Questions members frequently ask about IRAs

What are the IRA contribution limits?
Regardless of the type of IRA you choose, the government imposes annual maximum contribution limits. If you are over 50, you are allowed to make a "catch-up" contribution beyond the standard limit.

IRA contribution limits

The maximum contribution to a Coverdell Education Savings Account (ESA) is $2,000 per year.

Do I have to make the maximum contribution to my IRA?
No, but the tax advantages can make a big difference at retirement. An investment of $3,000 made on January 1 of each year, earning 5% interest, will accumulate over $13,000 more in 10 years than if you contributed only $2,000 each year. And in 30 years, you would save almost $70,000.

What are the eligibility rules for Roth and Traditional IRAs?

To contribute to a Traditional IRA, you must:

• Earn compensation or file a joint income tax return with a spouse who earns compensation
• Be under age 70 1/2

To contribute to a Roth IRA, you must:

• Earn compensation or file a joint income tax return with a spouse who earns compensation
• Be any age

Your adjusted gross income must fall within certain limits:

Will my contributions to a Traditional IRA be tax-deductible?
Three factors determine eligibility for tax deductible contributions to a Traditional IRA:

• Marital status
• Income
• Participation in a retirement plan

If you or your spouse are not active in an employer retirement plan, your contributions are fully deductible, regardless of income. 

If your income exceeds the above limits, you may be able to deduct a portion of your contribution. 

*MAGI stands for modified adjusted gross income

Are there any other tax advantages to having an IRA?
There is a unique saver's tax credit available for qualifying taxpayers who contribute to an IRA. See your tax professional for more information.

The credit is in addition to any applicable deduction or exclusion. To claim the credit, you must be at least age 18, not a full-time student, and not claimed as a dependent on another person's tax return.

How does the Coverdell ESA affect other education savings plans?
You can contribute to both a Coverdell ESA and a qualified state 529 plan on behalf of the same child.

A person can receive tax-free distributions from a Coverdell ESA in the same year he/she claims the Lifetime Learning or Hope Scholarship tax credits, but the same expenses cannot be used for more than one of these tax benefits.

I am leaving my job. Can I roll my 401(k), 403(b), 457(b) or other qualified retirement plan into an IRA?
Yes. You can also roll the plan assets from any of these plans into any other or even roll over IRA distributions into qualified retirement plans, 457(b)s or 403(b)s. The receiving plan must accept rollovers. Some plans do not.

If you decide to consolidate your plans, you must do a direct rollover (the check is made out to your financial institution on behalf of the IRA) to avoid taxes and penalties.

Can I contribute to an IRA if I already have a retirement plan through my employer?
Yes. You can add to your savings by contributing to a Roth IRA, Traditional IRA or Coverdell Education Savings Account (ESA) even if you have an employer-sponsored plan. As long as you're under age 70 1/2 and you have earned compensation, you can make non-deductible contributions to a Traditional IRA and benefit from tax-deferred earnings.

Why should I have an IRA at Lake Trust?
We understand that your IRA is more than a tax advantage. A Lake Trust Credit Union representative can help you establish and maintain an IRA that supports your life goals, and make certain your money will be there when you need it. With a Lake Trust Credit Union IRA, you'll enjoy:

• Competitive interest rates
• Low or no annual maintenance fees
• Insured deposits
• Simplified contributions through payroll deductions
• Low minimum deposit requirements
• Personal answers to your questions
• A full range of financial services

Do I have to start withdrawing money from a Roth IRA at any certain age?
No. The Roth IRA has no withdrawal requirements. You can continue contributing to a Roth IRA as long as you earn compensation. With this flexibility, you can build IRA savings indefinitely, or even provide a gift to your loved ones that is free of income tax for qualified distributions.

Can I have both a Traditional and a Roth IRA?
Yes, you can. But remember that you have one contribution limit per year which includes both types of IRAs. You cannot contribute the limit to each.

Do I have to make my entire IRA contribution at one time?
It's up to you. You can make one contribution or you can spread it out over the year. We'll even help you set up a payroll deduction that will be deposited directly into your IRA.

Is my money safe in an IRA?
Your Lake Trust Credit Union IRA is insured for up to $250,000 by the National Credit Union Administration (NCUA), the federal agency that regulates and insures credit unions. Your IRA is insured separately from any other Lake Trust Credit Union savings accounts you have.

The above information is not intended as tax advice. Please consult a tax professional regarding your specific circumstances. For more information, get in touch with a Lake Trust Credit Union representative.