Frequently Asked Questions about Roth IRA Accounts

The Roth IRA is a tax-free way to save for retirement. With a Roth IRA you can:

• Withdraw your contributions tax-free and penalty-free at anytime;
• Annual contributions of $5,000 can be made or 100 percent of your earned income, whichever is less;
• Withdraw your distributions at retirement tax-free; distributions are not added to your earned income at tax time;
• Avoid filing taxes on the dividends earned every year;
• Make tax-free* withdrawals for the purchase of your first home, higher education, certain medical expenses and certain other uses;
• Let your savings grow as long as you like, there's no minimum distribution at age 70 ½;
• Convert any existing IRA into a Roth IRA
• You can have both a Roth IRA and a Traditional IRA under your account number at ECU Credit Union.

  * Withdrawals from a Roth IRA after five years are not subject to income tax or the 10 percent premature penalty if the individual is at least 59½, dies, is disabled, or uses up to $10,000 of the money for first-time purchase of a house. Withdrawals after five years, but before age 59½ for college expenses are not subject to a 10 percent penalty tax but are taxed at ordinary rates. Withdrawals of contributions are not subject to income tax or a 10 percent early withdrawal penalty. Withdrawals of earnings before five years are subject to income tax and possibly the 10 percent penalty tax.
  Taxable distributions are not subject to the 10 percent early withdrawal penalty if the individual is 59½, deceased, disabled, taking equal periodic payments over his/her life expectancy for at least five years or until age 59½, whichever comes later, or for college expenses, first-time home purchase up to $10,000, certain medical expenses and certain other uses.

1. Who can contribute?
2. How much can you contribute?
3. Who can make deductible contributions?
4. What are the tax advantages?
5. When can withdrawals be made without restrictions?
6. How does the "catch-up" contribution plan work if I am age 50 or older?

17. Who can contribute?

Anyone who has income from compensation (or who is filing jointly with a spouse who earns compensation) with the following MAGI *
•  up to $101,000 (single filers)
•  up to $159,000 (joint filers)

Reduced contributions allowed for higher incomes (up to $116,000 for single filers and $169,000 for joint filers)

17. How much can you contribute?

Total combined contributions to ROTH and Traditional IRAs up to $5,000 year or 100% of compensation, whichever is less.

17. Who can make deductible contributions?

No one can deduct contributions

17. What are the tax advantages?

Contributions can be withdrawn tax and penalty free at any time.

After the account has been open five tax years, earnings can be withdrawn tax and penalty free for any of the reasons listed below.
• after age 59 ½
• disability
• death
• first-time home purchase
Earnings can be withdrawn penalty-free for the same reasons as those for penalty-free withdrawals from Traditional IRAs (withdrawal may be subject to tax).

17. When can withdrawals be made without restrictions?

• Earnings are tax-free if an account is open for five tax years and withdrawn for a qualified reason
• Not required to start withdrawals at age 70 ½

17. 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 2005 tax year, and an additional $1,000 for 2006 through 2010.  This limit will not be adjusted for inflation.

Not intended as tax advice.  Please consult a tax professional.