Individual Retirement Accounts (IRA)


Traditional IRA

The Traditional IRA is available to anyone with earned income from services rendered (wages or self-employment income) and not covered by a pension plan, profit-sharing plan, 401(k), or 403(b) plan.

Benefits:

  • Make an annual contribution to an IRA and deduct it from your gross income for the year.
  • Interest earned on the IRA is tax-deferred until you withdraw from the IRA. Usually that will be when you retire and are in a lower tax bracket.

Features:

  • For 2024, you can contribute up to $7,000 per year. Qualified individuals age 50 or older can contribute an additional $1,000 for a total of $8,000. You have until April 15, 2025, or your tax-filing deadline to make a contribution for 2024.
  • Annual contributions can be made all at once into an IRA certificate of deposit, or through regular contributions into an IRA savings account.
  • Money can be withdrawn anytime after the age of 59 ½, or if you die or become disabled. Withdrawals become taxable income.
  • A minimum annual distribution is required when you reach the age of 72.
  • You select beneficiaries who will receive the IRA directly in the event of your death.
  • If money is withdrawn before the age of 59 ½, a 10% premature distribution penalty will apply.

 

Rollover IRA

If you have money in a pension or profit-sharing plan, 401(k), 403(b), or another IRA, you can roll it into a Traditional IRA and avoid paying taxes on the distribution. The rollover must occur within 60 days of receipt of the funds.

 

Roth IRA

The Roth IRA is available to anyone with earned income, even though you may be covered by a pension or profit-sharing plan, a 401(k), or a 403(b) at your workplace. A non-working spouse qualifies for a Roth IRA also.

Benefits:

  • Earn interest tax-free.

Features:

  • For 2024, you can contribute up to $7,000 per year. Qualified individuals age 50 or older can contribute an additional $1,000 for a total of $8,000. You have until April 15, 2025, or your tax-filing deadline to make a contribution for 2024.
  • Annual contributions can be made all at once into an IRA certificate of deposit, or through regular contributions into an IRA savings account.
  • Contributions can always be withdrawn tax-free.
  • Earnings can grow tax-free and qualified withdrawals are tax and penalty free. Roth IRA withdrawal and penalty rules vary depending on your age, how long you’ve had the account and other factors.  Before making a Roth IRA withdrawal, keep in mind the following guidelines to avoid a potential 10% early withdrawal penalty:
    • Withdrawals must be taken after age 59 ½.
    • Withdrawals must be taken after a five-year holding period.
    • There are exceptions to the early withdrawal penalty, such as a first-time home purchase, qualified education expenses, and birth or adoption expenses.
  • Withdrawals are not required from a Roth IRA. The money can be passed on to your heirs tax-free.
  • You select beneficiaries who will receive the Roth IRA directly in the event of your death.

 

Converting a Traditional IRA to a Roth IRA

A Traditional IRA can be converted to a Roth IRA by paying taxes on the amount in the Traditional IRA before it is transferred into the Roth. Your money then begins earning tax-free interest and can be passed on to your heirs with no tax consequences. We recommend you seek the advice of a tax counselor before taking this step.