IRA FAQs

Q: What is a Traditional IRA?

A: A Traditional IRA is an account designed for long-term savings. The money you invest in a Traditional IRA is not meant to be withdrawn before age 59½. Income from your chosen IRA investment grows tax deferred, which means that it cannot be taxed as long it remains in the IRA. However, money withdrawn from a Traditional IRA before age 59½ is usually subject to a 10% penalty as well as income tax. No money can be invested after age 70½ and you have to start taking money out from the account at that age. Individuals under age 70½ at the end of the tax year with earned income can open a Traditional IRA.

This information is not intended as tax advice. Please consult a tax professional.

Q: How does a traditional IRA work? 

A: You can contribute to a traditional IRA if you earn compensation and you will not reach age 70½ by the end of the year. If you file a joint tax return, you can treat your spouse’s compensation as your own (except your combined contributions cannot exceed your combined compensation). All earnings in a traditional IRA are not taxed until they are withdrawn. The ability to defer taxes on the earnings, and to withdraw in a year when you may be in a lower tax bracket, can mean more after-tax dollars for your retirement.

This information is not intended as tax advice. Please consult a tax professional.

Q: Who can contribute to traditional IRA?

A: You can contribute to an IRA if you are under age 70½ and have income from compensation, or you are filing jointly with a spouse who earns compensation. Furthermore, if you have received a distribution from a qualified retirement plan, you can move the proceeds of the plan into an IRA.

This information is not intended as tax advice. Please consult a tax professional.

Q: What is the maximum I can contribute to a traditional & Roth IRA?

A: 2015 Traditional & Roth IRA Contribution Limits

Traditional & Roth IRA Contributions and Catch Up Provisions
Plan Name        Standard Limit        Catch-up Limit (Age 50 and older)
Traditional        $5,500                       $6,500
Roth*                $5,500                        $6,500

*Modified AGI Limits:
2015
Single: $116,000 – $131,000
Married Filing Jointly: $183,000 – $193,000

This information is not intended as tax advice. Please consult a tax professional.

Q: Who can make deductible contributions?

A: Traditional IRA contributions are deductible up to the annual limit, if your contributions are for:
•Single individuals not active in employer retirement plans.
•Single individuals active in qualified retirement plans with Modified Adjusted Gross Income (MAGI) below defined limits.
•Married couples with neither spouse active in an employer retirement plan.
•Married individuals active in qualified retirement plans filing joint tax returns with spouses who are, as long as MAGI is below defined limits.

This information is not intended as tax advice. Please consult a tax professional.

Q: What are the benefits of a Traditional IRA?

A: Your traditional IRA earnings grow tax deferred until they are withdrawn, and contributions may be tax deductible.

This information is not intended as tax advice. Please consult a tax professional.

Q: When can I withdraw my Traditional IRA funds without restrictions?

A: You can withdraw your traditional IRA funds penalty-free for any of the following reasons:
•Qualified higher-education expenses
•First time home purchase – Lifetime limit for exemption on first-time home purchase is $10,000.
•Age 59½
•Disability
•Qualified medical expenses exceeding 7.5% of adjusted gross income
•Payment to beneficiaries upon the owner’s death
•Payment of health insurance premiums while unemployed for 12 weeks or longer.

This information is not intended as tax advice. Please consult a tax professional.

Q: What is a Roth IRA?

A: You are eligible if you earn compensation and your Modified Adjusted Gross Income (MAGI) is less than the defined limits set by Congress. If your MAGI is too high to contribute the annual contribution limit, you may be able to make a smaller contribution. MAGI and deductibility limits change frequently. Consult your tax professional regarding your individual circumstances.

This information is not intended as tax advice. Please consult a tax professional.

Q: What are the benefits of a Roth IRA?

A: You are not required to start mandatory distributions at age 70½ and your earnings are tax deferred.  You can withdraw regular contributions at any time, tax-free and penalty-free, if the account is open for five (5) tax years and withdrawals are for a qualified reason:
•Age 59½
•Death
•Disability
•First time home purchase – Lifetime limit for exemption on first-time home purchase is $10,000.
This information is not intended as tax advice. Please consult a tax professional.

Q: Who can contribute to a Roth IRA?

A: You are eligible if you earn compensation and your Modified Adjusted Gross Income (MAGI) is less than the defined limits set by Congress. If you MAGI is too high to contribute the annual contribution limit, you may be able to make a smaller contribution.
No one can deduct Roth IRA contributions.
This information is not intended as tax advice. Please consult a tax professional.

Q: Can you switch money in a Traditional IRA to a Roth IRA?

A: Yes you can switch your money currently in a traditional IRA to a Roth IRA. This is called “Recharacterization.” When you recharacterize your IRA, you will be taxed on the amount that you move from the Traditional IRA to a Roth IRA. For instance, an individual may make a participant contribution to a Traditional IRA, but may later recharacterize the contribution to a Roth IRA. Roth IRA conversions can be reversed by means of a Recharacterization, however, this movement of assets must include earnings (or losses). This switch may make the most sense to people who have had their Traditional IRA for only a short time, thus minimizing the potential tax hit. Consult your tax advisor about the tax implications.
This information is not intended as tax advice. Please consult a tax professional.

Q: Which IRA to start: Traditional or Roth?

A: If you’re thinking of starting an IRA for the first time and you don’t know which to choose, ask yourself what’s more important to you now: a tax-deduction today with a Traditional IRA or tax-free income in the future with a Roth IRA?  This information is not intended as tax advice. Please consult a tax professional.

Q: What if I invest in a Coverdell Education Savings Account(previously known as an Education IRA)and my child doesn’t complete college?

A: You can transfer any unused funds to another child in your family. Coverdell Education Savings Accounts allow you to invest up to $2000 (not tax deductible) a year, for any child under 18, and withdraw funds tax-free and IRS penalty-free to finance higher education. The maximum income limits for contribution to a Coverdell Education Savings Account are $110,000 for single and $220,000 for couples.
This information is not intended as tax advice. Please consult a tax professional.

Q: How do I start my IRA?

A: For more information about all the savings options available at NMFCU (757) 822-6166. The Credit Union can help you transfer your IRA from another financial institution hassle free. Start your NMFCU IRA today.

This information is not intended as tax advice. Please consult a tax professional.