IRA

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The Taxpayer Relief Act of 1997 created a variety of new IRA options. Not only did it change the rules for the traditional IRA, but it also introduced the Roth and Education IRAs.

Traditional IRAs are more attractive than ever because expanded income limits mean more people will be able to make tax-deductible contributions. In addition, penalty-free withdrawals are allowed for qualified higher-education expenses and for a first time home purchase.

Contributions to the Roth IRA or Education IRA aren't tax deductible, but the accounts offer the opportunity for tax-free earnings.

To help you understand the basic differences among these IRAs, we have created this chart for you. These highlights will help you determine which type of IRA might be best for you. For additional information on how each type of account would benefit your specific situation, talk to your tax adviser. When you are ready to contribute to an IRA, please contact us at the Credit Union. We're here to help you save for your goals with an IRA.

Roth

Traditional

Educational

Who can contribute?

Anyone who has income from compensation (or who is filing jointly with a spouse who earns compensation) with up to a MAGI* of $110,000 for single filers or $160,000 for joint filers

Anyone under age 70 1/2 with income from compensation

Same eligibility requirements as the Roth IRA

Contributions are not allowed after the beneficiary reaches the age of 18 or in any year there is a contribution to a state tuition program for the same beneficiary

How much can I contribute

Total combined contributions to Roth IRAs up to $2,000/year or 100% of compensation, whichever is less

Total combined contributions to Traditional IRAs up to $2,000/year or 100% of compensation, whichever is less

No more than $500 total each year for all Education IRAs open on the child's behalf

Who can make deductible contributions

Contributions are not deductible

Fully deductible contributions for:
- Single individuals not active in employer retirement plan regardless of income
- Single individuals active in employer retirement plan with MAGI* of $30,000 or less
- Married couples with neither spouse active in employer retirement plans regardless of income
- Married individuals active in employer retirement plans with joint MAGI* of $50,000 or less
- Married individuals not active in employer retirement plans with spouses who are with MAGI* of $150,000 or less

No one can deduct contributions

What are the tax advantages?

Contributions can be withdrawn tax-free and penalty-free at any time

After the account has been open for five tax years, earnings can be withdrawn tax-free and penalty-free after the age of 59 1/2, for disability, for death, or for a first-time home purchase

Earnings can be withdrawn penalty-free for the same reasons that apply to Traditional IRAs

Earnings grow tax-deferred until withdrawn

Contributions may be tax-deductible

Withdrawals for qualified higher-education expenses are tax-free

When can I withdraw without restrictions?

Earnings are tax-free if account is open for five tax years and withdrawn for a qualified reason

Not required to start withdrawals at age 70 1/2

Penalty-free withdrawals are allowed for any of the following reasons:
- Qualified higher education expenses
- First-time home purchase
- Disability
- Qualifying medical expenses exceeding 7.5% of income
- Payment to beneficiaries upon owners death
- Payment of health insurance premiums while unemployed

Withdrawals are tax-free and penalty- free only for qualified higher-education expenses (earnings are subject to tax and penalty for other withdrawals)

Funds can be transferred from one child's account to another child in the family