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The
following is a list of frequently asked questions about
IRA accounts. If you'd like more information about IRAs
with Reading Co-operative Bank, please contact
us.
Am
I eligible to have an IRA?
Traditional
IRA:
Individuals who are under 70 1/2 years of age for the
entire tax year and who have earned compensation or have
received alimony may contribute to a traditional IRA.
Roth
IRA:
Unlike a traditional IRA, Roth IRA participants may continue
to make contributions after they have reached 70 1/2.
Individuals who have earned compensation or have received
alimony may contribute to a Roth IRA provided their income
falls within the following guidelines:
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Full
Contribution
AGI is less than:
|
Partial
Contribution
AGI is less than:
|
Single
Filer |
$95,000
|
$95,000-$110,000
no contribution if over $110,000
|
Married
Filing Jointly |
$2,000-$150,000
|
$150,000-$160,000
no contribution if over $160,000
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What
is compensation?
Compensation
is the salary or wages you receive as an employee. If
you are self-employed, compensation is your net income
for personal services performed for the business. All
taxable alimony is considered compensation. Interest,
dividends, and most rental income is passive income and
is not considered compensation.
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How
much can I contribute to my IRA?
You
may contribute any amount up to 100 percent of your compensation
or $2,000**, whichever is less, to a traditional IRA (or
to both a traditional and a Roth IRA). Additional catch-up
contributions can be made by qualified individuals over
fifty.
**
$3500 for tax year 2002, if over 50.
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Do
I pay taxes on the earnings of my IRA?
All
earnings on your IRA contributions (deductible and/or
nondeductible) remain tax deferred until you make withdrawals
from the account.
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Do
I get a tax deduction for my contribution?
Deductibility
of your contribution to a traditional IRA is based on
whether or not you or your spouse are an active participant
in an employer-maintained retirement plan:
- If
you are single and not an active participant, you are
eligible for a full deduction of your contribution no
matter how large your income.
- If
you are not an active participant but your spouse is,
you are still eligible for a full deduction if you file
jointly and your combined modified adjusted gross income
(MAGI) is below $150,000 or a partial deduction if your
joint MAGI is between $150,000 and $160,000.
- If
your are an active participant, the deductible amount
is dependent on your MAGI and income tax-filing status.
You
may be eligible for the maximum deduction, a partial deduction,
or no deduction.
Please
note that, with a Roth IRA, contributions are NOT tax
deductible.
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What
if I'm not eligible for a deductible IRA contribution?
You
can still make nondeductible contributions to your IRA.
You may also be eligible for a Roth IRA, depending on
your MAGI.
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When
can I withdraw funds from my IRA without Incurring any IRS
penalties?
Traditional
IRA:
You must pay income tax distributed amounts from a Traditional
IRA attributable to deductible contributions and earnings.
Amounts
withdrawn prior to age 59 1/2 are also subject to an additional
10% early withdrawal tax, unless one of the following
exceptions applies to the distribution:
- It
is made due to death or disability
- If
it made in the form of certain periodic payments
- It
is used to pay medical expenses in excess of 7.5% of
AGI
- It
is used to purchase health insurance for unemployed
individuals
- It
is used for qualified education expenses
- It
is used for first-time home buyer expenses in excess
of $10,000
Roth
IRA:
You will receive your qualified distributions tax- and
penalty-free, provided that the distribution is made after
the 5-year taxable period beginning with the first taxable
year in which a Roth contribution was made, AND the distribution
is made:
- After
the recipient has reached 59 1/2, or
- Due
to permanent disability, or
- To
a beneficiary in the case of death, or
- For
first-time home buyer's expenses, up to $10,000
Unqualified
distributions of earnings are includible in income and
subject to the 10% early withdrawal tax, unless one of
the exceptions listed under Traditional IRAs applies.
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How
much is deductible from my taxes?
If
you and your spouse are not covered by an employer-sponsored
retirement plan, you will receive a full deduction regardless
of your income. If you DO participate in an employer-sponsored
retirement plan, your income and filing status will determine
the amount that your contribution is deductible from taxes.
