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products & services > cds and iras > ira faqs

IRA FAQs

Why should I open my IRA at the credit union?

Your credit union offers “one-stop shopping” for all your financial service needs and can help you choose the savings and investments that are right for you. We’ll take the time to answer your questions and give you the personal attention you deserve. Compare and you’ll find we offer some of the best IRAs available anywhere, with:

  • Competitive rates
  • No annual maintenance fees
  • Low minimum deposit requirements
  • Investment options offered through the BCU Investment Advisors Program

What’s the difference between a Roth and Traditional IRA?

The main difference between the two is the tax treatment of your contributions and withdrawals. With a Traditional IRA, your contributions are tax-deductible (provided you meet income and other guidelines), but your withdrawals will be taxed. With a Roth IRA, your contributions are not tax-deductible, but you can make qualified withdrawals tax-free.

Both Roth and Traditional IRA’s allow you to contribute up to $5,000 (for 2008) or up to $6,000 (for 2008 if you are over the age of 50).

Which should I choose — a Roth or a Traditional?

That depends on your individual goals, objectives, and current tax situation, so you may wish to consult with our BCU Investment Advisors department to determine which IRA is right for you.

With a Roth IRA, you can withdraw regular contributions at any time and for any reason. As long as you don’t tap into your earnings, your withdrawals are penalty-free and tax-free. Even though you can access your contributions, keep in mind that a Roth IRA is designed as long term retirement savings vehicle.

A Traditional is an ideal vehicle for retirement savings, because it allows funds to grow tax-deferred, meaning you won’t pay taxes until the funds are withdrawn.

Can I convert my Traditional IRA to a Roth IRA?

You can, unless you are married and file your taxes separately, or your Modified Adjusted Gross Income (MAGI) in the year of the conversion is $100,000 or more. This income limit is the same for both single filers and married couples who file jointly.

Keep in mind that if you convert to a Roth IRA, you’ll first have to pay income taxes on your Traditional IRA earnings and on any deductible contributions you’ve made to that IRA. The Roth IRA’s tax-free earning potential may be well worth the conversion, however please be aware of the potential taxes associated with conversions from a Traditional to Roth IRA.

You may wish to consult with our BCU Investment Advisors department and your tax advisor to determine if an IRA conversion is right for you.

Can I contribute to an IRA if I already have a retirement plan through my employer?

Yes. In fact, IRA’s are a great way to supplement your retirement savings. For example, many people choose to contribute to their employer’s 401(K) up to the limit the employer matches, and invest additional funds in an IRA.

Participating in a retirement plan does not change how much you can contribute to an IRA, but it can affect whether or not you’re eligible to deduct contributions you make to a Traditional IRA. If you are eligible to make contributions to a 401(K) plan through your employer, you may want to consider a Roth IRA with the Credit Union.

I own a small business. Can I offer retirement benefits to my employees with a SEP plan?

A Simplified Employee Pension (SEP) plan is an easy way for a small business to offer a retirement plan to their employees. A SEP plan allows you to make contributions to your own Traditional IRA and those of your employees, instead of establishing a complex retirement plan, and your employees will pay no taxes on their SEP accounts until they withdraw their funds.

Am I eligible to contribute to an IRA?

To be eligible for a Traditional or Roth IRA, you must earn income yourself or file a joint income tax return with a spouse who does. To contribute to a Traditional IRA, the only additional requirement is that you are under age 70 ½. Whether your contributions will be tax-deductible, however, is determined by having access to a retirement plan through your employer and your income.

To contribute to a Roth IRA, your income cannot exceed $116,000 if you file a single tax return or $169,000 if you file jointly. If your income is less than $101,000 (single filer) or $159,000 (joint filer), you can contribute the maximum amount of $5,000 to your Roth IRA ($6,000 if you are over age 50).

Is it too late to contribute to my IRA for the current tax year?

Good news: you can continue making contributions (until you reach your annual limit) to a Roth or Traditional IRA, any time before April 15 of the following tax year.

Can I use an IRA to save for other goals besides retirement?

