Certificates and Individual Retirement Accounts

An IRA is a personal savings plan that offers you tax advantages to set aside money for your retirement or, in some plans, for certain education expenses or first-time home purchase. PCFCU offers you a number of IRAs to choose from, including Traditional, Roth, or Coverdell Educational Savings Accounts (CESA).

Use the table below to see comparisons between these types of IRAs.

Traditional IRAs are powerful tools in creating a balanced, long-term savings plan that will help provide safety and security for you and your family for years to come. Contributions may be deducted from your taxable income, reducing the income taxes you pay now.

Roth IRAs offer members an easy and safe way to plan for the future. Your contributions are not tax-deductible but the earnings within the IRA are tax-free as long as your funds have been in the account for at least five years and you are either over age 59½, disabled, or buying a first home.

Coverdell Educational Savings Accounts (known formerly as the Education IRA) can help your children attain their dreams of a college education. Although contributions are not tax-deductible, your withdrawals (including earnings) are tax-free if used for tuition, books, and other qualified higher-education expenses.   

 

Who Can Contribute?

Traditional IRA

Roth IRA

CESA

Anyone under age 70 1/2 who has income from compensation (or who is filing jointly with a spouse who earns compensation)

- Anyone who has income from compensation (or who is filing jointly with a spouse who earns compensation) with the following MAGI:*

  • Up to $95,000 (single filers)
  • Up to $150,000 (joint filers)

- Reduced contributions allowed for higher incomes (up to $110,000 for single filers and $160,000 for joint filers)

- Anyone who has MAGI*

  • Single filer: up to $110,000
  • Joint income for filers:

- For 2004 and later years: up to $160,000

- Some people with higher MAGI* may be able to make smaller contributions

- Contributions not allowed after the beneficiary reaches age 18 (except for 2002 and later years contributions after age 18 allowed for special needs beneficiaries)
 

 

How Much Can I Contribute?

Traditional IRA

Roth IRA

CESA

- $5,000 for 2007/2008

- Higher limit if age 50 or older

- Cannot exceed compensation

- Reduced by contributions to traditional IRAs

- $5,000 for 2007/2008

- Higher limit if age 50 or older

- Cannot exceed compensation

- Reduced by contributions to traditional IRAs

- $2,000 per child for 2002 and later years

- Limit applies to all Coverdell Education Savings Accounts (formerly known as Education IRAs) for the same child

 

Who Can Make Deductible Contributions?

Traditional IRA

Roth IRA

CESA

- Fully-deductible contributions:

  • Single individuals not active in employer retirement plans (regardless of income)

  • Single individuals active in employer retirement plans with MAGI* of $46,000 (tax year 2004)** or less

  • Married couples with neither spouse active in an employer retirement plan (regardless of income)

  • Married individuals active in employer retirement plans with joint tax returns showing MAGI* of $65,000 (tax year 2004)** or less  

  • Married individuals not active in employer retirement plans with spouses who are, as long as MAGI* is $150,000 or less

- Individuals with incomes exceeding the above limits may make deductible contributions of less than $4000

- No one can deduct contributions

- No one can deduct contributions

 

What Are The Tax Advantages?

Traditional IRA

Roth IRA

CESA

- Earnings grow tax-deferred until withdrawn

- Contributions may be tax-deductible

- Regular contributions can be withdrawn tax- and penalty-free at any time

- After the account has been open for five tax years, earnings can be withdrawn tax- and penalty-free for any of these reasons:  age 59 1/2, disability, death, or a first-time home purchase***

- Earnings and conversion contributions can be withdrawn penalty-free for the same reasons as those with penalty-free withdrawals from traditional IRAs (withdrawal may be subject to tax)

- Withdrawals for certain qualified education expenses are tax-free

- Special-needs beneficiaries can withdraw funds tax-free to pay for qualified education expenses at any age

- For 2002 and later years, qualified education expenses may include tuition, fees, books, computer equipment and technology required for elementary, secondary, and post-secondary education

- For 2002 and later years, a beneficiary may receive tax-free distributions from an Education IRA in the same year he or she claims the Lifetime Learning or HOPE Scholarship tax credits

 

When Can I Withdraw Without Restrictions?

Traditional IRA

Roth IRA

CESA

- Withdraw penalty-free for any of the following reasons:

  • Qualified higher-education expenses
  • First-time home purchase***
  • Age 59 1/2
  • Disability
  • Qualifying medical expenses exceeding 7.5% of income
  • Payments to beneficiaries upon the owner's death
  • Payment of health insurance premiums while unemployed

- Earnings are tax-free if account is open for five years and withdrawn for a qualified reason (age 59 1/2, disability, death, or a first-time home purchase***)

- Not required to start withdrawals at age 70 1/2

- Withdrawals are tax-and penalty-free only for qualified  education expenses (earnings are subject to tax and penalty for most other withdrawals)

- Funds can be transferred from one child's account to an account for another child in the family

*        MAGI - modified adjusted gross income from the federal tax form
**      For tax year 2001
***    Lifetime limit for exemption on first-time home purchase is $10,000

 

Frequently Asked Questions

 

Can I switch money in a Traditional IRA to a Roth IRA?

Yes, but you will be taxed on the amount that you move from a Traditional IRA to a Roth IRA. This switch may make the most sense to people who have had their Traditional IRA for only a short time, thus minimizing the potential tax hit. Consult your tax advisor about the tax implications.

How does the "catch-up" contribution plan work if I am age 50 or older?

A special exception applies if you are age 50 or older that allows you to contribute an additional $500 to an IRA for the 2002 through 2005 tax years, and additional $1,000 for 2006 through 2010. This limit will not be adjusted for inflation.

How do the new rollover provisions work?

Now there are more options for you if you leave your job and want to take your retirement plan with you. Employees have always been able to roll over taxable distributions from Section 401 and 403(b) plans to an IRA. Starting in 2002, you will also be able to roll over nontaxable voluntary employee contributions and distributions from governmental Section 457 plans to an IRA.

Is my money safe in an IRA?

Your IRAs at PCFCU are insured separately from your other savings at PCFCU for up to $250,000 by the National Credit Union Administration (NCUA). The NCUA is the federal government regulator and insurer for credit unions. The insurance they provide protects you against any loss due to the failure of the institution.

We suggest that you contact a tax advisor to discuss which retirement plan will best meet your needs.