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IRAs


The Taxpayer Relief Act of 1997 created a variety of new IRA options. Not only did it change rules for the traditional IRA, but it also introduced the Roth and Education IRAs. These options were improved by the Economic Growth and Tax Relief Reconciliation Act of 2001.

Traditional IRAs are more attractive than ever because expanded income limits mean more people will be able to make tax-deductible contributions. In addition, penalty-free withdrawals are allowed for qualified higher-education expenses and for a first-time home purchase.
Contributions to the Roth IRA or Education IRA (now known as the Coverdell Education Savings Account) aren't tax-deductible, but the accounts offer the opportunity for tax-free earnings.

Your tax adviser can offer more guidance on which type of IRA may be best for your needs. Of course, we are always here to answer your questions and assist you with opening an IRA. Please stop by or call us today for more information on the benefits of a credit union IRA.

•Roth IRA
•Traditional IRA
•Education IRA

Roth IRA  
Who can contribute?
•Anyone who has income from compensation (or who is filing jointly with a spouse who earns compensation) within the guidelines set by the Federal government.
Who can make deductible contributions?
•No one can deduct contributions
What are the tax advantages?
•Earnings are tax-free if account is open for five tax years and withdrawn for a qualified reason (age 59 1/2, disability, death, or a first-time home purchase**)
•Not required to start withdrawals at age 70 1/2.
When can I withdraw without restrictions?
•Regular contributions can be withdrawn tax- and penalty free at any time.
•After the account has been open five tax years, earnings can be withdrawn tax- and penalty-free for any of these reasons: age 59 1/2, disability, death, or a first-time home purchase**

Traditional IRA 
Who can contribute?
•Anyone under age 70 1/2 who has income from compensation (or who is filing jointly with a spouse who earns compensation)
How much can I contribute?
•$3000 through 2004
•Higher limit if age 50 or older
•Cannot exceed compensation
•Reduces contributions that can be made to Roth IRAs
Who can make deductible contributions?
Fully-deductible contributions:
•Single individuals not active in employer retirement plans (regardless of income)
•Single individuals active in employer retirement plans with MAGI of less than $34,000
•Married couples with neither spouse active in an employer retirement plan (regardless of income)
•Married individuals active in employer retirement plans with joint tax returns showing MAGI of less than $54,000
•Married individuals not active in employer retirement plans with spouses who are, as long as MAGI is $150,000 or less.
•Individuals with incomes exceeding the above limits may be able to deduct an amount that is less than the maximum amount that can be contributed.
 What are the tax advantages?
•Earnings grow tax-deferred until withdrawn
•Contributions may be tax-deductible
When can I withdraw without restrictions?
Withdraw penalty-free for any of the following reasons:
•Qualified higher-education expenses
•First-time home purchase**
•Age 59 1/2
•Disability
•Qualifying medical expenses exceeding 7.5% of adjusted gross income
•Payment to beneficiaries upon the owner's death
•Payment of health insurance premiums while unemployed for 12 weeks or longer

Coverdell Education Savings Account (ESA)***
Who can contribute?
 Anyone who has income from compensation (or who is filing jointly with a spouse who earns compensation within the guidelines set by the Federal government.)
•Some people with higher MAGI may be able to make smaller contributions
•Contributions not allowed after the beneficiary reaches age 18 (except for special needs beneficiaries)
How much can I contribute?
•$2,000 per child
•Limit applies to Coverdell Education Savings Accounts (ESA) for the same child
Who can make deductible contributions?
•No one can deduct contributions
What are the tax advantages?
•Withdrawals for certain qualified education expenses are tax-free
•Special-needs beneficiaries can withdraw funds tax-free to pay for qualified education expenses at any age
•Qualified education expenses may include tuition, fees, books, computer equipment and technology required for elementary, secondary and post-secondary education
•A beneficiary may receive tax-free distributions from a Coverdell ESA in the same year he or she claims the Lifetime Learning or HOPE Scholarship tax credits.
 When can I withdraw without restrictions?
•Withdrawals are tax- and penalty-free only for qualified education expenses (earnings are subject to tax and penalty for most other withdrawals)
•Funds can be transferred from one child's account to an account for another child in the family


*       MAGI - Modified Adjusted Gross Income from the federal tax form
**     Lifetime limit for exemption on first-time home purchase is $10,000
***   Coverdell Education Savings Account
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Cheshire County Federal Credit Union
143 Marlboro Street
Keene, NH 03431
Email: info@cheshirecfcu.org
Phone: (603) 355-2328
Fax: (603) 357-1602