Individual Retirement Accounts
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What is an IRA?
An individual retirement account (IRA) is an account set up at the bank that allows you to save for retirement with tax-free growth or on a tax-deferred basis. There are three main types of IRAs, each with different advantages. Learn more below.
To open an IRA, consult with a Relationship Banker at any of our First National Bank locations. If you have questions about IRAs, don't hesitate to contact us.
Current IRS rules and contribution limits.
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Traditional IRA
You make contributions with money you may be able to deduct on your tax return, and any earnings can potentially grow tax-deferred until you withdraw them in retirement. Many retirees find themselves in a lower tax bracket than they were in pre-retirement, so the tax-deferral means the money may be taxed at a lower rate.
- Contributions are generally made with after-tax money, but may be tax-deductible, if you meet income eligibility.*
- Any potential earnings grow tax-deferred and are not taxed until you withdraw them after age 59 1/2.
- Anyone 18 or over with earned income can contribute to a traditional IRA. However, there are specific income limits for how much might be tax deductible.*
- You will pay taxes on your earnings and contributions when you make withdrawals.
- If you make withdrawals before you are 59 1/2, you might have to pay taxes on your earnings, plus an additional 10% tax.
- Traditional IRAs generally require you to withdraw a minimum amount of money starting at age 73.
*Contact your tax professional regarding deductibility
Roth IRA
You make contributions with money you've already paid taxes on (after-tax), and your money may potentially grow tax-free, with tax-free withdrawals in retirement, provided certain conditions are met.
- Contributions are made with after-tax money and potential earnings grow tax-free
- You are able to withdraw your contributions tax-free and penalty-free at any time, for any reason
- Earnings can be withdrawn federally tax-free and penalty-free provided that it's been 5 years since your first contribution.
- There are specific IRS income limits for contributions to a Roth IRA
- If you make withdrawals before your are 59 1/2, you might have to pay taxes on your earnings, plus an additional 10% tax.
- Roth IRAs do not require you to withdraw a minimum amount of money at a certain age.
*Contact your tax professional regarding deductibility.
Rollover IRA
A Rollover IRA is an account that allows you to move funds from your prior employer-sponsored retirement plan into an IRA. With an IRA rollover, you can preserve the tax-deferred status of your retirement assets, without paying current taxes or early withdrawal penalties at the time of transfer. A Rollover IRA can provide a wide range of investment choices that may meet your goals and risk tolerance.
Eligible employer-sponsored retirement plans are those that you receive qualifying distributions from, and include 401(k) plans, 403(b) plans, profit-sharing plans, money purchase plans, and Keoghs/Qualified Retirement Plans (QRPs).
Plans that may not be eligible include employee stock ownership plans (ESOPs) and defined benefit plans.
You may be allowed to roll over after-tax dollars and governmental 457(b) qualifying distributions.
Contact your plan administrator(s) to find out if your particular plan is eligible for rollover.
Contributing to your IRA
Whether you choose a Traditional IRA or Roth IRA, the tax benefits allow your savings to potentially grow, or compound, more quickly than in a taxable account.
To get tax-advantaged growth from your IRA contributions, remember to these three things.
- Get started early. Starting early can make a big difference because your money has more time to grow.
- Understand your contribution limits. When you have earned income, you can contribute it to an IRA up to the maximum annual limit. Speak to a Relationship Banker to learn about current limits, including those based on your age.
- Make it a habit. Set up an automatic contribution schedule that allows you to select an amount, the date and frequency of investments.