Roth IRA

A Roth IRA is a great investment vehicle for retirement. The main benefit of the Roth IRA is that your earnings can be withdrawn tax-free and penalty free for specific distribution reasons, as long as you have met the 5 year holding period, which begins with the tax year for which your first contribution is made. However, unlike the Traditional IRA, the money you contribute to a Roth IRA is not tax deductible.

  • Benefits/Good To Know
  • Application Process
  • Tools
  • FAQs
 

Benefits

  • Dividends are paid monthly
  • Ability to make contributions conveniently to your IRA variable account 
  • Ability to make contributions conveniently with payroll deductions
  • Distribution of funds is not mandatory and funds can still be contributed well past age 70½
  • Safe and secure investment vehicle
 
 

Good To Know

  • JSC FCU does not accept wire transfers to IRA accounts
  • Available in a variable savings account with a minimum deposit of $25
  • A minimum opening deposit of $500 for an IRA Share Certificate
  • Funds you contribute and earn can be withdrawn tax-free and penalty free, once the 5 year holding period is reached, and if one of the following qualified distributions apply:
  • You are at least age 59½
  • You become disabled
  • Funds are used for qualified medical expenses
  • Funds are used towards a first-time home purchase up to $10,000
  • Your death results in a distribution made to the account beneficiary (or your estate)

 

IMPORTANT INFORMATION REGARDING IRA ROLLOVERS:

The IRS has changed its long-standing position on the one-per-12 month rule for IRA rollovers. In the new IRS interpretation, an IRA owner may complete only one IRA rollover in any 12-month period, regardless of how many IRAs he/she owns.

Application Process

1. Open an IRA:
  • Complete the IRA application
    • Complete the application at any branch location
    • Complete the application via the IRA Center:
  • Beneficiary (s)
    • All applications may include a beneficiary(s).

      You will need each beneficiary’s:

      • Name
      • Address
      • Date of birth
      • Social Security Number
  • Fund the Account
    • Minimum to open an IRA variable is: $25.00
    • Minimum to open a IRA certificate is $500.00
2. Rollover or Transfer an IRA:
  • To begin the transfer you will need to complete/provide the following:

    • IRA application/Contribution (required)
    • Request to Transfer form
    • Name and address of the institution
    • A statement from your retirement plan
  • To begin the rollover you will need to complete/provide the following:

    • IRA application/Contribution (required)
    • Check payable to yourself
    • A statement from your retirement plan
3. Rollover, Transfers or Withdrawals:
  • IRA paperwork is required each time you make a rollover, transfer, or a withdrawal. For example you may want to rollover more funds from another institution to your IRA account that is already established with JSC FCU. You will still be required to complete IRA paperwork for any future transactions.

Tools

Planning Tools

Informed planning is one of the cornerstones of an effective retirement strategy.

On the retirement planning workbench below, you'll find a wide-variety of planning tools covering numerous aspects of retirement planning, from selecting the best type of IRA to designing a retirement income strategy that best fits your personal objectives.

Each planning tool includes a thorough introduction of the tool's purpose as well as a summary of the financial information you'll need to have available when using the tool. As you begin using your planning tools, be sure to check out the links on the right-hand side of your screen for specific recommendations on related information and tools that may also be helpful.

Beneficiary Planners

Are you an IRA beneficiary? If so, don't miss out on the significant tax-deferral options available to you. These tools will help you identify your distribution options, project future payments, and calculate required beneficiary distributions.

Beneficiary Options Calculator
The Payout Projections Calculator is designed to assist beneficiaries of deceased IRA owners in projecting future required distributions from the decedent's IRA.

Beneficiary Payout Calculator
The Beneficiary Payout Calculator is designed to assist beneficiaries of deceased IRA owners in calculating required distributions from the decedent's IRA.

Beneficiary Rollover Planner
Are you a beneficiary receiving a lump-sum distribution from an employer-sponsored retirement plan? This tool will help you identify the tax options available to you and compare the retirement income implications of your various alternatives.

Early Payout Planners (IRC Sec. 72(t))

Retiring early? These tools will help you structure payments that qualify for exemption from the 10 percent early distribution penalty tax, which typically applies to distributions taken before age 59½.

Comparison Projector Calculator
Use this tool to compare the three substantially equal periodic payment structures authorized by the IRS for avoiding the 10 percent early distribution penalty tax.

Distribution Calculator
After you’ve selected a payment method, use this tool to structure your substantially equal periodic payment plan.

IRA Selector Tools

What type of IRA is best for you based on your financial circumstances and retirement objectives? These tools help you weigh the pros and cons of Traditional and Roth IRAs from a variety of perspectives.

Basic Comparison Calculator
This straightforward tool helps you compare Traditional and Roth IRAs on the basis of projected (after-tax) retirement income.