The following figures illustrate the increasing maximum
income levels for single filers and couples filing jointly
to deduct all or part of their IRA contributions:
|
SINGLE
PERSON FILING INDIVIDUALLY
|
| Year |
Maximum
Level
Full Deduction
|
Maximum
Level
Partial Deduction
|
| 2001 |
$33,000
|
$43,000
|
| 2002 |
$34,000
|
$44,000
|
| 2003 |
$40,000
|
$50,000
|
| 2004 |
$45,000
|
$55,000
|
| 2005 |
$50,000
|
$60,000
|
|
MARRIED
COUPLE FILING JOINTLY
|
| Year |
Maximum
Level
Full Deduction
|
Maximum
Level
Partial Deduction
|
| 2001 |
$53,000
|
$63,000
|
| 2002 |
$54,000
|
$64,000
|
| 2003 |
60,000
|
$70,000
|
| 2004 |
$65,000
|
$75,000
|
| 2005 |
$70,000
|
$80,000
|
| 2006 |
$75,000
|
$85,000
|
| 2008 |
$80,000
|
$100,000
|
Furthermore,
an individual who does not participate in a employer plan,
yet their souse does, may deduct their regular IRA contributions,
provided that their combined adjusted gross income level
is below $150,000. They will be allowed a smaller maximum
deduction if their adjusted gross income is higher, provided
it is not over $160,000.
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When
can I withdraw from a Traditional IRA?
You
can withdraw funds from your IRA anytime after you reach
59 1/2. Distributions taken prior to this age are subject
to a 10% early withdrawal penalty.
Distributions
must start by April 1 following the year in which the
participant reaches 70 1/2. Failure to begin distributions
at this point will impose penalties.
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When
can I withdraw from a Roth IRA?
You
may withdraw your Roth IRA contributions at any time.
Qualified distributions may be withdrawn tax- and penalty-free.
Non-qualified distributions may be taxable and subject
to an IRS 10% early distribution penalty.
To
be considered a qualified distribution, you must have
been a participant in the Roth IRA for over five years,
beginning with the first year in which the account was
converted or a contribution was made, AND you have reached
age 59 1/2, OR
- The
distribution is paid following your becoming permanently
and totally disabled
- The
distribution is paid to you for the first-time purchase
of a home (up to $10,000)
The
10% IRS early withdrawal penalty will not apply to non-qualified
distributions to which one or more of the following exceptions
apply:
- You
have reached age 59 1/2
- The
distribution is paid to a beneficiary due to your death
- The
distribution is paid following your becoming permanently
and totally disabled
- The
distribution is paid in part as a series of substantially
equal periodic payments
- The
distribution is used to pay for medical expenses in
excess of 7.5% of your AGI
- The
distribution is used to pay for health insurance premiums
if you have been unemployed 12 or more weeks
- The
distribution is used for the first-time purchase of
a home (up to $10,000)
- The
distribution is used to pay for qualified higher education
expenses
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What
is a Coverdell Education Savings Account?
Formerly
known as Education IRAs, Coverdell Education Savings Accounts
are an ideal way for you to begin saving money to help
a child, grandchild, or any young person you know pay
for higher education expenses down the road.
Contributions
to a Coverdell Education Savings Account are not tax deductible,
but distribution used to pay for the qualified education
costs of the named beneficiary are generally tax-free.
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.Am
I eligible to contribute to a Coverdell Education Savings
Account?
You
can contribute up to $2000 annually per beneficiary below
the age of 18, provided you meet the following income
limits:
| |
Full
Contribution
AGI is less than:
|
Partial
Contribution
AGI is less than:
|
Single
Filer |
<=$95,000
|
$95,000-$110,000
no contribution if over $110,000
|
Married
Filing Jointly |
<=$190,000
|
$190,000-$220,000
no contribution if over $220,000
|
Beneficiaries
are limited to receiving a total of $2,000 in contributions
to one or more Coverdell Education Savings Accounts annually,
regardless of the contributors' limits. Your contributions
to a Coverdell Education Savings Account are separate
from contributions made to a traditional or Roth IRA and
therefore may be made in addition to your contribution
limits for those types of accounts.
Corporations
and other entities, including tax-exempt organizations,
are permitted to make contributions to Coverdell Education
Savings Accounts, regardless of the income of the corporation
or entity, in the year of the contribution.
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How
long can I continue to contribute to a Coverdell Education
Savings Account?
You
may continue to contribute to the account until the named
beneficiary reaches the age of 18. No contributions may
be made to the account after that time. If the beneficiary
qualifies as a special needs beneficiary, you may continue
to make contributions to their account after they reach
18 years of age.
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Are
distributions from a Coverdell Education Savings Account
tax deductible?
Distributions
from a Coverdell Education Savings Account which are used
to pay for qualified education expenses* of the beneficiary
are tax-free. Any amount of the distribution in excess
of the qualified expenses, which is not attributable to
contributions, will be taxed as earned income.
*
Contact Reading Co-operative Bank for details.
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Can
you help me learn more about which IRA is right for me?
Reading
Co-operative Bank will sit with you and help you determine
which retirement plan best suits your needs and qualifications.
For more information or to speak with a customer representative,
please contact us.
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IMPORTANT
NOTE: The information on this web page is not intended to
provide specific advice or recommendations for any individual.
We recommend that you consult your attorney, tax or financial
advisor regarding your personal situation and needs.
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