Individual Retirement Accounts
Am I Eligible for 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, Savings Incentive Match Plan for Employees of Small Employers (SIMPLE), or qualified plan (pension or profit sharing) established by an employer.
What is Compensation?
Compensation is the salary or wages you receive as an employee. If you are self-employed, compensation is your net income for personal services performed for the business. All taxable alimony is considered compensation. Passive income such as interest, dividends, and most rental income is not considered compensation for purposes of funding an IRA.
How Much Can I Contribute to My IRA?
You may contribute any amount up to 100 percent of your compensation or $5,500, whichever is less, or $6,500 if you are age 50 and above.
Do I Pay Taxes on the Earnings of My IRA?
All earnings on your IRA contributions (deductible and/or nondeductible) remain tax deferred until you make withdrawals from the account.
Do I Get a Tax Deduction for My Contribution?
Deductibility of your contribution is based on whether or not you are an active participant in an employer-maintained retirement plan. If so, the deductible amount is dependent on your modified adjusted gross income (MAGI) and income tax-filing status. You may be eligible for the maximum deduction, a partial deduction, or no deduction.
What if I'm Not Eligible for a Deductible IRA Contribution?
You can still make nondeductible contributions to your IRA.
When Can I Withdraw Funds From My IRA Without Incurring Any IRS Penalties?
You can withdraw funds from your IRA without the 10 percent IRS premature-distribution penalty any time after you reach age 59 1/2. You may be able to withdraw funds from your IRA prior to age 59 1/2 without the 10% IRS premature distribution penalty if you become disabled; when the distributions are part of certain periodic payments, and for medical expenses in excess of 7.5 percent of your adjusted gross income or for health care insurance if you've been receiving unemployment compensation for at least 12 weeks. When you reach age 70 1/2, you must begin to take minimum required withdrawals or severe penalties will be imposed.
How Do I Open an IRA?
Simply see any of our IRA representatives. We will explain the nature of these accounts in more detail and help you complete the simple forms necessary to establish your IRA.
OTHER IRA PLAN OPTIONS
You may contribute to a ROTH IRA at any age as long as you have earned income and file a tax return, and if you're married, you both automatically qualify. The earned income must be in the form of wages, salary, tips, alimony, or profit from business or farming. There are income limitations to this account. Call for information on these limitations.
These accounts have the same contribution levels as regular IRA's, but are tax exempt and have no required distributions from them. Call us for additional information on ROTH IRA's.
COVERDELL EDUCATION SAVINGS ACCOUNT (CESA)
A Coverdell Education Savings Account can be opened or funded by anyone for the benefit of the child. The child is the "designated beneficiary" of the account and the funds must be used for educational purposes prior to the "designated beneficiary" becoming 30 years old.
Check with any of our representatives to get more information about all of our retirement accounts.
Still Have More Questions?
Click here to contact us at Citizens State Bank and receive more information.