Investment Retirement Account (IRA) Product Information
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Traditional IRAs
Traditional IRAs offer two big advantages or incentives to encourage people to save for their retirement. First, Traditional IRA regular contributions may be tax deductible on an IRA holder’s tax return (IRC Sec. 219(a) and b)). Second, earnings on a Traditional IRA are not taxed until the IRA holder or beneficiary takes the money out. It is these accrued earnings, regular deposits, and the passage of time that combine to produce large account balances.
Roth IRAs
A Roth IRA is a type of IRA, first available January 1, 1998, where contributions are not deductible, but distributions (including earnings) can be tax free if certain circumstances exist.
How Much Money Can I Contribute to an IRA?
There are a number of ways to fund an IRA, the most common of which is regular contributions. The government limits the amount of money an individual can contribute to an IRA as a regular contribution. When an IRA holder contributes more than is allowed, the IRA holder has made an excess contribution to the IRA and will, generally, be subject to IRS penalties.
IRC Sec. 219 states that for regular contributions, an individual may contribute a maximum of the amount of compensation includible in an individual’s gross income for the taxable year up to a limited contribution amount. Compensation is generally defined as earned income from personal services rendered; however, it also includes payments made to an individual under a divorce decree or legal separation agreement that are includible in gross income (IRC Sec. 219(f) and Revenue Procedure 91-18). Note that, although individuals may be eligible to make contributions, their contributions may or may not be tax deductible when filing their income tax returns.
Maximum Contribution – An individual may have and may contribute to more than one Traditional or Roth IRA in any given year, but the total contributions for the taxable year cannot exceed the lesser of the maximum contribution limit or 100 percent of earned income.
As dictated by law changes under EGTRRA, the maximum contribution limit per individual for a Traditional and/or Roth IRA for taxable years 2005-2007 is the lesser of $4,000 (plus catch-up contributions, if eligible) or 100 percent of earned income. EGTRRA defines the regular contribution limits through taxable year 2008 as shown in the following table. EGTRRA also allows potential cost-of-living adjustment (COLA) increases in increments of $500 to begin in 2009.
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Year
|
Amount
|
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2005-2007
|
$4,000
|
|
2008
|
$5,000
|
|
2009 and beyond
|
$5,000plus potential COLA increases
|
EGTRRA provisions allow eligible individuals who are age 50 and older to take advantage of catch-up contributions up to $1,000 to their traditional and Roth IRAs (IRC Sec. 219(b)(5)(B)).
IRA Funding Deadline – IRA contributions must generally be made either during the calendar year for which the contribution is desired or by the tax return deadline for filing that year’s tax return, not including extensions (IRC Sec. 219(f)(3)). Most IRA holders have a calendar year tax return, so the due date for contributions is April 15. An IRA holder must provide a written irrevocable election to treat a contribution made between January 1 and his or her tax return due date as a prior-year contribution (Prop. Treas. Reg. 1.219-1(d)(2)). When the contribution deadline falls on a Saturday, Sunday or legal holiday, IRC Sec. 7503 extends the deadline to the following business day.
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IMPORTANT INFORMATION ABOUT
PROCEDURES FOR OPENING A NEW ACCOUNT
To help the government fight the funding of terrorism and money-laundering activities, federal law requires all financial institutions to obtain, verify and record information that identifies each person who opens an account. What this means for you: When you open an account, we will ask for your name, address, date of birth, and other information that will allow us to identify you. We may also ask to see your driver’s license or other identifying documents.