Individual Retirement Accounts (IRAs)

An Individual Retirement Account is a special savings plan designed to help you accumulate funds for your retirement.

IRAs offer flexible contribution options, great yields, possible tax deductions and investment security you can trust.

Highmark Federal Credit Union offers three types of IRAs - Traditional, Roth and Educational.

Traditional IRAs

The Traditional IRA is an account that allows you to defer taxes on your earnings until they are withdrawn. In addition, certain contributions are tax deductible in the tax year for which they are made. If you are under the age of 70-1/2 for the entire tax year and have earned income, or your spouse has earned income, you are eligible to establish a Traditional IRA, even if you already participate in any type of pension plan.

You may contribute any amount up to $2,000. All earnings on your Traditional IRA contributions remain tax deferred until you make withdrawals from the account. They are then taxed as income in the year for which they are withdrawn. Penalties may apply for early withdrawal.

Roth IRAs

The Roth IRA is a nondeductible account that features tax-free withdrawals for certain distribution reasons after a five-year holding period. Since Roth IRA contributions are nondeductible and taxed in the year they are earned, people who expect to be in a higher tax bracket when they retire may benefit more from these accounts than from a Traditional IRA.

Basically, there are two requirements for eligibility to contribute to a Roth IRA: you must have earned income, or your spouse must have earned income, and your modified adjusted gross income cannot exceed certain limits.

You may contribute any amount up to $2,000. You do not receive a tax deduction for your contribution since the money contributed to a Roth IRA is taxable as income in the year it is earned. The best part of a Roth IRA is when you are ready to take a withdrawal, you pay no taxes on any of the earnings your money has generated.

Qualified tax-free distributions are those taken after the five-year holding period for any of the following reasons: after reaching 59-1/2, permanent disability, a first-time home purchase or in the event of your death.

Education IRAs

The Education IRA serves to help parents and others save for children's education. Education expenses include tuition, fees, books, supplies and equipment required. Contributions are not tax deductible but the earnings grow tax deferred. In order to contribute to this type of IRA, your modified adjusted gross income cannot exceed certain limits. Education IRA contributions are limited to $500 annually, and they are only available to children under the age of 18.