IRAs

Long-Term Planning Made Easy

Whether your retirement is decades away or just around the corner, an IRA from Local 804 FCU gives you flexibility and tax advantages. Of course, you should maximize your employer’s retirement plan, but having your own IRA in addition to your other retirement options puts you in charge of another aspect of your overall retirement plan. Choose either a Traditional IRA with penalty-free withdrawals or open and fund a Roth IRA and enjoy tax-free earnings at the time of withdrawal and no mandatory distribution date.

The Difference Between Traditional and Roth IRAs

If you earn income in U.S. and pay taxes on those funds, then a U.S.-based IRA could work in your favor. However, it’s important to know how these accounts work before opening one. We’re here to help.

There are two basic IRA options available with your PAHO/WHO FCU membership. Depending on your current income, where you plan to be during retirement, and a few other factors, there’s an option that’s right for you.

Traditional IRA

The individual retirement account is a personal, tax-deferred account for people who are employed, and their spouses. Your eligibility will depend on your income among other factors. A traditional IRA has a cap on tax-deductible contributions. You can usually contribute more if you are over age 50. Whatever you contribute towards your IRA comes off your yearly taxable income, thereby reducing total tax liability. However, when the money in an IRA is withdrawn, it is subject to standard income taxes and an additional 10% penalty if withdrawn before the age of 59 1/2.

Traditional IRAs require you to begin taking your money out once you reach age 70 1/2. When you begin to receive distributions from a Traditional IRA, the income is treated as ordinary income and may be subject to income tax.

Roth IRA

These IRAs provide even greater flexibility than traditional IRAs. Contributions are made with income that has already been taxed. This allows you to earn tax-free interest depending on when withdrawals are made. After five years, both contributions and earnings in the account can be withdrawn without penalty or taxation.

A Roth IRA isn’t for everyone. You may be able to contribute to a Roth IRA for yourself or your spouse if you have earned income. Your eligibility will depend on your income among other factors.

Final Thought

Once you reach age 59½, you may qualify for tax-free withdrawals of both contributions and any accumulated earnings. Unlike traditional IRAs, Roth IRAs don’t require you to take distributions at age 70 1/2, and you can keep contributing to them as long as you have earned income, making a Roth IRA an effective option for both retirement and estate planning purposes.

Have questions or need help? Give us a call at (718) 878-4624.