help you save for lifetime goals, there are a variety of
tax-advantaged or tax-deferred accounts from which to choose.
There are three types of IRAs: Traditional, Roth, and
Each type of IRA can be invested in an IRA Certificate of Deposit.
|Varying terms from 18 Months to
|Penalty for early withdrawal of
The different types of IRAs....
How are they
Traditional IRA - In this IRA,
contributions you make to the account are often tax deductible and
taxed upon withdrawal. This allows you to defer
taxation until your retirement when you may be in a lower tax
Roth IRA - This is the newest type
of IRA created by the Tax Payer Relief Act of 1997.
Contributions you make now are NOT tax-deductible, but can be withdrawn
tax and penalty free at any time. Earnings can be withdrawn
tax and penalty free for certain reasons after five tax
years. If you do not need the immediate tax break or
expect to be in a higher tax bracket when you retire, this may be
the account for you.
IRA - This IRA allows individuals to save money for a child's
higher education on a tax-favored basis.
Withdrawals are tax and penalty free only for qualified higher
education expenses. Earnings are subject to tax and penalty
for other withdrawals.
What are the
eligibility requirements and how much can I contribute per year?
Traditional IRA - You must be
under 70½ years of age the entire tax year and have earned
income to be eligible for the Traditional IRA. Even if you
do not have earned income, you are still eligible as long as your spouse
has earned income that year. If you are under age 50,
you may contribute the standard amount. If you have attained
age 50 by the end of the year, you may be eligible for additional
"catch-up" contributions. See the tables below.
Roth IRA - This
account does not have an age restriction, however you must still
have earned income in the tax year for which you would like to
contribute, AND your modified adjusted gross income (MAGI) cannot
exceed certain limitations. See the tables below.
Traditional and Roth
IRA Annual Contribution Limits
Year Normal Catch-up
2006 $4,000 $1,000
2007 $4,000 $1,000
2008 $5,000 $1,000
2009+ Indexed* $1,000
Contributions to a Roth IRA are
never tax-deductible. Contributions to a traditional IRA may or
may not be deductible in the tax year made, depending on the
owner's income tax filing status, adjusted gross income (AGI), and
eligibility to participate in a tax-qualified retirement plan
through employment. If the traditional IRA owner participates in
an employer's qualified retirement plan on any day in the tax
year, the deductibility of contributions declines to zero between
certain AGI ranges as shown in the following table.
Limits for Deductible Traditional IRA
Year Single Filer Joint Filer
2006 $50,000 - $60,000 $75,000 - $85,000
2007* $50,000 - $60,000 $80,000 - $100,000
- Contributions can be made for a child under the age of 18 for
use in college or other forms of post secondary education.
EIRA proceeds may also be used free of tax and
penalty to pay for the qualified expenses of a kindergarten
through 12th grade education in public, private, and/or religious
schools. EIRA contributions are limited to a maximum of $500 per
year, but that's in addition to the $2K limit on any other IRA.
MUST I take distributions from my IRA and how do I withdraw funds
without any tax penalty?
Money may be withdrawn from an IRA
at any time, but on withdrawal it may be taxed and/or penalized.
Withdrawals from a traditional IRA will always be taxed, either in
whole or in part, at ordinary income tax rates. Except as noted
below, withdrawals from a traditional IRA prior to age 59 1/2 will
result in a 10% excise tax as well as an ordinary income tax.
A Roth IRA allows you greater
flexibility by allowing you, in many cases, to withdraw your
principal contributions at any time tax-free, without penalty.
First-time homebuyers can pull out $10,000 in profits penalty free
and tax-free if the money has been in the Roth IRA for at least
five tax years. There are also some breaks for education spending,
though an Education IRA may be a better vehicle for education
savings. Barring these exceptions, though, profits withdrawn
before retirement age and before the money has been in the Roth
for at least five tax-years will be taxed, plus you'll also incur
a 10% penalty when those earnings are taken before age 59
Mandatory distributions for
traditional IRAs must begin no later than April 1 of the year
following the year the IRA owner reaches age 70 1/2. Failure to
take required minimum distributions at that age results in a 50%
excise tax on the amounts not distributed.
There are eight exceptions to the
10% penalty for IRA withdrawals prior to age 59 1/2. The early
withdrawal penalty does not apply to distributions that:
- Occur because of the IRA owner's
- Occur because of the IRA owner's
- Are a series of
"substantially equal periodic payments" made over
the life expectancy of the IRA owner.
- Are used to pay for unreimbursed
medical expenses that exceed 7 1/2% of adjusted gross income
- Are used to pay medical
insurance premiums after the IRA owner has received
unemployment compensation for more than 12 weeks.
- Are used to pay the costs of a
first-time home purchase (subject to a lifetime limit of
- Are used to pay for the
qualified expenses of higher education for the IRA owner
and/or eligible family members.
- Are used to pay back taxes
because of an Internal Revenue Service levy placed against the
Some restrictions and special circumstances apply to partnership
and corporation accounts. Natural persons must be legal residents
domiciled in the State of Illinois and possess valid residence,
personal identification and registration information. Sorry, No
Brokered or out-of-state deposits will be accepted. For a
complimentary sample of our pamphlet detailing specific terms and
conditions, electronic funds transfers, funds availability and
Truth In Savings disclosures click All
About Your Tempo Bank Deposit Account