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Individual Retirement Accounts

North Central offers Traditional and Roth IRA’s, Coverdell ESA, and HSA accounts. Depending on your saving needs one of these accounts may be what you are looking for.

Traditional IRA

If you are looking to save on taxes now the traditional IRA may fit your needs. Traditional IRAs offer tax deferred earnings and the possibility for tax deductible contributions. These tax advantages make the traditional IRA a powerful tool in creating part of a balanced, long term retirement plan. You can contribute to a traditional IRA if you have earned compensation within the eligibility guidelines and you will not reach age 70 ½ by the end of the year. Earnings in a traditional IRA are not taxed until they are withdrawn.

Contribution limits to a Traditional IRA are $6,000.00 if you are under age 50; $7,000.00 if age 50 and over. However contributions cannot exceed earned compensation for the year.

In general, funds withdrawn from the Traditional IRA before age 59 ½ incur a 10% tax penalty; withdrawals after age 59 ½ have no penalty.  When you reach 70 ½ you must start receiving required minimum distributions from the Traditional IRA. You are allowed to delay the first year’s payment until April 1 of the following year, but you will receive two years’ worth of payments in that year if you choose to delay.

Roth IRA 

If you don’t need the tax break now and flexibility is what your looking for consider a Roth IRA. Unlike traditional IRAs, contributions to a Roth IRA are never tax-deductible. However, the money in your Roth IRA, including earnings, can be withdrawn tax-free. Of course, you must conform to certain tax requirements to get this tax-free advantage.

Contribution limits to a Roth IRA are $6,000.00 if you are under age 50; $7,000.00 if you are 50 and over. However contributions cannot exceed earned compensation for the year. Unlike Traditional IRAs, contributions to a Roth IRA have no age limit. You are eligible if your income is less than the limit set by Congress and you earn compensation (or your spouse earns compensation and you file a joint return). If your income is too high to contribute the annual contribution limit, you may be able to make a smaller contribution. Check with a tax professional for current figures.

You can withdraw regular contributions at any time, tax-free and penalty -free. You don’t have to take mandatory distributions at any age. Earnings from the account are tax-free if account is open for five tax years and withdrawn for a qualified reason (age 59 ½, disability, death or a first-time home purchase)

Coverdell ESA

Coverdell ESA (formerly Education IRAs) is a savings plan to help you pay for your child’s education expenses. Every Coverdell ESA must have one, and only one, “responsible individual” to oversee the account. The “responsible individual” must be a parent or legal guardian of the child.

Contributions to the Coverdell ESA are never tax-deductible.  However, earnings are tax-deferred and distributions are tax-free if the money is used to pay qualified education expenses.  Total contributions cannot exceed $2,000.00 each year for each child. Anyone can contribute to the account if they meet the income limits: A single filer with Modified Adjusted Gross Income (MAGI) up to $110,000 or a joint filer with MAGI up to $220,000.

Withdrawals can be made by the “responsible individual” at any time for qualified education expenses including tuition, fees, books, and equipment required for enrollment or attendance at nearly any postsecondary educational institution. Funds must be used for the child (beneficiary) before the age of 30 (with exception to special needs beneficiaries).