IRA Eligibility Calculator
What type of IRA are you eligible for? This tool helps you determine your eligibility for making Traditional IRA or Roth IRA contributions.

Legacy Planning Calculator
This tool helps you measure the potential wealth accumulation implications of selecting a Traditional or Roth IRA for you and your beneficiaries.

Breakeven Analysis Calculator
Unsure of what your tax rates will be in 20 years? This unique tool helps you look at IRA selection from the standpoint of breakeven analysis (e.g., What if my effective tax rate in retirement is 30 percent rather than 25 percent?).

Retirement Savings Planner
It doesn’t matter whether your retirement is 3 years away or 40 years away; it's never too soon or too late to begin planning. This retirement savings tool will help you estimate how much savings you will need to accumulate in order to meet your retirement objectives.

Required Minimum Distribution (RMD) Planners

Approaching age 70½? Are you already in RMD status? These tools will help you understand the implications of the RMD rules and calculate withdrawals that meet the RMD requirements.

Comparison Projector Calculator
The Comparison Projector Calculator is designed to project future required distributions.

Distribution Calculator
The Distribution Calculator is designed to calculate required minimum distributions. 

Rollover Planners

Receiving a lump-sum distribution from an employer-sponsored retirement plan? These tools will help you identify the tax options available to you and compare the retirement income implications of your various alternatives.

Plan Participant Calculator
Receiving a lump-sum distribution from an employer-sponsored retirement plan? This tool will help you identify your tax options and compare the retirement income implications of your various alternatives.

Roth IRA Conversion Tools

Should you consider converting some or all of your Traditional IRA assets to a Roth IRA? These tools help you weigh the pros and cons of a Roth IRA conversion from a variety of perspectives.

Basic Conversion Calculator
This straightforward tool helps you quantify the potential benefits of a Roth IRA conversion on the basis of projected (after-tax) retirement income.

Legacy Planning Calculator
This tool helps you measure the potential wealth accumulation implications of selecting a Roth IRA conversion (for you and your beneficiaries).

Breakeven Analysis Calculator
Unsure of what your tax rates will be in 20 years? This unique tool helps you look at a potential Roth IRA conversion from the standpoint of breakeven analysis (e.g., What if my effective tax rate in retirement is 30 percent rather than 25 percent?).

 

FAQs

Am I eligible to contribute to a Roth IRA?

You are eligible to contribute to a Roth IRA if you (or your spouse if married and filing a joint tax return) have eligible compensation. For IRA purposes, compensation generally is defined as what you earn from working and includes wages, salary, tips, commissions, bonuses, and self-employment income, but not investment or pension income. You also must meet the modified adjusted gross income (MAGI)* limits (refer to the chart below).

Tax-Filing Status Year Full Contribution if MAGI is Partial Contribution if MAGI is No contribution if MAGI is
Single 2012 $110,000 or less $110,000–$125,000 $125,000 or more
2013 $112,000 or less $112,000–$127,000 $127,000 or more  
Married, filing jointly 2012 $173,000 or less $173,000–$183,000 $183,000 or more
2013 $178,000 or less $178,000–$188,000 $188,000 or more  
Married, filing separately 2012 N/A $0–$10,000 $10,000 or more
2013 N/A $0–$10,000 $10,000 or more  
If I have no income but my spouse does, can I contribute to a Roth IRA?

In this situation, you can contribute to a Roth IRA if you and your spouse file a joint income tax return, and your spouse has enough income to cover both your and his IRA contribuitons. The modified adjusted gross income restrictions apply.

What advantages do Roth IRAs have over Traditional IRAs?

One of the greatest benefits you get from a Roth IRA is that you don't have to pay tax on the earnings that accumulate if you have a qualified distribution. Also you can allow your money to accumulate tax-free for as long as you want, and if you should need to dip into the money early, you can take your contribution amounts out tax- and penalty-free regardless of whether your distribution is "qualified". As a Roth IRA owner, you can withdraw up to the total amount of your annual contributions (as opposed to any amounts you converted to a Roth IRA) at any time and for any reason tax-free and penalty-free. Plus, if you satisfy certain requirements for a qualified distribution, you can withdraw any earnings on the Roth IRA tax-free.

Unlike Traditional IRAs, you also do not have to take required minimum distributions (RMDs) when you reach a certain age. Thus, you can let your savings accumulate tax-free longer and remove your money at your discretion. In addition, you can even leave your Roth IRA assets to your beneficiaries who also will receive tax-free distributions if qualified. Although RMDs are not mandatory during the IRA owner’s lifetime, they are a requirement for Roth IRA beneficiaries.

How can I withdraw money from my Roth IRA tax-free?

