IRAs

An IRA is a personal tax-sheltered retirement savings plan. Millions of American workers are using IRAs to reduce their taxes while building a more secure future for themselves and their families.

To retire comfortably, that is, maintain your current lifestyle, it is estimated that you will need between 0%-80% of your pre-retirement income annually. Social Security benefits will contribute only about 30% of what you will need. An IRA can help make up the difference, ensuring your independence during retirement.

Yes. You may now choose from three different IRA options:

The Traditional IRA

The traditional IRA allows wage-earning individuals to contribute $3,000 or 100% of their gross income annually, whichever is less. Contributions are tax-deductible, depending on specific income limits. A maximum contribution of $3,000 may also be made annually by the wage earner for a non-working spouse.

The Roth IRA

The Roth IRA allows you to contribute up to $3,000 per year, or 100% of your gross annual income, whichever is less. Contributors are not tax-deductible but withdrawals of earnings and principal are tax-free once you have held the account five years and reach 59 1/2 years of age. A maximum contribution of $3,000 may also be made annually by the wage earner for a non-working spouse.

The Coverdell Education Savings Account

The Coverdell Education Savings Account allows you to save for any post-secondary education expenses. You may invest up to $2,000 a year per child (less than age 18). Contribution limits are based on your income.

For tax deduction purposes, contributions may be made no later than the federal tax return due date (normally April 15).

That depends which account you choose:

The Traditional IRA

The Traditional IRA, in some cases, allows you to deduct contributions from your taxes. Earnings are tax-deferred until you begin making withdrawals, after age 59 1/2. Then all your withdrawals (principle and earnings) are taxed at the rate dictated by your income at that time.

The Roth IRA

Contributions are not tax deductible, but your withdrawals (principle and earnings) will be tax-free as long as you have had the account for at least five years and are 59 1/2 years of age or older.

The Coverdell Education Savings Account

These accounts can be set up in your name with the name of a beneficiary (such as your grandchild) so that the child may use the money for his or her education. This choice doesn’t allow you to deduct your contributions, but there are no taxes due when the contributions are withdrawn.

That varies with each IRA type and generally depends on how long you have held the account and your age. Funds are usually available for withdrawal without penalty for those over 59 1/2 years of age, if you use the money for a first-time home purchase (the life-time cap is $10,000), or higher education expenses. For details, contact a tax advisor whom you trust.

Opening an IRA is easy. Visit a West Financial Credit Union office in person or contact your credit union volunteer for additional information. The credit union assesses a nominal annual fee for administration of your IRA. Call today!