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IRA Help

Are you planning for retirement?

Approximately one-third of credit union members indicate that “assuring a comfortable standard of living during retirement” is their most important financial goal.

Older members place retirement preparation even higher on their priority list. Forty percent of members ages 45-54 and thirty-nine percent of members ages 55-64, consider a comfortable retirement their most important long-term goal. These statistics also demonstrate that many members are not planning for their retirement. Why should you start an IRA now?

Traditional IRAs

All or a portion of your IRA contribution may be tax deductible based on your income and active participation in employer-sponsored retirement plans. Anyone may make a nondeductible contribution to help save for retirement! All earnings on your IRA are tax deferred until you make withdrawals from your account. This means you earn more and your money grows faster, because of the added benefit of compounding.

Roth IRAs

The sooner you begin an IRA, the more you will earn. Even if you get a late start, you can still increase your retirement earnings if you start planning adequately right now. If you are among the credit union members that have not established a regular saving plan, here are some facts you should know:

  • Contributions to Roth IRAs are nondeductible from federal income tax. However, as with Traditional IRA accounts, earnings accumulate tax deferred. Even more exciting, when the account has been open for five successive tax years, you may take tax-free distributions of earnings if they meet certain criteria [after age 59 1⁄2, in the event of death or total disability or as a qualified first-time home buyer (up to $10,000)]
  • Penalty-free and tax-free withdrawals of your contributions are permitted at any time.
  • Unlike a traditional IRA, Roth IRAs permit continued contributions after age 70 1⁄2, but there is no requirement to withdraw at age 70 1⁄2
  • According to a recent national survey, the majority of Americans have saved less than $50,000, and almost one-fourth of all workers have saved less than $10,000 toward retirement.
  • Half of those surveyed have calculated how much money they will need to save by the time they retire, but many don’t consider the number of retirement years or how much Social Security they will actually receive.
  • Social Security makes up less than half of the retirement needs for the majority of Americans. For example, assuming you maintain the same lifestyle expenses, Social Security would provide roughly forty percent of your retirement income.
  • The average Social Security benefit was $844 per month in 2000. Whether Social Security and Medicare will continue to provide equivalent benefits is the real question.
  • Americans say they are counting on money from savings and investments as retirement income, yet the personal saving rate in the U.S. was minus one percent in 2000, the lowest one-year rate recorded in more than a generation.
  • Fewer companies are providing traditional pension plans, but many are providing alternatives, such as 401(k) plans. Such plans depend on annual employer and employee contributions and the accounts investment performance.

Status for deductibility is determined individually

A spouse without a personal pension can have a fully deductive IRA as long as the couple’s adjusted gross income (AGI) is $150,000 or less.

Source: The National Endowment for Financial Education

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