At the same time, the world of employer-based pensions is changing too. Much less common today is the employer-sponsored defined benefit plan that assures former employees of a dependable income throughout their retirement years. The pension world is changing to one in which employees must make the decision to save for retirement. And, even when an employer plan is available, employees may be required to make most or all of the contributions.
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 How Can I Begin To Save For Retirement?
Individual retirement arrangements - IRAs - are one of the most viable answers to the question of how to assure a secure retirement.
Traditional IRAs offer:
- independence, and can be opened and funded without any employer participation
- immediate tax benefits, with contributions and/or earnings tax-deferred until retirement
- accessibility, with funds always available, something not generally true of employer plans
- flexibility, because there is no minimum contribution in any year, and you choose your own investments and financial organization.
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Who Can Contribute, And how Much?
The requirements for contributing to a Traditional IRA are few.
You can contribute:
- if you are under any age 70 1/2
- if you have earned up to a maximum of $4,500
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Are All Traditional IRA Contributions Tax Deductible?
One of the immediate benefits of contribution to a Traditional IRA is a tax deduction many received on their own income taxes.
Traditional IRA contributors receive a $100% deduction on their annual contribution if:
- they are not an active participant under an employer's retirement plan, or (if they are)
- during 2002, earn no more than $54,000 if married and filing jointly, $34,000 if filing single. Thee amounts continue to increase through 2007 and 208, respectively.
For those who are participants in an employer plan, Traditional IRA deductibility is gradually phased out above these income levels.
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Should I Contribute If I Can't Take A Deduction?
Yes! There are significant benefits to making a Traditional IRA contribution even if it is not currently tax deductible.
A non-deductible contribution:
- grows tax-deferred, with earning sheltered from taxation until withdrawn
- has already been taxed, and will not be taxed again
- whether deductible or nondeductible - is a step closer to a secure retirement
Quite simply, no taxable, non-IRA investment if the same type will generate nearly the same earnings over a lifetime of saving as nondeductible Traditional IRA contributions will. (the Roth IRA may be even more beneficial.)
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Am I eligible To Take a Tax Credit For My IRA Contributions?
If you are an eligible individual and fall within certain income limitations, you may be eligible for a tax credit of up to 50% of your retirement savings contributions that do not exceed $2,000.
An eligible individual is defined as someone who is:
- 18 years of age as of the close of the taxable year
- not a dependent of another taxpayer
- not a full time student
Please see competent tax advisor to determine if you qualify for this credit.
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Can Traditional IRA Assets Be Moved?
Under certain circumstances a Traditional IRA holder may wish to move their Traditional IRA from one financial organization to another. Traditional IRA holders can take comfort in the fact that their Traditional IRA assets are always available to them.
They may be:
-
withdrawn (distributed) and re-deposited elsewhere (called a "rollover")
- moved to another organization by the transaction know as a trustee-to-trustee transfer
- moved to a qualified retirement plan, tax-sheltered annuity, or 457(b) deferred compensation plan, as long as the distribution is taxable.
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Can Other Assets Be Combined Ina A Traditional IRA?
Contributions made by an employer to a retirement plan know as a simplified employee pension (SEP) are actually contributed to a Traditional IRA, and can be combined with regular Traditional IRA contribution. Assets from a qualified retirement plan, tax-sheltered annuity or 457(b) deferred compensation plan can also be moved to a Traditional IRA by rollover.
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When Can I Use My Traditional IRA Assets?
Unlike most employer retirement plans in which access is limited to such events as change of employment, plan termination, reaching retirement age, death or disability, access to your Traditional IRA funds is guaranteed, always.
How ever, until age 59 ½ there is a 10% early distribution penalty unless you qualify for an exemption due to:
- disability
- qualifying medical expenses
- qualifying education expenses
- unemployment (under certain conditions)
- qualifying first home purchase
- death
- receipt of your Traditional IRA assets in equal payment over your life expectancy
- IRS tax levy
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Am I Required to Take Funds From My Traditional IRA?
Beginning in the year that a Traditional holder turns 70 ½, distributions from a Traditional IRA are based generally on the person's Traditional IRA account balance divided by the applicable distribution IRAs is to provide for retirement - not to be a tax shelter - IRA holders who fail to take their required distributions are subject to penalty.
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For more information about the wisdom and ease of opening a Traditional IRA, ask one of our representatives today for more details. Call us toll free at: 1 (800) 228.3701 press "6" or email us at info@certifiedfcu.org
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