Individual Retirement Accounts

Transcription

1 Individual Retirement Accounts Save more with our IRA options Account inquiries, purchases, and servicing If overseas, call collect For a list of international numbers, visit navyfederal.org Weekdays 7:30 am to 11:00 pm, Eastern Time Saturday 9:00 am to 11:00 pm, Eastern Time TDD for the hearing impaired Weekdays 7:30 am to 7:30 pm, Eastern Time For rates, online applications, Account Access, or to find a branch near you, visit navyfederal.org. The U.S. Treasury Department revealed that the average person is saving only 58% of the income needed for his or her retirement. Although a 401(k), company pension plans, and Social Security benefits are a good place to start, a Navy Federal Individual Retirement Account (IRA) can help boost your savings while providing additional earnings and tax benefits. Read on to learn about IRAs as well as the plans we offer (see page 6 for a complete listing). Our specialists are here to help, so for more information or to open an IRA, go to navyfederal.org, call , or visit a branch. Traditional and Roth IRAs Both Traditional and Roth IRAs are terrific retirement savings plans that offer unique tax benefits. Traditional IRAs are tax-deferred you don t pay taxes on your contributions until you withdraw the funds. And the reverse is true with Roth IRAs you pay taxes now, then withdraw the funds tax-free. General Rules and Regulations for Traditional and Roth IRAs Keep the following guidelines in mind when determining which IRA is best for you: 4You can have both a Traditional and a Roth IRA. It may be beneficial to contribute to a Traditional IRA one year and a Roth IRA the next, or you can split the maximum contribution between the two. 4IRA accounts are for individual, not joint, ownership. However, you can assign a beneficiary. 4You may make contributions for the prior year up to the tax filing date; extensions are not permitted. 4You must have earned income to contribute to an IRA. 4If your spouse is unemployed, you should establish a Spousal IRA. 4For the purpose of IRAs, earned income includes wages, salaries, tips, professional fees, bonuses, commissions, self-employment income, alimony, separate maintenance amounts, and other amounts received for personal services. Scholarship and fellowship payments are considered income if they appear in Box 1 on your W-2. 4Earned income does not include earnings and profits from property (rental income, interest income, and dividend income), pension or annuity income, deferred compensation received, foreign earned income, housing cost amounts, and any other amounts that are excluded from income. 4You may make a maximum annual contribution of up to 100% of your earned income or the amount listed below, whichever is less. Roth and Traditional IRAs Individual and Spouse Maximum Contributions Years Less than age 50 Age 50 or over $4,000 $5, $5,000 $6, & beyond Index for inflation Index for inflation Simplified Employee Pension (SEP) IRAs If you re self-employed (or work for a participating employer), a SEP plan may be the ideal way to save for your retirement. You may make contributions for the prior year up to the tax filing date for the business, including extensions. Page 1 of 6

2 Traditional, Roth, and SEP IRA Comparison Chart Feature Traditional IRA Roth IRA SEP IRA Adjusted Gross Income Eligibility Restrictions Almost everyone with earned income may participate Individuals earning 2011 $107,000 or less 2010 $105,000 or less Married couples earning 2011 $169,000 or less 2010 $167,000 or less Almost everyone who has self-employed earned income. An employer who has elected to establish a SEP as the pension plan for an employee who is a Navy Federal member. Maximum Annual Contribution (Funds may be split between Traditional and Roth) Tiered by age Varies by year See chart on page 1 Tiered by age Varies by year See chart on page $49,000 or 25% of selfemployment 2011 $49,000 or 25% of selfemployment 2012 and beyond Index for inflation. Maximum Age to Make Contributions 70 Must have earned income Must have earned income Must have earned income Non-Wage Earning Spousal Contributions Same as wage earner Same as wage earner Same as wage earner Tax Deductibility of Contributions For more information, see chart on page 3. Up to 100% depending on Modified Adjusted Gross Income and participation in an employer-sponsored pension plan, such as a 401(k) Cannot deduct contribution May be tax-deductible based on specific eligibility rules Tax Treatment of Dividend Earnings Grow tax-deferred until withdrawn Grow tax-free Grow tax-deferred until withdrawn Taxes upon Withdrawal All non-deductible contributions are received tax-free. All earnings and deductible contributions are taxed at ordinary income tax rate, unless early distribution All non-deductible contributions are received tax-free. All earnings and deductible contributions are taxed at ordinary income tax rate when withdrawn. Withdrawal Restrictions Most withdrawals before age 59½ result in IRS penalties. Some exceptions are made for: 4Unreimbursed medical expenses 4Disability or death 4First-time home purchases ($10,000 lifetime limit) 4IRS levy 4Qualified reservists 4College expenses IRS penalty-free withdrawal after age 59½ as long as the money has been in the account for five years. Penalty-free and tax-free withdrawals prior to age 59½ if the funds are used for: 4Unreimbursed medical expenses 4Disability or death 4First-time home purchases ($10,000 lifetime limit) 4IRS levy 4Qualified reservists 4College expenses (The five-year-in-the-account rule applies.) Most withdrawals before age 59½ result in IRS penalties. Some exceptions are made for: 4Unreimbursed medical expenses 4Medical insurance premiums while unemployed 4Disability or death 4First-time home purchases ($10,000 lifetime limit) 4Qualified reservists 4College expenses Age at Which Withdrawals Must Begin 70½ 70½ Page 2 of 6