Because regular contributions you make to a Roth IRA are never tax-deductible, you can withdraw those amounts at any time and for any reason without tax or penalty tax consequence. The earnings, however, grow tax-deferred and can only be withdrawn tax-free if you have a “qualified” distribution. To be qualified, you must have owned a Roth IRA for at least five years (beginning with January 1 of the tax year for which you made your first Roth IRA contribution/conversion to any Roth IRA) and you are

  • a first-time homebuyer (subject to certain restrictions),
  • age 59½, or
  • disabled.

For example, if you first made a Roth IRA contribution on April 1, 2009, for the 2008 tax year, your five-year clock started on January 1, 2008. Let’s say that in 2013, you are age 63. You’ve then met both the five-year requirement and age 59½ requirement, so you can take a qualified distribution. Your beneficiaries also may take tax- and penalty-free distributions after you die as long as the Roth IRA owner met the five-year requirement.

What happens if I take an early or “nonqualified” distribution from my Roth IRA?

When you take money from your Roth IRA, it comes out in a certain order. The Roth IRA ordering rules dictate that the first dollars to leave your Roth IRA are any regular contributions you’ve made. These always come out tax- and penalty-free, whether the distribution is qualified or nonqualifed.

The next dollars distributed are any conversion assets (amounts you converted from your Traditional IRA or rolled over from an employer-sponsored retirement plan), in the order you converted them (by year). These amounts may be subject to early distribution penalty taxes, depending on when the conversion or rollover took place, and whether you have a penalty tax exception. Each conversion and rollover has its own five-year period separate from the Roth IRA five-year period, and each must be met to avoid an early distribution penalty tax on a nonqualified distribution.

Once your conversions are exhausted, distributions will dip into your earnings. When you remove earnings in a nonqualified distribution, the earnings will be taxed and are subject to the early distribution penalty tax, unless you meet a penalty tax exception.

If you have more than one Roth IRA, the contribution dollars, conversion dollars, and earnings in all of your Roth IRAs are aggregated for purposes of these ordering rules. For example, John owns two Roth IRAs and each one contains $5,000 in contributions ($10,000 total), $2,000 in conversion amounts ($4,000 total), and $500 in earnings ($1,000 total). He wants to take a $13,000 distribution. That distribution is made up of $10,000 in contribution dollars and $3,000 of conversion dollars. The next time he takes a distribution, the first money to come out will be from the remaining conversion dollars, assuming that he does not make any more contributions to either of his Roth IRAs.

You must track the assets in your Roth IRA for purposes of the ordering rules and you must complete the appropriate IRS tax forms to file and pay any taxes due with your income tax return.

Am I eligible to convert my Traditional IRA to a Roth IRA?

As of January 1, 2010, anyone can convert a Traditional IRA to a Roth IRA, regardless of income and tax-filing status. Any pretax portion of your Traditional IRA (deductible contributions and earnings) that you convert is taxable in the year of the conversion. Special tax rules apply to 2010 conversions only. Unless you elected otherwise, a 2010 conversion will be divided equally and included in your income in 2011 and 2012.

Why would I want to convert my Traditional IRA to a Roth IRA?

Probably the most common reason for converting to a Roth IRA is the potential for tax-free distributions. Flexibility is another attraction of the Roth IRA. If you find that you really need the money for an emergency or unforeseen expense, you can withdraw regular contributions from Roth IRA tax- and penalty-free at any time and for any reason because you paid the taxes at the time of the conversion. Another reason converting to a Roth IRA may be appealing is that you do not have to take required minimum distributions (RMDs) when you reach a certain age, as is the case with Traditional IRAs. Thus, you can let your savings accumulate tax-free longer and remove your money at your own discretion. You may want to seek professional tax advice to determine if converting to a Roth IRA is right for you.

What should I consider before converting my Traditional IRA to a Roth IRA?

When converting assets from a Traditional IRA to a Roth IRA, you must pay tax on any portion that has not already been taxed. In other words, the taxable amount that you convert will be included in your taxable income in the year of the conversion. As a result, a conversion may bump you into a higher tax bracket. The extra income from the conversion may also affect your eligibility for some tax breaks or financial aid.

One alternative for lowering your annual taxable income from the conversion is to do partial conversions over several years.

Can I roll over assets from my employer-sponsored retirement plan to a Roth IRA?

Yes. You may roll over your employer-sponsored retirement savings plan to a Roth IRA. Like with IRA conversions, any pretax amounts rolled over to a Roth IRA must be included in your taxable income in the year they are distributed from your employer's plan. If you have made designated Roth contributions to your employer-sponsored retirement plan, you also may roll over those assets to a Roth IRA (but not to a Traditional IRA). The five-year period of your Roth IRA applies to those assets once they’re rolled over in the case of a nonqualified distribution from your employer’s plan. If you take a qualified distribution from your designated Roth account, the assets are rolled into your Roth IRA as contributions, so you will not be taxed on them again even if you take a nonqualified distribution from your Roth IRA.

FAQs are not intended to provide tax advice and we recommend contacting a tax professional for further assistance.

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