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IRA Frequently Asked Questions

IRA FAQ

What is an IRA?
An IRA (Individual Retirement Arrangement) is a special domestic trust, custodial account, or annuity contract established to hold money for an individual's retirement.
What does IRA stand for?
Individual Retirement Arrangement
How exactly does an IRA benefit us?
Benefits to a Traditional IRA are: tax-deferred earnings and the eligibility of a tax deduction and/or tax credit. Benefits to a Roth IRA are: No tax deduction, tax-deferred earnings, tax-exempt earnings (for qualified distributions), and tax credit (if eligible).
When I did my taxes this year, at the end, it asked me if I wanted to save some money by investing in an IRA. What did it mean by that?
By investing in a Traditional IRA you may be able to take a tax deduction on the amount investing and/or earn a tax credit.
Can anyone get an IRA? How old do you have to be?
Traditional IRA: must be under age 70½ and have earned income. Roth IRA: must have earned income.
How many different IRA's are available?
Traditional IRA, Roth IRA, SIMPLE IRA (not offered at TXTCU), SEP IRA (contributions held in Traditional IRAs). Coverdell Education Savings Account (ESAs) and Health Savings Accounts (HSAs) are not technically IRAs, but are often thought of as IRA-like products.
What is a SEP?
A Simplified Employee Pension (SEP) plan gives employers an alternative to establishing a retirement plan. Through a SEP plan, an employer makes SEP contributions to the traditional IRAs of each eligible employee. The SEP contributions limit is higher than a regular contribution. Once the SEP contribution has been made, the employer has no further responsibility for managing the funds. Each employee invests the money in their traditional IRA and manages their own investments.
What are the differences in the IRAs we offer?
Traditional IRA may be tax deductible and distributions are mandatory at age 70 ½. Earnings are earned tax deferred. Roth IRAs are funded with taxed money and funds are available at any time. Earnings are earned tax deferred and may be withdrawn tax and penalty-free for qualified reasons. Coverdell ESA withdrawals are tax and penalty-free if used for qualified education expenses. Funds can be transferred from one child's account to another child in the family.
Does the government penalize you when taking money out? And if so, why?
Government does not penalize, but IRS does depending on your age at the time of withdrawal and/or reason for withdrawal. Penalty is to discourage people from taking funds out before retirement age.
Is there a penalty to withdraw from an Education IRA?
No credit union penalty if invested in an ESA share account. If invested in an ESA Certificate credit union penalty is 180 days' dividend. No IRS penalty or taxes, if withdrawn for qualified education expenses. If funds are not used for qualified education expense, taxes will be imposed on earnings and the taxable portion will be subject to a 10% additional tax unless an exception applies.
The dollar amount you contribute to an Educational IRA per year is $2,000. Do you think that will ever change with education being so expensive?
The IRS sets the limits. The last time an increase was made to this limit was for tax year 2002, before that limit was $500.00 per calendar year.
How old do you have to be to start an IRA?
Traditional IRA: there is no minimum age requirement, but must not reach age 70½ for year to which the contribution is being applied to, and must meet income requirement. Roth IRA: there is no age requirement as long as the income requirement is met.
Is it too late to start investing in an IRA account?
It's never too late to start in an IRA account.
Can I open an IRA after age 70½?
Traditional IRA: Yes, a Traditional IRA account can be opened, but can only be funded with rollover, or direct transfer funds. Roth IRA: Yes, there is no maximum age requirement as long as the income requirement is met.
Under what specific circumstances would someone with income not be eligible to contribute to a Roth IRA?
Single Persons: No contributions are allowed if your MAGI exceeds $118,000. Married Filing Jointly: No contributions are allowed if your joint MAGI exceeds $186,000. Married Filing Separately: No contributions are allowed if your MAGI exceeds $10,000.
What is the penalty for contributing to an IRA when you are not eligible to do so?
An Individual may be subject to a 6% excess contribution penalty. Whether or not the excess contribution applies depends on when and how the excess contribution is removed from the IRA account.
What are the tax implications of transferring from a Traditional to a Roth IRA?
Any funds converted from a Traditional IRA to a Roth IRA will be taxable income in the year of conversion.
Can I still contribute to a Roth IRA if I have an employee sponsored retirement plan?
