| Retirement Security / Roth IRA / Traditional IRA / Coverdell Educational Savings Account Today there are many great investment options. Take a look and see which of these IRA and savings options fit your circumstances best.
Then contact Financial Services, (316)722-3921, ext. 202, to open your IRA account, or with any questions that you have about your retirement planning. The Roth IRA is a nondeductible account that features tax-free withdrawals for qualified distributions after a five-year holding period, and reaching age 59 1/2. Eligibility There are two eligibility requirements for a Roth IRA: you must have earned income and your Modified Adjusted Gross Income (MAGI) cannot exceed certain limits. You may contribute 100% of your earned income up to maximum allowed. The maximum is the aggregate amount that you can contribute to any Roth and/or Traditional IRA in a given year. There are no required distributions from a Roth IRA. Contribution Limit The 2008 contribution limit is $5,000; the contribution limit for age 50 and older is $6,000. After 2008, the contribution limit will be adjusted annually for inflation in $500 increments. Five-Year
Holding Period Qualified Distributions In order for earnings to be tax-free, you must first meet a five-year holding period for your Roth IRA. After that, your earnings are tax-free and IRS penalty free. Qualified distributions include:
IRS Premature Withdrawal Penalty The 10% IRS penalty does not apply to earnings you withdraw under any of the qualified distributions. In addition, the penalty is waived for certain other distributions, but you will pay taxes on the earnings withdrawn on these distributions:
Distributions taken for any reason other than a qualified reason or one of the reasons listed above are subject to both taxes and the 10% IRS penalty on any earnings that are withdrawn. Access to Funds One of the most helpful features of the Roth IRA is that, for non-qualified distributions, original contributions are returned first, not the earnings. Your contributions are not subject to taxation or the IRS 10% penalty. In plain language, you can always get back your contributions both tax-free and IRS penalty free, for any reason. Required Distributions Unlike a Traditional IRA, you are never required to take distributions, at age 70 1/2 or at any other age. Contribution Deadline IRAs for the taxable year can be opened and funded at any time between January 1 and the date the tax return is due, excluding extensions. For most people, this means that you can fund a 2008 IRA from January 1, 2008 through April 15, 2009. A Traditional IRA defers taxes on earnings until distribution, and may allow you to take a deduction for your contributions as well. Eligibility If you are under age 70 1/2 for the entire tax year and have earned income (or taxable alimony), you can have an IRA, even if you participate in a pension plan established by an employer. Contribution Limit The 2008 contribution limit is $5,000; the contribution limit for age 50 and older is $6,000. After 2008, the contribution limit will be adjusted annually for inflation in $500 increments. Tax Deductibility Deductibility depends on income and participation in an employer-maintained retirement plan. If you are not an active participant in an employer-maintained retirement plan, you are eligible for a full deduction, no matter what your income. For single filers who are active participants in an employer-maintained retirement plan and you make contributions in tax year 2008, you may fully deduct your contributions if your MAGI is $53,000 or less; you may partially deduct your contributions with a MAGI between $53,000 and $63,000. For joint filers who are active participants, the limits for full deductibility are $85,00 or less; partial deductibility limits are $85,000 to $105,000. If you are not eligible for a deductible IRA, you can still make non-deductible contributions to an IRA, or you may be eligible for a Roth IRA. Distributions without IRS Penalties Distributions after you reach 59 1/2 are without IRS penalty. There are also no penalties if you become disabled, upon your death, if the distributions are part of certain periodic payments, for medical expenses greater than 7.5% of your adjusted gross income or for health insurance if you've been unemployed and have been receiving unemployment payments for 12 weeks, for certain higher education expenses, or for a first-time home purchase. In addition, when you reach age 70 1/2, you must begin taking distributions to avoid IRS penalties. Taxes on Distributions If you are over age 59 1/2, simply include the taxable portion of the amount withdrawn (generally the deductible contributions and all earnings) as income on your tax return. If you are under age 59 1/2 and do not meet one of the exceptions, you must also pay a 10% IRS penalty for premature distribution, in addition to including the amount withdrawn as income on your tax return. The nondeductible portion of the distribution is not subject to either income tax or the 10% premature distribution penalty. Spousal IRA The spousal IRA rule allows a married person with an adjusted gross income of less than $160, 000 to make an IRA contribution for his/her spouse. A couple can contribute up to 100% of their combined earnings. Contribution Deadline IRAs for the taxable year can be opened and funded at any time between January 1 and the date the tax return is due, excluding extensions. For most people, this means that you can fund a 2008 IRA from January 1, 2008 through April 15, 2009.
A CESA is a nondeductible account that features tax-free withdrawals for qualified expenses associated with a child's elementary, secondary or higher education. Eligibility There are two requirements for a CESA. First, the child for whom you are contributing may not have had any contributions on his/her part to a state prepaid tuition program in that year. Second, if you're a single filer, you may make a full contribution if your MAGI is $95,000 or less, or a partial contribution if your MAGI is between $95,000 and $110,000. If you are married filing joint, you may make a full contribution if your MAGI is $190,000 or less, and a partial contribution if your MAGI is between $190,000 and $220,000. You may contribute up to $2,000 per year per child to a CESA. If you are ineligible to make a CESA contribution yourself, you may gift $2,000 to your child so that he or she may make a contribution. There is no stipulation as to who the contributor must be, and there is no earned income requirement. Contributions are not tax deductible. The child has to be under the age of eighteen. You can make contributions up to the day before his/her 18th birthday. Taxes and Penalties Neither you nor the child pays taxes on the distributions of a CESA, provided the money is used for qualified education expenses. Qualified withdrawals may be used for tuition, fees, books, tutoring, special needs services, supplies (including computers) and room and board for elementary, secondary or higher education. Distributions must be made during the year in which the expenses occurred. If a non-qualified distribution is taken, the earnings portion is subject to a 10% penalty and income taxes. Moving Funds You can roll funds from a CESA for one child to a CESA for another child in the same family. This way, if one child decides not to pursue an education, another relative can benefit from the CESA. You cannot roll funds from a Traditional or Roth IRA into a CESA. Contribution Deadline Contributions to CESAs may be made until April 15th for the previous year. Federal Deposit Insurance / Membership Application / 24 Hour Access / Dividend Rates |
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