Yes, IRAs are now more flexible than ever. They can help you pay for education, medical expenses, health insurance, a first-time home purchase — and more. However be aware of the amount you are eligible to withdraw. Also please be aware of the tax consequences that you may incur from taking a withdraw from you IRA.

Can my spouse and I both contribute to IRAs?

Yes. With a Traditional or Roth IRA, you can contribute a total of $10,000 or your combined compensation, whichever is less. However, the maximum contribution for each spouse can’t exceed $5,000 per year, so you’ll need at least two separate IRAs to contribute the full $10,000. If you don’t earn compensation but your spouse does, you still may be eligible to contribute to a Traditional or Roth IRA based on your spouse’s earnings.

Keep in mind that you must earn less than $101,000 on a single tax return and less than $159,000 on a joint tax return in order to contribute the full $5,000 to a Roth IRA. If your income exceeds those limits, you can still make partial contributions to a Roth if your income is less than $116,000 (single filer) or $169,000 (joint filer).

If I receive a payout from my retirement or pension plan, can I avoid penalties by rolling the funds over into an IRA?

Yes. Suppose you receive a pension plan payout of $10,000. If you cash out of the plan, $2,000 would immediately go into a 20% mandatory federal withholding, and, if you’re under age 59 ½, you could also owe a 10% early withdrawal penalty.

You could avoid all that, however, by directly rolling those funds over into a Traditional IRA. And, here’s an extra bonus: your money will continue to grow in a tax-advantaged, secure retirement account. You can also roll the funds to a Roth IRA if your income is less than $100,000.

Can I withdraw from my IRA to buy my first home?

Yes. Whether you have a Traditional or Roth IRA, you can withdraw up to $10,000 for a first-time home purchase without penalty, before age 59 ½. And with a Roth IRA, the withdrawal will also be tax-free. Keep in mind that the $10,000 tax exemption on first-time home purchases is a lifetime limit.

When making this decision, keep in mind that you will be taking money from a long term retirement savings vehicle. Please check with the Credit Union regarding different home loan options available to members before withdrawing money from your IRA’s.

Is there an age limit for making contributions to an IRA?

There’s no age limit on making contributions to a Roth IRA. With a Traditional IRA, you cannot make contributions after you reach age 70 ½.

Do I have to start withdrawing money from an IRA at a certain age?

This flexibility with a Roth lets you build your savings for future retirement years, or even a gift to your loved ones — a gift that’s free of income tax for qualified distributions.

Can I have more than one type of IRA?

Yes. In fact, having both a Roth and a Traditional IRA will allow you to benefit from tax savings both now and in the future. However, you can only contribute up to $5,000 per year to any combination of Traditional and Roth IRAs you have.

How can I use funds from a Coverdell Education Savings Account?

You can withdraw earnings from a Coverdell Education Savings Account on a tax-free basis for qualified elementary and secondary school expenses, expenses for special needs students, and higher education expenses such as tuition, fees, books, and certain room and board costs.

If my child decides not to go to college, or I don’t use all the funds in my child’s Coverdell Education Savings Account, what can I do with those funds?

You can roll over any unused funds from that Coverdell into the Coverdell Education Savings Account of another family member. That not only includes siblings and stepsiblings of the original Coverdell Education Savings Account beneficiary, but also nieces, nephews, spouses, children, and other relatives. The new beneficiary must be under age 30 at the time of the rollover and must use the funds before he or she turns 30.

Will my contributions to a Traditional IRA be tax-deductible?

There are three main influences on eligibility for tax-deductible contributions to a Traditional IRA: income, participation in a retirement plan, and marital status.

If you’re married, your contributions are fully tax deductible if any one of the following applies:

  • Neither you nor your spouse has an employer retirement plan (regardless of income), you can deduct up to the annual limit.
  • If you’re both covered by an employer plan and your modified adjusted gross income is under $85,000 for 2008.
  • Only your spouse has an employer retirement plan, and your joint income is under $159,000 for 2008

If you’re single, your contributions are fully tax deductible if either one of the following applies:

  • You don’t have an employer retirement plan (regardless of income)
  • You have an employer retirement plan, but your income is $53,000 or less

Note: If your income exceeds the above limits, you may be able to make deductible contributions of less than $5,000.

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