Individual Retirement Accounts
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Too many Americans postpone or neglect saving for retirement believing Social Security benefits will be sufficient as a primary source of income. In most cases, this is not true. IRAs offer you tax-advantaged ways to make building your retirement nest egg easy. And a DCU IRA is safe and secure – federally insured up to $250,000 per member by the National Credit Union Administration (NCUA), a U.S. Government Agency.
DCU offers you a full menu of IRA plans. They include:
Contributions to Traditional IRAs (under certain circumstances) and the earnings on them aren't taxed until withdrawal. At that time, withdrawals are taxed at your income tax rate. Ten percent penalty taxes may apply if you withdraw before age 59-1/2.
You can contribute up to $4,000 a year or 100% of your earned income, whichever is less. If you are married, you can contribute up to $8,000 or 100% of your combined income, whichever is less, between each spouse's IRAs. Workers age 50 and older can play "catch-up" with their retirement savings by contributing up to $1,000 a year over the maximum contribution limits. You can make contributions up to April 15 for the prior tax year.
You can make tax penalty-free withdrawals for several reasons. You can pay first-time home-buying expenses ($10,000 lifetime limit) for you, your spouse, children, grandchildren, or parents. You can also pay qualified higher education expenses for you, your spouse, children, or grandchildren not covered by other education assistance.
Penalty-free withdrawals are also allowed for death, disability, medical expenses that exceed 7.5% of your adjusted gross income, and to purchase health insurance if you have received unemployment compensation for twelve weeks or more.
Minimum distributions are required beginning at age 70-1/2. If you receive a distribution from a pension, 401(k), or other company retirement plan, you can roll the entire amount into an IRA and defer the taxes until withdrawal.
If you are not covered by an employer-sponsored retirement plan, you can deduct your entire contribution. If you are, it's still deductible if you're single with adjusted gross income (AGI) of $50,000 or less or married with AGI of $75,000 or less. Many non-working spouses can now deduct $4,000 in contributions even when their spouse is covered by a retirement plan.
Please consult a tax advisor to determine how federal, state, and local tax laws affect IRA deductibility for you and whether a Traditional or Roth IRA is best for your situation.
At DCU, federally-insured Traditional IRAs are available as Certificate IRAs, Money Market IRAs, and Savings IRAs.
The new Roth IRA offers tax-free growth when you hold it for at least five years and take distributions after you reach 59-1/2. Unlike traditional IRAs, you can keep your account intact beyond age 70-1/2 and can continue to make contributions. Being covered by a retirement plan doesn't affect your ability to contribute.
You can make tax penalty-free withdrawals for several reasons. You can pay first-time home-buying expenses ($10,000 lifetime limit) for you, your spouse, children, grandchildren, or parents. Penalty-free withdrawals are also allowed for death, disability, medical expenses that exceed 7.5% of your adjusted gross income, and to purchase health insurance if you have received unemployment compensation for twelve weeks or more.
You can contribute up to $4,000 a year or 100% of your earned income, whichever is less. If you are married, you can contribute up to $8,000 or 100% of your combined income, whichever is less, between each spouse's IRAs. Workers age 50 and older can play "catch-up" with their retirement savings by contributing up to $1,000 a year over the maximum contribution limits.
If you're married with adjusted gross income (AGI) below $160,000, or single with AGI below $110,000, you can make annual contributions – up to $4,000 if AGI is $150,000 or $95,000 respectively. If your AGI is under $100,000, you can roll your existing IRAs, deductible and non-deductible, into a Roth IRA without penalty. However, if you do, you'll owe income tax on all previously untaxed contributions and earnings.
Please consult a tax advisor to determine how federal, state, and local tax laws affect IRA deductibility for you and whether a Traditional or Roth IRA is best for your situation.
At DCU, federally-insured Roth IRAs are available as Certificate IRAs, Money Market IRAs, and Savings IRAs.
Deciding which type is best and whether to transfer your current accounts to a Roth IRA is a complicated decision. You must consider your current and future tax brackets, other assets available, your age, your planned retirement age, and whether you built your current IRAs with deductible or non-deductible contributions. You also need to consider any other retirement investments you have. You can have both types of IRAs, but combined contributions can't exceed $4,000 a year. Your tax advisor can help you weigh these and other factors to make the best decision.
In general, a Traditional IRA may be better if you don't participate in an employee-sponsored retirement plan, expect to be in a lower tax bracket at retirement, and need the tax deduction. A Roth IRA may be better if you expect to be in the same or a higher tax bracket at retirement and you're starting at age 18 to 44. Because there is no mandatory distribution age, a Roth may also be better if you won't need your IRA for living expenses and want to leave sizable assets to your heirs.
When converting a Traditional IRA to a Roth, a good rule of thumb is to consider it if you can afford to pay the taxes from other savings or current earnings, or if you won't need the IRA funds during retirement and want to pass funds to your heirs. You generally should not convert if you are within five years of retirement or will need to dip into the IRA to pay the taxes.
A SEP allows employers to set up a type of individual retirement account, known as a SEP-IRA, for themselves and their employees. Employers must contribute a uniform percentage of pay for each employee. Employer contributions are limited to the lesser of 25 percent of an employee's annual salary or $40,000. (Note: this amount is indexed for inflation and will vary). SEPs can be started by most employers, including those who are self-employed.
Workers age 50 and older can play "catch-up" with their retirement savings by contributing up to $1,000 a year over the maximum contribution limits.
Businesses are not locked into making contributions every year. You can decide how much to put into a SEP each year – offering you some flexibility when business conditions vary. A sole proprietor, partnership, or corporation can establish a SEP for the benefit of all employees.
DCU offers SEP-IRAs as a vehicle for funding the pension plan. For more information on retirement solutions for small businesses, see the U.S. Department of Labor.
This savings option for employers of 100 or fewer employees involves a type of IRA and is the result of the Small Business Job Protection Act of 1996.
A SIMPLE plan allows employees to contribute a percentage of their salary each pay check and to have their employer match their contribution. Under SIMPLE plans, employees can set aside up to $7,000 each year by payroll deduction. Workers age 50 and older can play "catch-up" with their retirement savings by contributing up to $1,000 a year over the maximum contribution limits.
Employers can either match employee contributions dollar for dollar – up to three percent of an employee's wage – or make a fixed contribution of 2 percent of pay for all eligible employees instead of a matching contribution.
Employees are 100% vested in contributions, get to decide how and where the money will be invested, and keep their IRA accounts even when they change jobs.
DCU offers SIMPLE IRAs as a vehicle for funding this plan. For more information on retirement solutions for small businesses, see the U.S. Department of Labor.
Please contact DCU for SIMPLE IRA forms.
- IRA Rates
- Retirement Calculators
- IRA forms at DCU's Retirement Central Service Center – This online service is an easy way to complete your IRA forms. Simply answer some questions regarding the transaction you wish to complete and the Service Center will produce the necessary forms. Select the Open an IRA link at the top for the forms to open an IRA or select the Manage my Account link to make changes to your account.If you have any questions, or need paper forms, please speak with a Customer Service Representative at your nearest DCU branch or call our Information Center at 800/328-8797, weekdays from 8:00 a.m. to 11:00 p.m., and Saturdays 9:00 a.m. to 3:00 p.m., Eastern time.
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Digital Federal Credit Union
220 Donald Lynch Boulevard PO Box 9130 Marlborough, MA 01752-9130 508.263.6700 • 800.328.8797 |
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