Retirement accounts help you plan for your retirement. Through the tax advantages offered by an IRA, we can help you get immediate tax savings while your contributions earn interest. Both principal and interest will be tax-deferred until retirement. That's a great way to save! Even if you are already enrolled in a company pension, profit-sharing plan or self-employed retirement plan, you can still take advantage of our tax-deferred IRA. A minimum deposit of $100 is required. For more information about IRAs, please review our frequently asked questions section below.
What is a Roth IRA?
A Roth IRA is a nondeductible account that features tax-free withdrawals for certain distribution reasons after a five-year holding period.
Am I eligible for a Roth IRA?
Basically, there are two requirements for eligibility to contribute to a Roth IRA: you must have earned income (or your spouse must have earned income) and your modified adjusted gross income (MAGI) cannot exceed certain limits (see next question).
How much can I contribute?
You may contribute any amount up to 100 percent of your earned income or $5,000 ($6,000 if you are 50 or older), whichever is less, as long as your MAGI is within prescribed limits. It's important to note that $5,000 is the aggregate amount you can contribute to any Roth and/or traditional IRA in a given year. For example, if you contribute $500 to a traditional IRA, you can only contribute $4,500 to a Roth IRA for that year.
Do I pay taxes on my earnings?
No (provided you take the earnings as part of a qualified distribution). That's the best part of the Roth IRA. Unlike a traditional IRA, you cannot take a tax deduction for any of the contributions that you make to a Roth IRA. However, when you're ready to take a withdrawal, you pay no taxes on any of the earnings that your money has generated.
What is a qualified distribution?
In order for earnings to be tax-free, you must first meet a five-year holding period for your Roth IRA. This period begins with the tax year for which the first contribution is made. After that, any earnings you withdraw for a qualified distribution reason are tax-free and IRS penalty-free. Qualified distributions include:
- Distributions made on or after the date on which you attain age 59-1/2
- Distributions made to your beneficiary (or your estate) upon your death
- Distributions attributable to your being disabled
- Qualified first-time home buyer distributions (up to $10,000)
Does the 10% IRS premature distribution apply if I withdraw my money before age 59-1/2?
The 10% IRS penalty does not apply to earnings you withdraw when you take any of the qualified distributions listed above. In addition, the 10% penalty is also waived for certain other distribution reasons. But, for these distributions, taxes on any earnings will apply. Distributions that are subject to taxes (on any earnings withdrawn) but no penalty include:
- Substantially equal periodic payments
- Eligible medical expense in excess of 7.5 percent of your adjusted gross income (AGI)
- Medical insurance premiums for eligible unemployed individuals
- Qualified education expenses, and distributions taken within the first five years for any of these reasons: age 59-1/2, death, disability, or first-time home purchase
- Distributions taken for any reason other than a qualified reason or one of the reasons listed here are subject to both taxes and a 10% IRS penalty on any earnings withdrawn
What if I need access to my money now?
A helpful feature of the Roth IRA is that non-qualified distributions (original contribution amounts) are returned first. Contributions (as opposed to earnings) are not subject to taxation or the 10% IRS premature distribution penalty when distributed. In other words, you can always get back your principal tax-free and IRS penalty-free for any reasons.
When do I have to start taking distributions from my Roth IRA?
You never have to take distributions from your Roth IRA. That's another benefit of the Roth IRA over traditional IRAs. Assets held in a Roth IRA are not subject to age 70-1/2 required minimum distributions.
What happens in the event of my death?
Your named beneficiary will receive the entire proceeds of your Roth IRA. The manner in which your beneficiary receives the funds is determined by the election made by your beneficiary within the guidelines of the law.
When is the contribution deadline for funding a Roth IRA?
Roth IRAs for the taxable year can be opened and funded anytime between January 1 and the date your tax return is due for the year, excluding extensions. This is normally April 15 of the following year.
How do I open a Roth IRA?
Simply see any of our personal bankers or our investment representative. We will explain the nature of these accounts in more detail and help you complete the simple forms necessary to establish your Roth IRA.
By federal law, as of 1/1/2013, funds in a non-interest bearing transaction account (including an IOLTA/IOLA) will no longer receive unlimited deposit insurance coverage, but will be FDIC-insured to the legal maximum of $250,000 for each ownership category. For more information visit: www.fdic.gov/deposit/deposits/unlimited/expiration.html.