3 Individual Retirement Accounts (continued) Traditional and SEP IRA Deductibility Chart Participate in an employersponsored pension plan?* Marital Status: Single Marital Status: Married Filing Jointly Deductibility Yes is $56,000 or less Combined Modified Adjusted Gross Income is $90,000 or less Your contributions are 100% tax-deductible Yes is more than $56,000 but less than $66,000 Combined Modified Adjusted Gross Income is more than $90,000 but less than $110,000 A portion of your contribution is deductible based on your Yes is $66,000 or more Combined Modified Adjusted Gross Income is $110,000 or more You cannot take an IRA tax deduction No is not applicable is not applicable Your contribution is 100% tax-deductible *You participate in an employer-sponsored pension plan if you are on the current (as opposed to retired) payroll and are accruing benefits under the employer s qualified pension plan, such as a 401(k) or Thrift Savings Plan (TSP). This is true regardless of whether you are vested or make contributions to the plan. Note: One spouse s active participation in an employer-sponsored pension plan does not affect the other spouse s status for contribution deductibility. Roth IRA Contribution Eligibility Marital Status ** Contribution Eligibility Single Less than $107,000 Maximum contribution limit or 100% of earned Single At least $107,000 but less than $122,000 A portion of the maximum contribution or 100% of earned Single $122,000 or more You cannot contribute to a Roth IRA. (You are eligible to contribute to a Traditional IRA). Married Filing Jointly Less than $169,000 combined Maximum contribution limit or 100% of earned Married Filing Jointly At least $169,000 but less than $179,000 A portion of the maximum contribution or 100% of earned Married Filing Jointly $179,000 or more combined You cannot contribute to a Roth IRA. (You are eligible to contribute to a Traditional IRA). ** is determined on your tax return using your Adjusted Gross Income, disregarding any deductible IRA contribution. Page 3 of 6

4 Individual Retirement Accounts (continued) Reinvesting IRA Funds You may transfer IRA assets between two financial institutions or between two IRA plans. This is done by implementing one of the following: Rollover A rollover (also known as an Indirect Rollover) is a tax-free distribution of all or part of your IRA assets. You may move your funds from one retirement plan to another or from one financial institution to another. However, you may make only one transfer to another financial institution during a 12-month period. The rollover must be completed within 60 calendar days of the date you receive the distribution. Additionally, you are completely responsible for ensuring that the funds get from one IRA to another. Since you take possession of the IRA assets, the movement is reportable to the IRS. You will receive an IRS Form 1099-R (which reports the distribution) in January, and an IRS Form 5498 (which reports the subsequent rollover) in May of the year following the rollover. Transfer If you prefer not to take possession of your IRA funds, consider a transfer (also known as a Direct Transfer). To initiate the transfer, ask the new financial institution (where the funds will be transferred) to generate and forward the required forms to the financial institution that currently holds your IRA funds. Upon receipt, the existing institution will send the funds (either the full or a partial amount) to the new institution. Since you don t take possession of the IRA funds, there is no IRS tax reporting. This process takes approximately 3 6 weeks. Direct Rollover Consider a Direct Rollover if you leave a job where you participated in an Employer Pension or Profit-Sharing Program like a 401(k) or Thrift Savings Plan (TSP), and want to move your funds into an IRA. To do this, speak to your company s Plan Administrator, who can help you complete the necessary forms. Once completed, the administrator will distribute the assets to your IRA. Although you don t take possession of the funds, this transfer will be reported to the IRS on a Form 1099-R and Form 5498 because the funds went from one type of retirement plan to an IRA. Some employers only complete these requests on certain dates during a month or quarter. Contact the Employer Pension Plan Administrator for a definitive timeframe. Conversion A conversion allows you to move the funds from a Traditional or SEP IRA into a Roth IRA. Conversions follow the same rules as rollovers, except assets can be converted more than once a year. Furthermore, conversions can be made between accounts at one financial institution or between multiple institutions. If done at one institution, the funds are rolled over directly. If between institutions, you can either take possession of the assets or ask that they be sent directly to the Roth IRA. Either way, the transaction will be reported to the IRS using Forms 1099-R and It is important to note that you are required to report the previously deducted contributions and dividends as income since they are not taxed. In addition, if you withdraw any of the converted assets within the first five years, you will pay a 10% penalty on that amount, regardless of age. Pension/profit-sharing funds cannot be moved directly into a Roth IRA. Instead, they must first be moved to a Traditional IRA, then converted to a Roth IRA. Again, this transaction is reportable to the IRS. Recharacterization Recharacterization allows you to unconvert a Roth IRA, returning it to a Traditional IRA without IRS penalties. (You may also recharacterize a SEP and employer pension/ profit-sharing plan.) Recharacterization follows the same process as a conversion; however, as with a rollover, you may only make one recharacterization per calendar year. Recharacterization may include recharacterizing a contribution made during the current year. For example, if you made a contribution to a Traditional IRA and then discovered that the contribution was non-deductible, you may recharacterize the contribution to a Roth IRA. Page 4 of 6

