IRAs / Coverdell Ed. Savings / Health Savings

Retirement Planning 101

Individual Retirement Accounts (IRAs)

The special tax benefits offered by different IRAs make them an attractive investment for retirement and educational funds.

  • Traditional
  • Roth
  • Automatic payroll deductions into your IRA available for your convenience
  • Rollover into IRA CDs when account balance is $1,000 or higher
    (IRA CDs earn at the current CD rate)
  • Check our IRA rate and CD rates online

Traditional and Roth IRS Aggregate Annual Contribution Limits

Tax Year Annual Contribution Limit Additional “Catch-Up” Contribution for Owners Age 50 & Older
2016 $5,500 $1,000 ($6,500 total)
2017 $5,500

 

IRA Comparison Chart

  Traditional Roth
Highlights A retirement savings plan for those who have taxable compensation and are under the age of 70½ in the contribution year.

Participation in an employer sponsored retirement program may reduce the tax deductibility of your Traditional IRA contributions.

There is no income limit on contribution eligibility.

A retirement savings plan for individuals with taxable compensation and who meet income limit eligibility guidelines.

There is no age limit on contributions.

The Roth IRA potentially has greater tax benefit, such as possible tax-free earnings and no mandatory distribution requirements.

2016 Contribution Limits $5,500 or 100% of earned income, whichever is less $5,500 or 100% of earned income, whichever is less
2016 Catch-Up Provisions An additional $1,000 for individuals age 50 and over An additional $1,000 for individuals age 50 and over
Tax Deductibility1 Possible deductions1
(see IRS Publication 590)
None
Tax Advantages1 Taxes on deductible contributions and earnings are deferred until a distribution is taken Qualified distributions are tax-free (See Distributions below)
Income Eligibility Effect of Modified AGI on deduction if covered by a Retirement Plan at work

  • Married filing jointly, where the spouse making an IRA contribution is covered by a retirement plan at work, deductions are phased out between $98,000 and $118,000
  • IRA contributor who is not covered by a retirement plan at work, but is married to someone who is, deductions are phased out when the couple’s income is between $184,000 and $194,000
  • Single or head of household covered by a retirement plan at work, deductions are phased out between $61,000 and $71,000
Effect of Modified AGI on Roth IRA Contribution:

  • Married filing jointly or qualifying widow(er), contributions are phased out between $184,000 and $194,000
  • Married filing separately and covered by a retirement plan at work, contributions are phased out between $0 and $10,000
  • Single or head of household contributions are phased out between $117,000 and $132,000
Distributions Distributions prior to age 59½ are generally subject to a 10% IRS penalty (See Penalty-Free Distribution Exceptions for exceptions)
Distributions must begin no later than April 1, following the Member’s 70 ½ birthday.
In order to be considered a “Qualified Distribution”, the Roth IRA plan must have been open for at least 5 years and one of the following:

  • Age 59 ½ or older
  • Death
  • Disability
  • First-time Home Purchase

Distributions of contributions are tax-free and IRS penalty-free at any time.
Distributions are not required while the Roth IRA owner is living.

Penalty-Free Distribution Exceptions Death, disability, substantially equal periodic payments, first-time home purchase, post-secondary education expenses Death, disability, first-time home purchase
Rollovers and Transfers Rollovers and transfers to and from other Traditional IRAs or qualified employer sponsored retirement plans are permitted Rollovers and transfers to and from other Roth IRAs are permitted
Annual Contribution Deadline IRS stated annual tax filing deadline IRS stated annual tax filing deadline

1For specific tax advice, consult a qualified tax professional

IRA FAQ

How much can I contribute to a Roth or Traditional IRA for 2016?

Assuming eligibility, you can contribute up to $5,500 per year or 100% of your earned income, whichever is less. Married couples can contribute up to a total of $11,000 per year, but no more than $5,500 per spouse. You can contribute the maximum to a traditional IRA, Roth IRA or split between the two types.

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 $1,000 to an IRA.

More information about Traditional and Roth IRAs is available at the IRS website below:

https://www.irs.gov/retirement-plans/traditional-and-roth-iras

This information is not intended as tax advice. Please consult a tax professional regarding your specific circumstances. For more information about TelComm IRA products, call 417.886.5355.

Coverdell Education Savings Account

Give your child the gift of education.

Seeing a child work toward a college degree is a parent’s dream. A Coverdell Educational Savings Account (ESA) can help parents sleep at night. These ESAs were created to help you pay for your child’s education expenses, such as tuition, fees, books, supplies, equipment and, in some cases, room and board and computers. These options were improved by the Economic Growth and Tax Relief Reconciliation Act of 2001.

Contributions to a Coverdell ESA are never tax-deductible. However, a Coverdell ESA offers you the potential for tax-free withdrawals—including earnings.

The total contributions each year to a child’s Coverdell ESA cannot exceed $2,000. If you’re eligible, you can contribute the full amount for each child. For example, if you have three children and each has his or her own Coverdell ESA, you can contribute $6,000 ($2,000 to each ESA).

The main benefits of a Coverdell ESA include:

* Unlike state 529 plans, Coverdell ESAs can be used to pay for qualified elementary and secondary education expenses.

* Earnings grow on a tax-deferred basis, and distributions are tax-free if the money is used to pay qualified education expenses.

For more information on Coverdell ESAs and the opportunity to determine if this might be a good option for your family, please contact Mary Orr at morr@telcommcu.com or call 417.886.5355.

Coverdell ESA Annual Contribution Limits Per Child

Tax Year Annual Contribution Limit
2016 $2,000

 

Health Savings Account (HSA)

A Health Savings Account (HSA) is designed to help you save money for future medical expenses. There are certain advantages to putting money into these accounts, including favorable tax treatment.

Any adult can contribute to an HSA if they:

  • Have coverage under an HSA-qualified “high deductible health plan” (HDHP)
  • Have no other first-dollar medical coverage (other types of insurance, like specific injury insurance or accident, disability, dental care, vision care, or long-term care insurance are permitted).
  • Are not enrolled in Medicare.
  • Cannot be claimed as a dependent on someone else’s tax return.

Contributions to your HSA can be made by you, your employer, or both. However, the total contributions are limited annually. If you make a contribution, you can deduct the contributions (even if you do not itemize deductions) when completing your federal income tax return.

Brochures with more detailed information about Health Savings Accounts are available at all TelComm locations. Drop by and pick one up anytime!

To learn more about Health Savings Accounts, click here.