Individual Retirement Accounts

Are you saving enough for retirement? Most Americans say they're not.

At Ohio University Credit Union, you can save for your retirement in small steps with an IRA savings account or in larger increments with a share certificate. Either way, you'll be on your way toward a more comfortable future.

New rules might help you save on taxes

If you have a Traditional IRA you may want to convert it to a Roth IRA this year. Beginning in 2010 the income limit goes away. For more information or to schedule an appointment, contact Cory Corrigan at 597-2859 or by email at ccorrigan@oucu.org

IRA Conversion Analyzer Conversion Calculator

Online IRA Center

Visit our online IRA Retirement Central - learn more, try one of the great calculators and start your IRA paperwork!

Traditional and Roth IRA Passbook Savings Accounts

• NO minimum balance or monthly service charge
• NO minimum deposit to open
• Deposits can be made at any time or you can make deposits automatically with payroll deduction
• Competitive dividend rates

IRA Money Max Savings Account

What is it:  A tiered iRA savings account. This was previously known as the Easy Save IRA.
S types:                      S12 is the Traditional; S13 is the Roth
Minimum deposit:   None
Maximum:                 None
Compounding:         Monthly, interest is calculated on your daily balance

Easy Save IRA Certificate

Our new Easy Save IRA Certficate is the answer if you're saving each month for your retirement. With our new certificate, you can add to it automatically each month - through payroll deduction or automatic transfers.

Term:                          12 months
Minimum deposit:    None, automatic deposits are en   couraged
Maximum deposit:   $6,000 (or your current IRA qualifying contribution amount)
Rate:                             Rate is fixed for the 12-mo term, current rate 3.00%  apy
Other:                         Only one per member, per tax year

What is a Traditional IRA?

Traditional IRAs are available to anyone under age 70½ who has income from compensation. Contributions may be tax-deductible and income tax on the account's earnings is deferred until the funds are withdrawn. For guidelines on tax deductibility of your contributions, call an OUCU IRA Specialist at (740) 597- 2800. Consult your tax advisor regarding your specific tax situation. IRA Eligibility Calculator

Contributions

The contribution can be to a traditional IRA, Roth IRA, or split between the two. For tax year 2009 and 2010, you can contribute up to $5,000 to a traditional IRA. And if you’re age 50 or older in each of these years, you can make an extra $1,000 catch-up contribution.

If you’re a single taxpayer and you’re covered by an employer-sponsored retirement plan, or you’re a married taxpayer and either you or your spouse is covered by an employer plan, your eligibility depends on your modified adjusted gross income.

Withdrawals

You have more options to withdraw funds from traditional IRAs without the 10% tax penalty that applies to distributions before age 59½. Withdrawals for qualified higher education expenses are now penalty-free. Penalty-free withdrawals are also allowed for first-time homebuyers to buy or build a home, including settlement, financing, or other closing costs provided the homebuyers haven't owned a home during the past two years.

Penalty-free withdrawals continue to be available for IRA owners who reach age 59½, become disabled, or have qualifying medical expenses.

What is a Roth IRA ?

Contributions to a Roth IRA are made after taxes so there are no tax deductions for these contributions; however, your earnings can grow tax-free so your savings can multiply even faster! IRA Eligibility Calculator

Contributions

Contribute up to $5,000 to a Roth IRA for the 2010 tax year anytime between January 1, 2010 and April 15, 2011. And if you’re age 50 or older in each tax year, you can make an extra $1,000 catch-up contribution.

Withdrawals

You can make tax-fee withdrawals from a Roth, as long as your funds have been in the account for at least five years and you are either over age 59½, disabled, buying your first home, or paying for qualified education expenses.

Converting a Traditional IRA to a Roth

You may be able to convert your existing Traditional IRA to a Roth IRA. Call an OUCU IRA specialist at (740) 597-2800 for details.

Confused over which IRA is best for you? OUCU IRA Specialists can clearly explain your IRA choices. We recommend you consult your tax advisor regarding your specific tax situation. Cory Corrigan, CPA and vice president, can also assist with your retirement planning. He can be reached at 597-2859 or ccorrigan@oucu.org.

Current members can open an IRA savings account using our online Deposit Account Request form.

The Benefits of Starting a Roth IRA Early

According to a recent Callahan and Associates Web-based survey, individuals between the ages of 18 and 39 are most likely to open an Individual Retirement Account (IRA). These individuals recognize the importance of starting early to save for retirement.

IRA rules don't have a minimum age requirement, so any young person who has earned income is eligible to open an IRA. Because earned income is the key to qualifying for a Roth, generally, a young adult or even a child would have to be working part time for an employer who collected taxes and reported the earnings to the IRS.

How big are the benefits of starting early? If a 19-year-old began contributing $1,500 each year to a Roth IRA, by age 68 he or she would have about $608,000, assuming an average annual return of 7%.

Money is taxed going into a Roth IRA and accrues interest until it can be withdrawn, completely tax-free, beginning at age 59 ½. While that may be a long way off for young investors, certain withdrawals can be made earlier, including a one-time maximum $10,000 for college expenses and $10,000 for a down payment on a first home.

Roth IRAs: Right For You?

Individual retirement accounts (IRAs) aren't just for retirement anymore. Different types of IRAs will let you save for your first home or for higher education expenses--as well as for retirement. Let's take a look at the Roth IRA.

The Roth IRA allows you to contribute up to $5,000 a year in 2008. Beginning after tax year 2008, the limits will be adjusted annually for inflation in $500 increments.

Income limits also come into play. Singles can contribute if modified adjusted gross income (from line 31 on your federal form 1040, as adjusted) is less than $95,000. Contributions gradually phase out as modified adjusted gross income reaches $110,000. Similarly, income limits run from $150,000 to $160,000 for married couples filing jointly.