5 Individual Retirement Accounts (continued) Contributions and Distributions You can deposit funds into your Navy Federal IRA Savings, IRA MMSA, or open an IRA Certificate at any time. All funds will be for the current tax year unless otherwise specified. Contributions that exceed the maximum limit may be subject to a 6% IRS Excess Contribution penalty and applicable income tax and interest. You may avoid the IRS penalty if the excess is removed prior to your tax filing date. Withdrawing Your IRA Funds To withdraw funds, submit a formal written request that includes your signature, or simply visit your local branch and request an IRA withdrawal. Early IRA distributions are subject to a minimum 10% federal tax withholding unless otherwise specified. Should you become disabled before age 59½ and are a Traditional, SEP, or Roth IRA account holder, all IRS penalties for early withdrawals are waived. Insurance of IRA Accounts The U.S. Government insures up to $250,000 of the combined total of the funds in your Navy Federal Traditional, Roth, and SEP Plans. This is separate from the insurance on your Navy Federal savings accounts. Beneficiary Information When opening your IRA, be sure to establish your beneficiary(ies). Because there are a variety of options for distributing funds, speak with a specialist in the Navy Federal Certificate/IRA Branch for details. Additional Information For additional information or to open a Navy Federal IRA, go to navyfederal.org, call , or visit your local branch. You may obtain further information on IRAs from IRS publication 590, Individual Retirement Arrangements (IRAs), by calling , or by visiting irs.gov. On the next page, you will find a detailed list of our IRA products, each of which can be opened as Traditional, Roth, or SEP IRAs. Page 5 of 6

6 Navy Federal IRA Products Certificates & IRA Product Minimum Dividend Rate Term Additional Deposits* Dividend Payments IRA Savings Account Fixed rate no matter the account balance. Any amount, anytime, Tiered rate structure. Rates may change weekly. Higher rates are earned on higher balances: IRA Money Market Savings Account $0 $9,999** $10,000 $24,999 $25,000 $49,999 $50,000 and over **No dividends are earned/accrued on days when the account balance falls below $2,500. Any amount, anytime, Jumbo IRA Money Market Savings Account Tiered rate structure. Rates may change weekly. Higher rates are earned on higher balances: $0 $99,999 $100,000 and over** **Must maintain a daily balance of $100,000 to earn the Jumbo IRA Money Market Savings Account dividend; otherwise earn the current IRA share dividend rate. Any amount, anytime, IRA EasyStart $100 Rates set by the Board of Directors. Rate guaranteed for the entire term of product. Note: Navy Federal requires that members age 18 and older set up automatic transfers to the IRA EasyStart. 1 yr Additional deposits may be made at any time. The minimum requirement for these additional deposits is $10. Variable Rate IRA Certificates $500 Rate set the first Monday of the month. Rate adjusts each year on the anniversary dates (12 and 24 months). 3 yrs Any amount can be added on the certificate s first and second anniversary dates. IRA Certificates $1,000 and $20,000 Generally, higher rates are paid for certificates with longer maturities. Rates set by the Board of Directors. Rate guaranteed for the entire term of product. 1 yr 2 yrs 3 yrs 4 yrs 5 yrs 7 yrs IRA Certificates $2,500 Rates set by the Board of Directors. Rate changes weekly. Purchase rate guaranteed for the entire term of product. 13 wks 6 mos IRA Certificates $10,000 Rates set by the Board of Directors. Rate changes weekly. Rate guaranteed for the entire term of product. 13 wks 6 mos Jumbo IRA Certificates $100,000 Generally, higher rates are paid for certificates with longer maturities. Rates set by the Board of Directors. Rate guaranteed for the entire term of product mos mos mos mos mos *Contribution limits apply. See chart on page 1 for maximum annual contribution amounts. Federally insured by NCUA Navy Federal NFCU 1117ep (6-11) Page 6 of 6