice on moving IRAs and with your employer’s human resource department for advice on handling of pension funds.
*Please consult your tax advisor for details on each IRA option and tax advantages.
All IRA information provided here has been obtained from sources believed to be reliable. However, this information is not necessarily complete and cannot be guaranteed.
Not a member of Chevron Valley Credit Union? To open an account, click here
Your savings federally insured to at least $250,000 and backed by the full faith and credit of the United States Government