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More IRA Information

Choose from our variety of IRA savings options.

Traditional or Roth IRA?

If you're trying to decide between a Traditional IRA and a Roth IRA, the main question is: Do you want to save in taxes now or when you retire?

If you want to save on taxes now, a Traditional IRA is a smart choice. Especially if you think you'll be in a lower tax bracket when you retire.

If you would rather save on taxes when you retire, and flexibility in withdrawing funds is important, choose a Roth IRA.

For more information contact a Service 1 MSR at 1-800-879-9697.

How to avoid the 10% Federal Tax Penalty for early IRA Distributions

In today's working world, early retirement- either voluntary or forced- is becoming a more frequent occurrence. A growing number of people are leaving the workforce before they reach age 59 ½.

While many individuals may need to tap into their IRA retirement savings, tax laws discourage this by imposing a 10% early distribution penalty for those under age 59 ½ , in addition to ordinary taxes.

Many individuals are not aware of a penalty-free distribution exception authorized under IRC section 72(t) known as Substantially Equal Payments. This distribution must be set up on specific IRS guidelines and rules.

Substantially Equal Payments is a series of withdrawals from your IRA based upon your life expectancy. In order to be exempt from the 10% penalty tax you must:

  • Receive your withdrawals on a regular basis, most often monthly, but no less frequently than annually.
  • Select one of the three IRS-approved calculation methods
  • Continue these withdrawals for at least five years or until you reach age 59 ½, whichever is longer.

There are not eligibility rules, as any IRA owner may receive Substantially Equal Payments for any reason. Since small IRAs obviously create small payments, it is generally more applicable to accounts with larger balances. Furthermore, younger IRA owners will tend to receive smaller payments due to longer life expectancies.

Before you consider this strategy, remember that the IRS is very rigid with regard to the payment amount and the payment itself. And if IRS guidelines are not adhered to, you could face substantial penalties.

 

IRA Legislative Information

IRA 2002 Legislative Changes

  • On June 7, 2001, President Bush signed H.R. 1836, The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) into law.
  • This bill has several Traditional and Roth IRA provisions.
    1. Increased contribution limit from the current $2000.00 aggregate contribution limit for Traditional and Roth IRAs will increase to $5,000.00 by 2008.
    2. Catch-up contributions for taxpayers who are age 50 or older by the end of a tax year will be able to make "catch-up" contributions for that year.
Traditional and Roth IRA Aggregate Annual Contribution Limits
Year Individual Contribution Limit Spousal Contribution Limit (Split between Spouses) "Catch-Up" for Owners Ages 50+
2006 $4,000 $8,000 $1,000
2007 $4,000 $8,000 $1,000
2008 $5,000 $10,000 $1,000
2009 $5,000 $10,000 $1,000


Effective July 26, 2001, The Economic Growth and Tax Relief Reconciliation Act of 2001 renamed Education IRAs as "Coverdell Education Savings Accounts" (CESAs)
A CESA is a trust or custodial account established for the sole purpose of saving and paying for the qualified education expenses of an individual designated as the account beneficiary.
The Economic Growth and Tax Relief Reconciliation Act of 2001 made many changes to the CESA, effective January 1, 2002, including:

  • Increasing the maximum annual contribution for each beneficiary from $500 to $2000
  • For married taxpayers filing jointly, increasing the adjusted gross income phase-out range for CESA contributions to the range $190,000-$220,000
  • Allowing beneficiaries to use funds from a CESA to pay for qualified elementary and secondary school expenses (K-12), including post secondary expenses
  • Allowing expenses for "special needs" students to be covered by CESAs
  • Allowing HOPE Scholarship and Lifetime Learning Credits to be claimed in the same year tax-exempt distributions are taken for CESAs
  • Allowing contributions to CESAs to be made until the tax return due date, (e.g., generally April 15), not including extensions

Call your Member Service Representative for more information on Service 1 Federal Credit Union IRA accounts. For information on which IRA would benefit your specific needs, contact your tax advisor.