Individual Retirement Accounts (IRAs)
Individual Retirement Accounts (IRAs)
Individual Retirement Accounts (IRAs) are tax-advantaged savings programs that allow you to begin saving for your retirement, whether you are starting your first job or you are nearing the end of your professional career.
It’s never too early to start planning for your future. USSFCU can help you devise a savings strategy that best serves your retirement goals. USSFCU offers both Traditional and Roth IRAs, each of which has its own distinct tax advantages. Call us today to find an IRA savings strategy that works best for you.
IRA Legislative Update
Many USSFCU members will find expanded retirement savings possibilities as a result of recently passed legislation. The Setting Every Community Up for Retirement Enhancement (SECURE) Act and the Coronavirus Aid, Relief and Economic Security (CARES) Act provisions offer greater opportunities to save for retirement and relaxed rules for the withdrawal of IRA funds.
Tax Filing and IRA Contribution Extensions and Rule Changes
- The federal income tax filing due date is automatically extended from April 15, 2020, to July 15, 2020.
- Taxpayers can also defer federal income tax payments due on April 15, 2020, to July 15, 2020, without penalties and interest, regardless of the amount owed.
- The IRS also extended the 2019 Traditional /Roth IRA contribution deadline to July 15, 2020.
- Effective for tax year 2020 and beyond, the 70½ age limit on Traditional IRA contributions has been repealed and earned income is the only requirement.
- Note that individuals who turned age 70½ or older in 2019 may not make prior-year contributions for 2019, even though the contribution deadline is July 15, 2020.
Traditional IRA Required Minimum Distributions (RMDs)
- The age at which individuals must begin taking RMDs has been raised from 70½ to 72.
- The new law only applies to persons who turn 70½ after December 31, 2019.
- The age 70½ requirement for an IRA holder to take a qualified charitable distribution (QCD) did not change.
- RMDs have been waived for the calendar year 2020.
- The waiver also applies to IRA owners who turned 70½ in 2019 and delayed taking their first distribution until April 1, 2020.
- Provided they did not make a rollover in the past 365 days, individuals who have already taken an RMD this year may redeposit their distribution within 60 calendar days of the withdrawal.
Coronavirus-related Distributions (CRDs)
- Up to $100,000 in coronavirus-related distributions (CRDs) may be withdrawn by an individual from his or her IRAs.
- A CRD is defined as any distribution between January 1, 2020 and December 31, 2020, to a qualified individual:
- Who is diagnosed with COVID-19 or SARS-CoV-2 in an approved test.
- Whose spouse or dependent is diagnosed with COVID-19 or SARS-CoV-2 in an approved test.
- Who suffers adverse financial consequences due to:
- Being furloughed, quarantined, or laid off
- Incurring reduced hours
- Being unable to work due to childcare issues related to the coronavirus
- Owning or operating a business that has closed or reduced hours
- Experiencing other factors as determined by the Treasury Secretary.
- Distributions are still taxable, but the tax may be spread evenly over the next three years.
- These distributions will be exempt from the 10 percent early distribution penalty tax.*
- Taxpayers may recontribute CRDs to an IRA over a three-year repayment period beginning the day after distribution. (One or more repayments may be made, not to exceed, in aggregate, the amount distributed. CRDs that are recontributed within the three-year period will be treated as having satisfied the general 60-day rollover requirement.)
*USSFCU will also waive the penalty for withdrawal before maturity from IRA time certificates for members taking qualifying Coronavirus-related distributions.
USSFCU offers both Traditional IRAs and Roth IRAs to help its members save for retirement. Either may be opened as a savings account or a term certificate. Despite some different characteristics detailed in the comparison below, both Traditional and Roth IRAs at USSFCU share the following common elements:
- Competitive dividend rates above standard savings rates
- No set up fees or monthly/annual maintenance fees
- A very low $5 minimum balance
- The ability to purchase Share Certificate(s) with IRA funds
- A $6,000 per year contribution limit1 2019 contribution limit
- Additional $1,000 “catch-up” contributions allowed for members ages 50 and above
Which approach is best for you? Traditional, Roth, or both? Give us a call and we’ll help you chart the best course for you and your family!
1 Annual contribution amount may change.
The main difference between Traditional and Roth IRAs, both of which are tax-advantaged retirement savings tools, is how these accounts are treated by the tax code.
A Traditional IRA from USSFCU may accept contributions of pre-tax or after-tax dollars and the dividends grow tax-deferred. When you make withdrawals after age 59½, they are treated as current income. In addition, contributions are potentially tax deductible depending on your filing status and income.
A Roth IRA from USSFCU is funded only with after-tax income. Therefore, contributory funds may be withdrawn at any time without tax penalties. When members make qualified withdrawals from their Roth IRAs after age 59½, earnings are not taxed.
Aside from these fundamental differences, Roth IRAs and Traditional IRAs also differ in a few other ways, which are described below.
Traditional IRAs
- Anyone under age 70½ with earned income may open a Traditional IRA
- Contributions are deductible from state and federal tax*
- Earnings are tax deferred until withdrawal
- Withdrawals may begin at age 59½ and are mandatory at age 70½ when members are often in a lower tax bracket
- Early withdrawals are subject to penalty**
Roth IRAs
- No age limits for eligibility
- Eligibility is subject to income limits based on filing status
- Contributions are NOT tax deductible
- No penalty for early withdrawal of contributory funds
- Early withdrawals on earnings subject to penalty**
- Earnings are 100% tax free on qualified distributions
- No mandatory distribution age
*Subject to some minimal conditions. Consult a tax advisor.
**Certain exceptions apply, such as qualifying higher education expenses, first time home purchases, etc.
Deciding which retirement savings options are best for you and your family? Give us a call or visit one of our convenient branches. Also, below are a few background pieces that address common questions related to IRAs for those who might be interested in learning more.