Yes, and contributions are allowed past age 70½, as long as the income requirement is met.
If you can not get a distribution before age 59½ without a tax penalty, but you must start getting distributions by the age 70½ can you withdraw all the money at one time without penalty after 59½?
One of the exceptions to the 10% early distribution penalty is over age 59½. Withdrawals from a Traditional IRA will be taxable. However, if you have nondeductible contributions in the Traditional IRA, a portion of each withdrawal will be treated as the nontaxable return of the contribution.
With a Roth IRA you can only open if you meet certain requirements, you cannot withdraw your funds within the first 5 years after the establishment of the Roth without penalty. Does that mean if you open a Roth IRA after the first 5 years you can withdraw without a penalty if you are not 59½?
Contributions made into the Roth IRA can be withdrawn at any time without any penalties. To withdraw the earnings tax-free, you must meet the five-year test and have a qualified reason. Qualified reasons include: over age 59½, funds paid to your beneficiary upon death, disability, and first time home purchase (lifetime limit is $10,000 per person).
How much can be contributed annually per child under the age of 18, with the Coverdell IRA?
The annual contribution for the Coverdell ESA is $2,000.00.
Can a person have a Traditional IRA and a Roth IRA at the same time?
Yes, you can. However, your contributions to both the Traditional and Roth IRAs cannot exceed the maximum contribution limit for all IRAs.
What is the procedure for converting a Roth IRA to a Traditional and or vice versa?
A conversion from a Traditional IRA to a Roth IRA is allowed. A Traditional IRA Withdrawal form is filled to remove the funds out of the Traditional IRA. To move money into the Roth IRA, member will need to have a Roth IRA established. To establish a Roth IRA, fill out the Roth IRA Custodial Application. If a Roth IRA is already established, fill out a Roth IRA Rollover and Transfer Contribution form to deposit the money. A conversion from a Roth IRA to a Traditional IRA is not permitted, but a recharacterization may be an option.
With a Roth IRA are the capital gains taxable?
Earnings from Roth IRAs are taxable if withdrawn before the "five-year test" and if no qualified reason applies.
How can an investment be used to fund an IRA? Could stated Gold or Silver be used? How does this work?
Would the investment have to be sold in order to purchase the IRA? Funds may not be invested in life insurance, or in collectibles. Texas Trust Credit Union will only invest in IRA Shares and IRA Certificates.
What is the minimum amount required to open an IRA?
Minimum to open a Texas Trust IRA share is $5.00, and minimum for IRA Certificates is $1,000.00.
How many deposits can be made to an IRA during the term of an IRA Certificate?
No deposits are allowed during the term of the IRA Certificate.
How much money are you allowed to deposit every year?
Traditional and Roth IRA contribution limits are: $5,000 for 2016 and $5,500 for 2017. Individuals over age 50 may contribute an extra $1,000 Catch-up Contribution. IRA owner must have earned compensation and the total of regular contributions for a year cannot exceed the amount of the compensation earned during that year.
Does the money draw interest?
IRA accounts earn tax-deferred dividends. Texas Trust Credit Union dividends are compounded and credited monthly.
What is the difference between a rollover and a transfer?
Rollover is moving money from one IRA to another IRA of the same type, or between a qualified retirement plan to a Traditional IRA. A rollover is a reportable transaction. There is no dollar limits, funds must be re-deposited within 60 days, and limited to one rollover per year from one IRA to another. A direct transfer is the movement of funds between one IRA to another IRA. The member does not have actual receipt of the funds. Transfers are non-reportable transactions. There is no dollar limits, and unlimited number of transfers per year.
When can a rollover IRA be merged with an existing IRA?
There is no waiting period; a rollover can be merged with an existing IRA unless investment does not allow it.
On IRA accounts the 10% penalty can be waived for 1st time homebuyers. Why isn't the fee waived for 401K plans?
The rules on hardship distributions for 401 (k) plans are controlled through different regulations. See your 401(k) plan administrator.
Why is the contribution limit less for the Education Savings account vs. IRA accounts?
IRS sets these limits.
Is there a possibility of a loss in a 401(k) investment?
It depends on your investment choice. See your 401(k) plan administrator.

See our Truth in Savings disclosures: Share Accounts (Savings and Checking). You may also be interested in Savings/CDs options.

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