Individual Retirement Account (IRA)

An Individual Retirement Account (IRA) is an important investing tool to help you save for retirement. Depending on the type of IRA, you may have different options for tax deductions.

The following are some important things you should know about IRAs:

Types of IRAs

Contributions to a traditional IRA may be tax deductible depending on the individual's income, filing status and coverage by and employer-sponsored retirement plan. Distributions from a traditional IRA are taxed as income in the year received.

A Roth IRA is taxed in a somewhat opposite manner. Contributions to a Roth IRA are not tax deductible, while eligible distributions from a Roth IRA are not taxed as income.

The difference in tax deductibility allows you to choose to pay taxes on your contribution based on today's tax bracket and rate (using the Roth IRA) or at a future unknown bracket and rate (using the traditional IRA).

Funds in an IRA can be invested

Contributions can be invested in most types of securities. Gains from investments in an IRA are not considered on the participant's tax return while the IRA is going on. As stated before, contributions or disbursements may be taxed depending on the type of IRA. A Starion Financial personal banker can assist you with investments in Certificates of Deposit (CDs), which are guaranteed not to lose value and are backed by the Federal Deposit Insurance Corporation (FDIC).

Annual contribution limits

Currently, individuals less than 50 years old may contribute the lesser of 100% of income earned or $5,000 annually to a traditional or Roth IRA or any combination of the two. For individuals ages 50 and over, the maximum contribution is the lesser of 100% of income earned or $6,000.  The customer should check with their tax advisor to determine the amount and deductibility of a contribution.

The deadline for IRA contributions is the same as the IRS tax deadline, April 15 of the following year. For example, contributions made any time from January 1 through April 15 can be applied to your IRA for the previous year.

Withdrawing disbursements from your IRA

Generally, funds can be withdrawn as disbursements from IRAs after the individual reaches age 59 ½ without an IRS penalty. Starion Financial does not charge a penalty for early withdrawal from certificates for age-qualified distributions.

Certain "hardships" and other expenses may also exempt an individual from incurring penalties for withdrawing funds before age 59 ½. For example, some eligible expenses for medical insurance or procedures, work disability, higher education, or buying, building or rebuilding a first home may be disbursed without penalty. Funds may also be disbursed to beneficiaries of a deceased IRA owner.

You will be required to take a minimum disbursement from a traditional IRA after you reach age 70 ½. These minimum disbursements are calculated by dividing the IRA account balance by the life expectancy of the individual. Roth IRAs do not require mandatory distributions.

You should talk to your Starion personal banker and/or a tax advisor for details about disbursements, penalties and exemptions before withdrawing from your IRA.

We would love to teach you more about IRAs