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IRA Accounts

PHB Employees Federal Credit Union currently offers three types of IRA accounts, Traditional IRA, Roth IRA and Coverdale (formerly Education) IRAs.

Our IRA accounts are currently deposited into Share Certificates for terms ranging from 6 to 36 months. Dividends are paid on these accounts monthly. The dividend rate for IRA share certificates is normally the same rate that is paid on normal share certificates. The credit union charges no administration fee for IRA accounts.

The following is a brief description of the three different types of IRAs available and current eligibility requirements. It is the responsibility of each member to determine which type of IRA would be most beneficial to them, and if they are eligible to make IRA contributions. The credit union recommends consulting with your tax advisor if you are unsure about your decisions.

Traditional IRA

Anyone meeting the following age and income qualifications can make regular contributions to an IRA. You must be under age 70½ and must not reach age 70½ at any time during the year for which the contribution is being made. The person must earn compensation during the year for which the contribution is being made, or they must file a joint income tax return with a spouse who earns compensation during the year. Compensation includes amounts received for services actually rendered such as wages; salaries; tips; bonuses; commissions; jury pay; director’s fees or alimony. Income not considered as compensation is: interest; dividends; rental income; retirement income (including Social Security) disability pay; child support; AFDC payments and unemployment compensation. Deposits to a Traditional IRA may be tax deductible if several qualifying variables are met. Your active participation in a qualified retirement plan and salary will affect the deductibility of your contributions.

Roth IRA

Roth IRAs are funded with non-deductible contributions. Contributions are allowed at any age provided the account owner (or spouse if filing jointly) has compensation for the year to which the contribution is attributed. Taxpayers may contribute to either Traditional or Roth IRAs or both, but aggregate contributions between the two types of accounts cannot exceed the limits allowed by the Internal Revenue Service in any one year. All Roth IRA contributions are non-deductible. The IRS also sets income guidelines to be used when determining if a person is eligible to contribute to a Roth IRA. Since these limits and rules governing IRA accounts change frequently it is best to consult your tax advisor to determine your eligibility. The most noted benefit of a Roth IRA over a Traditional IRA is the fact that earnings (dividends & interest) are not taxed provided the account has been established for at least five years and the account owner is over age 59½. There are a few other circumstances in which earning can be withdrawn tax free, but again you should consult your tax advisor.

Coverdale

These IRA accounts used to be referred to as Education IRAs. Parents, grandparents, or other interested parties can establish these accounts for children under the age of 18 to pay for education expenses. The sole purpose of these accounts is to help pay the education expenses of the child named on the account (beneficiary). Contributions can only be made to the account while the beneficiary is a minor (under the age of 18). Earnings accumulate tax-free and all withdrawals are tax-free provided they are used for education expenses by the time the beneficiary reaches the age of 30. Eligibility to establish Education IRAs is phased out when the grantor/depositor reach certain income limitations. You do not need compensation to contribute to a Coverdale account, but you do need income (interest, dividends, etc.) Total contributions to a Coverdale account for one child cannot exceed the limit set by the IRS, regardless of who makes the contribution. This means that family members must take care to ensure that their combined contributions for the same beneficiary do not exceed these limits. Coverdale contributions do not affect the amount a person can contribute to their own Traditional or Roth IRA.

**Note income limitations and contribution limits for IRA accounts are change by Congress frequently. The credit union tries to keep updated brochures and information packets on hand as the rules governing these accounts change. Call the office for updated information regarding these accounts, and always be sure to check with a tax advisor before determining your eligibility.