Contributions to a Roth IRA are not tax-deductible. Instead, earnings grow tax-free and you pay no taxes when you withdraw the money--provided it's been in the account at least five years and: You're older than 59½, or you become disabled, or you die and it's paid to your beneficiary, or you use the money for a first-time home purchase ($10,000 lifetime withdrawal limit).

Another Roth IRA benefit is that you don't have to begin withdrawing money at age 70½, as is the case with traditional IRAs. Your earnings will continue to grow tax-free, for as long as you like.

You can convert funds from a regular IRA to a Roth IRA if your modified adjusted gross income doesn't exceed $100,000 for both singles and married couples filing jointly. But you should know that distributions are taxed in the year you convert the funds.

Another factor is tax liability. If you'll be in the same or higher tax bracket during retirement, the Roth IRA with its tax-free withdrawal is a good choice to consider. If you qualify for and need tax deductions now, you might do better with a traditional IRA (see your tax adviser).

IRA "Catch-Ups" Earn Big Bucks

If you're age 50 or older you are now seeing the biggest benefit of the new tax bill. Your maximum IRA (individual retirement account) contribution not only is rising, but you're now able to make "catch-up" contributions. With the old system, if you invested the maximum contribution to your IRA, you'd have had $93,295 after 20 years. Under the new system, if you invest the higher maximum contributions plus "catch-up" amounts, you'll have $219,850. (Assumes 9% return from age 50 to 64; 5% from age 65 to 69.)

[Editor's note: Contributions are assumed to take place at the start of each year. Investments in the first 15 years are assumed to be made in a mix of stocks and fixed-income accounts like credit union IRAs. This is reflected in relatively high investment yields in the first 15 years. Investments in the last five years are assumed to be more conservative, with more monies put in accounts like credit union IRAs. This is reflected in somewhat lower yields in the last five years. Example does not consider annual inflation adjustments to contribution limits. These adjustments are scheduled to take place after tax year 2008. All of these IRA expansion and pension reform provisions will expire at the end of 2010 if Congress does not extend or make them permanent. The example therefore, assumes catch-up contributions continue only through 2010.]

IRA Direct Rollovers Make Sense

The life-long career outlook has changed. Most people no longer count on one job, one company, or even one career. Today's workers average six job changes during their lives. That could mean six decisions about valuable pension dollars--and six opportunities to blow it.

Essentially, you have three options for avoiding taxes or penalties on pension funds: You might be able to roll funds over into a similar plan at your new job, after a qualifying wait time; leave funds with your former employer; or roll funds over directly into an individual retirement account (IRA).

Many investors choose the latter. Spectrem, a Chicago-based consulting firm, estimates that the amount of annual assets rolling into IRAs will reach $320 billion in the year 2005 alone. A direct rollover:

• Protects your retirement money from immediate taxation. Any payout is considered taxable income in the year you receive it.

• Helps you avoid the 10% early distribution penalty the Internal Revenue Service imposes if you're younger than 59 1/2.

• Helps you sidestep the mandatory 20% federal withholding on all eligible rollover distributions from qualified retirement plans.

Despite the penalties, young people typically take the payout to buy a new car or pay off an old car loan, says Michael Martin, president of Financial Advantage, retirement financial advisors in Baltimore. "It's generally not a huge sum and they're not close enough to retirement to think they need to worry about it," he says. "But they do."

Martin points out that it's cheaper in the long run to finance the car and keep the pension dollars for retirement. Contributions you make in your later earning years never make up the huge compounding effect of your early contributions.

One note: If you anticipate putting funds into your new employer's pension plan later when you're eligible to, you must directly roll over funds into a new IRA--separate from others.

There are exceptions and special circumstances, but for many members, a direct rollover into an Ohio University Credit Union IRA is the safest, simplest, and most convenient way to protect and accumulate retirement funds.

Following the Rules: Withdrawing From Your IRA

If you don't plan ahead on how and when you should access your IRA (individual retirement account) money, you may get a worse tax bite than necessary.

The rules that govern minimum required distributions from IRAs are among the most complicated in our tax code. This article can only give a brief overview so it's best to consult with an IRA specialist before making a distribution decision.

Required minimum distributions
If you own a traditional IRA, you must start taking a minimum amount of money out of your IRA by April 1 the year following the year in which you reach age 70½ -- your required beginning date. You always can take out more, but not less than the required minimum distribution amount. The required minimum distribution amount is based on a calculation of your account's value and your life expectancy--how many more years you are expected to live. The longer your life expectancy, the lower the annual required distribution.

If you do not take at least the minimum required withdrawal amount each year, you'll owe a 50% penalty on the amount that should have been withdrawn.

Roth IRA owners are not required to take minimum distributions during the owner's lifetime. Roth owners can let their IRA grow free of federal taxes longer and take the money out on your own timetable.

Tax consequences of a withdrawal
Dipping into your IRA, of course, means you'll also get stuck with an income tax bill. Traditional IRA funds are taxed upon withdrawal. At that time, the owner must add the amount of the withdrawal to his or her income taxes for the year of the withdrawal.

For example, if your taxable income is $30,000 and you withdraw $5,000 from your traditional IRA, then you will pay taxes on $35,000 for that year. Owners who make nondeductible contributions do not pay taxes on that portion of their traditional IRA withdrawals.

Because Roth IRA contributions are not tax deductible, they are not taxed when withdrawn. Roth IRA earnings are taxable if the withdrawal is not a qualified distribution. Contributions to a Roth IRA are withdrawn first, so no taxes are owed until the owner "dips" into their earnings.

It's the IRA owner's responsibility to determine the taxable portion of each withdrawal, with assistance from a professional tax adviser.