IRAs – Traditional, Roth, and Coverdell
With IRAs, Sooner Is Better!
Recent legislation offers members more opportunities to save. There’s no better time to help close the retirement savings gap by opening an IRA with One Nevada!
Anyone looking for a good way to build retirement savings is faced with an important question: Which is better, a traditional Individual Retirement Account (IRA) or a new Roth IRA? Finding the answer may not be simple… it depends in large part on your individual circumstances.
Combined annual contributions to traditional and Roth IRAs are limited to $5,500 per person under the age of 50 and $6,500 per person age 50 or older, for the tax year of 2013. But deciding which account to put money into will be easier if you begin with a thorough understanding of the potential advantages of each choice.
Which Is Right For You?
Compare Your IRA Options
|Roth IRA||Traditional IRA||Coverdell Education
Savings Account IRA
|Can you deduct contributions?||No.||Contributions may be tax-deductible, depending on your income and participation in an employer-sponsored retirement plan.||Contributions for savings are tax-free for a minor’s education.|
|Who may make contributions?||Anyone who has earned income or whose spouse has earned income (subject to income limits).||Anyone under age 70½ who has earned income or whose spouse has earned income (subject to income limits).||Anyone can contribute. Contribution limit is $2,000 per year.|
|Are qualified distributions* taxed?||No. Withdrawals may be made tax-free if the account has been open at least five years.||The account’s earnings and your deductible contributions are taxed as regular income; non-deductible contributions are not taxed.||Distributions made for “qualified education expenses“ are tax free.|
|Is there a minimum withdrawal requirement?||No. Withdrawals are not required at any age.||Yes. You must make at least minimum withdrawals beginning after age 70½.||No minimum. However, all distributions must be made by age 30.|
* Qualified distributions are generally those made after age 59½, or before that for first-time home purchase or due to death or disability. Withdrawals from a traditional IRA to pay certain higher education expenses also qualify. This page is not intended to provide specific advice or recommendations. Please consult your tax advisor regarding your particular situation.
A traditional IRA offers tax-deferred growth for your money and may provide a current tax break. The Taxpayer Relief Act of 1997 eased restrictions on deducting contributions. The income limits that factor into eligibility for a deduction are being increased over a 10-year period, which began in 1998. In addition, having a spouse who is covered by a retirement plan at work no longer disqualifies you from taking a deduction.
With a Roth IRA, contributions are not tax deductible; however, this IRA option presents other advantages. Where a traditional IRA provides tax-deferred growth with the deferral ending at withdrawal, your earnings may be tax-free in a Roth IRA. After an account has been held at least five years, withdrawals from a Roth IRA can be made tax-free when:
- You reach age 59½; or
- You use withdrawals for a first-time home purchase for you or an eligible family member; or
- You are disabled; or
- Distributions are made to a beneficiary after your death.
You are eligible to fund a Roth IRA if your adjusted gross income is less than $188,000 for married couples filing jointly, or less than $127,000 for a single taxpayer.
Individuals with a traditional IRA now have the opportunity to convert to a Roth IRA.
You also have the option of saving for your child’s educational future. A Coverdell Education Savings Account (CESA), formerly Educational IRA, became available January 1, 1998, for savings in a tax-free program for a minor’s education. Details of this IRA include:
- Your minor must have their own, valid account established for contributions
- Maximum annual limit for a CESA IRA is $2,000
- Can be fully funded by April 15th (or tax filing date)
- Last contribution can be accepted up until your minor’s 18th birthday
Beginning in 2002, you may contribute to both CESA and “Prepaid” State College Tuition programs on the behalf of the same child. Prior to 2002, individuals could not contribute to a CESA on behalf of the child if they were participating in a Qualified State Tuition Program.
Choosing An Account
Many elements may factor into your choice of an IRA, including:
- Your current tax bracket and the one you expect to be in during retirement. This will affect the relative value of a current tax deduction versus taxes that may be due in retirement.
- Other retirement assets available. If you have enough income from other sources to fund your retirement and want an account to build assets for future generations, a Roth IRA might be your choice. Unlike a traditional IRA, it has no requirement that you begin taking minimum distributions at a certain age.
- The length of time until you retire. Over time, the future savings of tax-free withdrawals may become more valuable than the current savings available from a deduction.
Put Us In Your Savings Plans
We can help you open a new IRA account (Traditional or Roth), Coverdell Education Savings Account (CESA), or transfer an existing IRA to the Credit Union. Our competitive rates for IRAs make us a smart place to save. Interested in an IRA Share Certificate or a MoneyMaker IRA? Find out more. We can even set up an automatic transfer from your checking account so saving is a snap. Give us a call for details or visit any of our convenient branches. We’re a better place to do business!