Individual Retirement Accounts

Prepare for the Future with Langley Federal Credit Union

image

An Individual Retirement Arrangement (IRA) is a personal savings plan that offers tax advantages to an individual who sets aside money for his or her retirement. Langley Federal Credit Union offers fixed rate investments for terms of 12, 18, 30, and 60 months, as well as FLEX IRAs. Our Financial Service Officers can give you more details and help you complete the necessary forms.

There are two different types of IRAs; the Roth IRA and the Traditional IRA.

Roth IRA

Taxable compensation is required to open a Roth IRA and Modified Adjusted Gross Income (MAGI) limits apply to make a contribution. Contributions are not deductible since the money has already been taxed. The principal amount is never subject to future taxes or penalties as long as the owner stays within the contribution guidelines. The Roth IRA allows contributions to grow tax-deferred.

Distributions considered to be "qualified" generally are tax and penalty free. Once the account has been open for five years, owners may take tax-free distributions of earnings with a "qualified" event (generally turning age 59 1/2 ). The tax-deferred earnings are considered tax-free.

Tax and penalty free benefits make the Roth IRA the most exciting new personal savings option since IRAs were first permitted in 1975.

Certain lower income individuals may qualify for a non-refundable tax credit. Roth IRA contribution eligibility depends on the individual's (or if married, the individual and the spouse's) MAGI and income tax filing status. The amount that an individual is eligible to contribute is reduced if his/her MAGI falls within or below certain phase-out ranges. If MAGI exceeds the limits, no Roth IRA contribution is allowed. Please check with your financial adviser for eligibility and the amount you can contribute.

2012 / 2013 phase-out ranges
Filing Status 2012 MAGI 2013 MAGI
Single $110,000 - $125,000 $112,000 - $127,000
Married, filing joint $173,000 - $183,000 $178,000 - $188,000
Married, filing separate $0 - $10,000 $0 -$10,000

Traditional IRA

Traditional IRAs are easy to maintain, and typically offer two important tax advantages:

  1. Every penny of the earnings in your Traditional IRA is 100% free from federal income tax until you withdraw it from your account.

  2. You may be eligible to deduct your total annual Traditional IRA contributions on your federal income tax return. Review deductibility chart below for details.

Taxable compensation is required and the individual must be under age 70 1/2 for the entire year to make a regular IRA contribution for the year. Certain lower income individuals may qualify for a non-refundable tax credit. Consult your tax adviser for more information regarding tax credits. Tax deferred earnings, regular deposits, and the passage of time will help your money grow faster for retirement.

Traditional IRA Deductibility

One of the benefits of contributing to a Traditional IRA is that the contribution may be tax deductible. Whether a contribution or a portion of a contribution is deductible depends on active participation (participating in or receiving contributions) in an employer-sponsored retirement plan, marital status, and modified adjusted gross income (MAGI).

IRA Deductibility Phase-Out Ranges for Active Participants
Tax Year Federal Income Tax Filing Status Full Deduction
if MAGI is at or below
Partial Deduction
if MAGI is more than / but less than
No Deduction
if MAGI is at or above
2012 Single, AP $58,000 $58,000 / $68,000 $68,000
2013 Single, AP $59,000 $59,000 / $69,000 $69,000
2012 MFJ, AP $92,000 $92,000 / $112,000 $112,000
2013 MFJ, AP $95,000 $95,000 / $115,000 $115,000
2012 MFJ, Not AP,
but Spouse is
$173,000 $173,000 / $183,000 $183,000
2013 MFJ, Not AP,
but Spouse is
$178,000 $178,000 / $188,000 $188,000
2012 MFS,
Either Spouse AP
$0 $0 / $10,000 $10,000
2013 MFS,
Either Spouse AP
$0 $0 / $10,000 $10,000

AP - Active Participant, MFJ - Married Filing Joint, MFS - Married Filing Separate

IRA Contribution Limits

An IRA owner may contribute to a Roth or Traditional IRA up to the lesser of

  • 100% of earned income, or
  • $5,000 for 2012 and $5,500 for 2013 (plus "catch-up" contributions, if eligible).

IRA owners age 50 or older by the end of the tax year may increase their IRA contributions to help "catch up" on their retirement savings, for a total maximum IRA contribution of

  • $6,000 for 2012
  • $6,500 for 2013

For the purpose of the contribution limit, Traditional IRA contributions and Roth IRA contributions are combined.