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Plan now for your retirement with an Individual Retirement Account from UMassFive. IRAs were introduced in 1975 as a means to promote tax-deferred savings and to provide a supplement to Social Security for retirement. IRAs are owned by an individual and can only be established in the name of the owner. We offer our members three savings products for use as Individual Retirement Accounts (IRA' s): a share account IRA, fixed rate Certificate IRAs with various maturities, and a variable rate 5 year Certificate IRA.

The credit union does not assess a penalty for early withdrawal from the IRA share account. With a traditional IRA, withdrawals prior to age 59 -1/2 will be assessed an IRS imposed penalty of 10% of the amount withdrawn. Whenever funds are withdrawn, they are reported as income in the year in which they are received. The credit union will assess a penalty for early withdrawal from any IRA Certificate. Both instruments are of course subject to standard Federal government early withdrawal penalties.

More details about credit union IRAs
You can open the share account IRA with a minimum deposit of $100.00 and contribute up to $4,000.00 per year for an individual. This amount can change annually. Refer to your tax advisor for the maximum amounts allowed. The actual contribution may differ, depending on income and whether the individual has a pension plan. All funds contributed to an IRA must be compensation- that is, income earned in the year for which it is deposited. Dividends are paid monthly, added to the balance, and compounded. The rate is set monthly. You can contribute to this account in person, by mail, or automatically using payroll deduction.

Variable Rate IRA Certificates are available in a 5 year term. Fixed Rate IRA Certificates are available in terms from 90 days to 5 years. The minimum deposit to purchase an IRA certificate is $500. The dividend rate on variable rate certificates is set quarterly while the fixed rate Certificates are subject to change weekly, on Thursday. Dividends are calculated on the actual amount in the account and are paid monthly. Dividends can be withdrawn at maturity. You can contribute to these Certificates twice yearly.

Traditional IRA
Traditional IRA's offer tax-deferred earnings, and the possibility for tax-deferred contributions. These tax advantages make the traditional IRA a powerful tool in creating your balanced, long-term savings plan. You can contribute to a traditional IRA if you earn compensation and you will not reach age 70 1/2 by the end of the year. If you file a joint tax return, you can treat your spouse's compensation as your own.

All earnings in the traditional IRA are not taxed until a later date, when they are withdrawn. The ability to defer taxes on the earnings and to withdraw in a year when you may be in a lower tax bracket can mean more after-tax dollars for your retirement. Assuming eligibility, you may contribute up to $4,000 per year of 100% of compensation, whichever is less. If you have attained age 50 by the end of the year, you can contribute $4,500 for 2005 and $5,000 for 2006 and 2007. Married couples can contribute up to $8,000 a year total, but no more than $4,000 per spouse. If you participate in an employer-sponsored retirement plan, you can still contribute to a traditional IRA, however higher-income earners will lose their ability to deduct their traditional IRA contributions when participating in an employer-sponsored plan. To see if you qualify for a tax deduction, see your tax advisor or request a copy of our traditional IRA brochure.

When an individual reaches age 70 1/2, he or she must begin to take a periodic payment or "distribution" for that year and each year thereafter. The distribution is determined by the fair market value of the IRA and selection of one of several options by the individual. Each year the distribution is reported as income for the year in which it is received.

Roth IRA
This new IRA is getting a lot of publicity. Contributions to a Roth IRA are not tax deductible, however, withdrawals may be tax-free.

Married couples filing a joint tax return with MAGI up to $150,000 and single filers with MAGI up to $95,000 can make full contributions to a Roth IRA. These dollar amounts could change annually. Those with higher incomes may qualify for reduced contributions. Contributions can be made to a traditional IRA, a Roth IRA or both for a given year, but the total contributed cannot exceed your annual compensation or $4,000 per year, whichever is less.

Withdrawals from a Roth IRA are tax and penalty free as long as the account has been open for at least five tax years and you are either over age 59 1/2, disabled or buying a first home.

You may withdraw, tax and penalty free, the contributions you have made to the account at any time. But when you withdraw the earnings without meeting the above requirements, they are subject to income tax and may be subject to a 10% penalty tax.

You can convert your traditional IRA funds to a Roth IRA, provided MAGI from your federal tax form is no more than $100,000 in the year you transfer it.

The money you transfer to a Roth IRA from a traditional IRA is subject to income tax in the year that it is transferred except when the withdrawal is a return on nondeductible contributions. The 10% penalty tax does not apply. If your contributions were not tax deductible at the time you made them, then only the earnings on the account are subject to income tax when you transfer them. Taxable income resulting from the transfer of money from a traditional IRA to a Roth IRA is ignored when determining whether your MAGI for the year is less than $100,000.

Education IRA (Coverdell [ESA] )
Education IRA's may be established for children under the age of 18 by parents and other interested parties. Contributions to the account will not be tax deductible, but the earnings will be tax-free if used for qualified higher education expenses.

You are eligible to contribute to an education IRA if you and your spouse file a joint tax return and have a joint income of $190,000 or less, or if you file a single return and your MAGI is $95,000 or less. Those with higher incomes may qualify for reduced contributions. You aren't eligible to contribute if you make a contribution to a qualified state tuition program during the year.

Contributions cannot exceed $2000 per child per year. If parents, grandparents, and others have each set up an account for the same child, their combined contributions cannot exceed $2000 per child per year. Careful tracking is important to avoid possible penalties.

Withdrawals from an education IRA are tax and penalty-free provided the child's qualified higher education expenses equal the withdrawals from the education IRA for that year. Otherwise any withdrawal from the account is taxable and a 10% penalty tax may apply.

An education IRA can be a great savings vehicle even if you're not sure whether your child will attend college or vocational school. The funds can be transferred from one child's Education IRA to another child's if that child is a member of the same family.

For questions or assistance, please contact a Representative or email us today!