IRA Q&A

Below are some common questions and answers about IRA’s. If after reviewing them you still have questions, please email us at info@thunderbaycu.org.

  • 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.

  • Q. Can I convert a traditional IRA to a Roth IRA?

    A. You can move money from your traditional IRA to a Roth IRA if you meet defined income limits and you are either single or married and filing a joint tax return. In the year you convert, you will have to pay federal income taxes on the amount that you move, except the portion that is treated as the return of your traditional IRA basis. You may also be subject to state income taxes. Starting with 2010, anyone with a traditional IRA can convert it into a Roth IRA. And you can spread the taxable income resulting from conversions made in 2010 over 2011 and 2012, rather than paying the tax in 2010. Contact your financial professional regarding your individual circumstances.

  • Q. What determines if I’m eligible to contribute to an IRA?

    A. Most people can contribute to an IRA if they earn compensation or are filing jointly with a spouse who earns compensation. For a traditional IRA: You can’t make regular contributions to a traditional IRA for the year in which you attain age 70½ or any later year. There are no income limits on your ability to contribute to a traditional IRA, but your income may affect your ability to deduct your contributions. For a Roth IRA: There are no age limitations on making regular contributions and you are eligible if you earn compensation and your income is less than the limits set by Congress. If your Income is too high to contribute the annual contribution limit, you may be able to make a smaller contribution. Check with a tax professional for current figures.

  • Q. Are Individual Retirement Accounts 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!

  • 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.

  • 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.

  • 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.

  • 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.

  • 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.