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Traditional IRAs | Roth IRAs | Education IRAs

We're committed to making it easier for you to invest regularly and build a solid financial foundation for your future. Our IRAs come with specific advantages that mean simpler, more flexible investing.

Contributions to Traditional IRAs may be tax-deductible*, and all contributions and earnings are fully taxable upon distribution. Our Roth IRAs give investors the option of making nondeductible contributions up front in exchange for tax-free distributions of earnings in the future, provided certain conditions are met.

You may place up to the maximum limit (see Traditional & Roth Contribution Limits chart below) set by the IRS of your earned income in an IRA each year until you turn 70½. You may also contribute an additional amount per year of your earned income to a separate IRA for a non-income-earning spouse. Withdrawals from Traditional IRAs and Roth IRAs made prior to age 59½ may be subject to a 10% federal tax penalty and additional state penalties.

*Please consult your accountant or tax advisor about your particular situation.

Traditional IRAs
If you won't require deposited funds before retirement, a Traditional IRA could be right for you. Not only can a Traditional IRA help you save for your future, it can also offer immediate financial benefits. The taxes on your earnings are deferred until they are withdrawn, and contributions may be tax-deductible in the tax year they are earned.

Due to the Tax Relief Act of 1997, the income limits for contributions will gradually increase until the year 2007. For maximum contributions per year, see the Traditional & Roth Contribution Limits chart below. You may contribute up to the maximum limit as long as you meet the modified adjusted gross income requirements set by the IRS.

FEATURES

  • Contributions to a Traditional IRA can be made by taxpayers under age 70½ who have earned income.
  • The earnings (interest, dividends, capital gains) on your IRA investments are not taxed as long as the funds remain in your IRA.
  • Depending on your income and on whether you or your spouse are covered by an employer's retirement plan, some or all of your annual IRA contribution may be tax-deductible.

Although contributory IRAs carry tax advantages, they are subject to various tax rules. Three of the most important are:

  • A distribution from an IRA is taxed as ordinary income in the year in which you take the distribution. (If you have made nondeductible contributions to your IRA, a portion of your distribution will be nontaxable.)
  • If you take a distribution from your IRA before you turn 59½, those funds will be subject to a 10% federal tax penalty unless an exception applies. Exceptions include*:

    • if you become disabled
    • qualified higher education expenses
    • first-time purchase of a home ($10,000 lifetime limit)
    • qualifying medical expenses
    • payments to beneficiaries upon the owner's death
    • and certain unemployment-related expenses

  • After you turn 70½, you must begin taking annual distributions (required minimum distributions) from your IRA. The amount of each distribution is based on IRS life expectancy tables.

*Please consult your accountant or tax advisor about your particular situation.

Roth IRAs
The Roth IRA offers flexibility by allowing you to pay taxes now and reap the benefits in the future. Roth IRA contributions are made with after-tax dollars (contributions are not tax-deductible). Your contributions may be withdrawn at any time tax-free. The earnings (interest, dividends, capital gains) from a Roth IRA may be withdrawn tax-free if:

  • the account has been open for five years
  • you are age 59½ or older
  • you become disabled
  • first-time purchase of a home ($10,000 lifetime limit)
  • or, payments to beneficiaries upon the owner's death

For maximum contributions per year, see the "Traditional & Roth Contribution Limits" chart below. You may contribute up to the maximum limit as long as you meet the modified adjusted gross income requirements set by the IRS. You are not required to take annual distributions when you turn 70½ and you may contribute to a Roth IRA after age 70½.

Traditional and Roth Contribution Limits
Tax Year Maximum Contribution
2001 $2,000 single/$4,000 married couple filing jointly
2002-2004 $3,000 single/$6,000 married couple filing jointly
2005-2007 $4,000 single/$8,000 married couple filing jointly
2008 $5,000 single/$10,000 married couple filing jointly
2009+ Cost-of-Living Indexing

Beginning tax year 2002, if you are 50 years of age or older, you can make additional contributions ("Catch up") over and above the maximum contribution before the end of the taxable year.

"Catch-up" Contributions
Tax Year Additional Contribution
2002-2005 $500
2006+ $1,000

Coverdell Education Savings Account
With the rising costs of education, the Coverdell Education Savings Account allows you to contribute up to $2,000 per year to help pay for your child or grandchild's qualified educational expenses. You can make contributions until the child reaches the age of 18*. Contributions are made with after-tax dollars (contributions are not tax-deductible), allowing both the contributions and earnings to be withdrawn tax-free if the funds are used to pay for qualified educational expenses.

A qualified education expense is for primary, secondary, vocational, undergraduate or graduate educational expenses before the child turns 30 years of age*.

If a single person or married couple's modified adjusted gross income exceeds the annual income limit determined by the IRS, contribution amounts are gradually reduced until a deductible contribution cannot be made.

The new Coverdell Education Savings Account assists families in providing an education for their children.

Stop by any E-Central Credit Union location today to open a Traditional IRA, Roth IRA or Coverdell Education Savings Account.

*Special needs beneficiaries, to be determined by the Treasury, can make contributions after the age of 18 and will not be required to receive a distribution of their account balances by age 30.

For more information onIndividual Retirement Accounts, check our Truth-In-Savings Disclosure »


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