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For more details, call one of our IRA Specialists at 816-763-4020. 

This article is not intended as tax advice. Contact a tax professional.

1. What’s the difference between a traditional IRA and a Roth IRA?
2. Can I convert a traditional IRA to a Roth IRA?
3. Is there an age limit when I must start withdrawing money from my Roth IRA?
4. Are Individual Retirement Accounts only for retirement?
5. Why should I have my IRA at my credit union?
6. In addition to an IRA, can I save extra money for college funding?
7. If I leave my job or retire, can I move my retirement plan benefits into an IRA?
8. What are the dangers in cashing out my pension plan?
9. What is a SEP account?

Q. What's the difference between a traditional IRA and a Roth IRA?
A. Contributions to a traditional IRA are usually made with before-tax dollars, but you can contribute after-tax money as well. Your contributions may be tax-deductible, and your earnings are tax-deferred. You pay taxes on most traditional IRA funds when you withdraw them. Contributions to a Roth IRA are always made with after-tax dollars. Qualified withdrawals, including earnings, are tax-free.

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Q. Can I convert a traditional IRA to a Roth IRA?
A. Yes. But it would be a good idea to consult with a tax professional before you make the move. The big advantage is the tax-free earning potential and tax-free distribution of a Roth IRA.

You are not eligible to make this conversion if you are married and filing separately, or if your modified adjusted gross income (MAGI) in the year of the conversion is $100,000 or more (not including the income from the conversion itself). And if you covert to a Roth IRA, you will have to pay income taxes on the amount converted, less the portion that represents your traditional tax basis (usually the amount attributable to nondeductible contributions you have made).

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Q. Is there an age limit when I must start withdrawing money from my Roth IRA?
A. No. Unlike a traditional IRA, which requires you to stop contributing and begin withdrawals at age 70½, a Roth IRA has no such rule. As long as you are still earning compensation, and you are under the income limits, you can keep contributing to your Roth IRA.

The obvious advantage is that a Roth IRA allows you to continue creating savings for your retirement. Another big plus: you can plan your Roth IRA as a tax-free inheritance gift to your heirs.

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Q. Are Individual Retirement Account only for retirement?
A. No. There is great flexibility in the benefits of IRA funding. You can use your IRA to pay for higher education, certain medical expenses, health insurance premiums, help with purchasing your first home and more. And if you have a Roth IRA, you can withdraw your regular contributions tax-free and penalty-free at any time and for any reason!

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Q. Why should I have my IRA at my credit union? 
A. You want to benefit through the tax advantages of an IRA. But you also want to know that your account is secure, and in a financial institution that’s dedicated to providing professional financial services combined with credit union philosophy.

Your IRA is the key to a comfortable retirement, so it should be trusted to the guidance and management of experienced professionals. The credit union can answer many of your IRA questions and provide the convenience of a wide range of related financial services.

A credit union IRA offers you the safety of insured deposits, competitive rates, low or no annual maintenance fees, the convenience of payroll deduction, low minimum deposit requirements, and the personal, people-to-people service that credit unions are known for.

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Q. In addition to an IRA, can I save extra money for college funding?
A. Yes. You can put $2,000 per child per year into a Coverdell Education Savings Account (ESA). You can also invest in a 529 state college savings plan in the same year.

Contributions, which are not tax-deductible, can be made until the child is 18. The money can be used for qualified higher education and K-12 primary and secondary education expenses for tuition, fees, room and board, uniforms, transportation, extended day care, and even computers.

The beneficiary can receive tax-free distributions from a Coverdell ESA in the same year as receiving tax credits for Lifetime Learning or a HOPE Scholarship.

You are eligible to contribute the $2,000 maximum to a Coverdell ESA if you are a joint tax filer with income under $190,000, or a single tax filer with income under $95,000. If you have a higher income level, you may be able to make smaller contributions. The deadline for contributing to a Coverdell ESA is the same as the federal tax deadline, usually April 15.

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Q. If I leave my job or retire, can I move my retirement plan benefits into an IRA?
A. Yes. The best way to accomplish this is to use a direct rollover. Under this approach, you ask the administrator of your retirement plan to send the funds directly to the credit union for the benefit of your IRA. The funds are not subject to any taxes or even withholding when a direct rollover is used.

You can roll over funds from any qualified retirement plan (QRP), including a 401(k), a governmental 457(b) or a 403(b) plan. And assets from any of these plans can also be rolled into each other, if the receiving plan allows a rollover to take place.

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Q. What are the dangers in cashing out my pension plan?
A. If you cash out your pension plan, you could be in danger of losing up to half its value! That’s because distributions from your pension plan are taxable. They’re also subject to a 10% IRS penalty if you cash the funds out before age 59½.

The solution is a direct rollover, in which the plan administrator sends the funds to the credit union on behalf of your IRA. The funds are not sent to you, so you are not subject to the taxes and penalties. That means your money can keep working for your retirement in an account that has important tax advantages.

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Q. What is a SEP account?
A. SEP stands for Simplified Employee Pension. Its purpose is to enable small businesses to offer retirement plans to their employees. A SEP plan enables the employer to make contributions to the traditional IRAs of the employees – including an owner-employee – instead of establishing a complex retirement plan. A SEP plan is easy to administer and inexpensive to operate compared to other retirement plans. And the employees pay no taxes on their SEP IRA contributions until they withdraw their funds.

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This article is not intended as tax advice. Contact a tax professional.

CSD Credit Union
8510 E Bannister Road ● Kansas City, MO 64134 ● 816-763-4020