The 411 on IRAS

It’s never too early to start saving for retirement.

RCB Bank employees Kim James and Ashley Wood (front row) and Jocelyn Wood, Kyle Head and Tiffany Gragg (back row).

For anyone who hasn’t figured out what to do with your tax refund, one option might be to make a contribution to your retirement account. With a decline in employee-sponsored pension plans and social security hanging in the air, many Americans must rely on their own savings to provide for their financial needs in retirement. There are alternatives to securing your financial future.  

    There are two types of Individual Retirement Accounts (IRAs), one that offers tax advantages now and one that offers tax advantages later. When deciding which IRA is best for you, Jenni Pilgrim, RCB Bank VP Corporate Retail Coordinator, recommends ­speaking to a tax advisor to see which plan benefits your tax situation. Let’s look at the two types of IRAs: Traditional and Roth.

    A Traditional IRA gives tax advantages for saving for ­retirement. You may be able to take a full or partial tax ­deduction for the amount ­contributed to your plan. “The main benefit of a Traditional IRA is that it lowers taxable income,” says Pilgrim. In short: Contributions are tax deductible (eligibility requirements apply); interest grows tax-deferred until it is taken out; contributions ­cannot be made after age 70 ½ when required minimum ­distributions begin; taxes are paid on the interest earned in the account at the time of ­distribution (when the money is taken out).

    Money put into a Roth IRA is taxed before it is deposited into the account and any interest earned is tax-free when it is ­taken out, as long as you meet the plan requirements. “Another great benefit is that when you turn 70 ½ you are not required to take money out of the account, as you are with a Traditional IRA,” said Pilgrim. The basics of the plan are: Roths are not tax deductible; ­contributions and earnings in the account grow tax free; at 70 ½ you do not have to make required minimum distributions; qualified distributions are ­tax-free.

    Other tidbits about IRAs: Contributions made to Traditional and Roth plans must not exceed annual contribution limits ($5,500 in 2013). That means you can’t make a $5,000 contribution to your Roth and a $5,000 to your Traditional in the same year.

    You can make a “carryback” contribution from January 1-April 15 for the ­previous year. Meaning, you can allocate contributions to go toward your 2012 IRA limit up to April 15, 2013.

    If you are over age 50, you can make a catch up contribution of $1,000 in addition to the $5,500 maximum contribution for 2013. That means $6,500 can be invested in 2013. At 59 ½ you can withdraw money from your IRA ­penalty-free for living expenses to ­supplement income.

     “It’s never too early to start saving for retirement,” Pilgrim said. “A lot of people ­underestimate what they will need when they retire. Speak to a financial planner or tax advisor now to find out how much you will need to save for retirement and start putting away any amount you can, even if it’s only $500 a year. That’s $500 you can put toward medical bills, ­insurance, groceries, cost of living, anything later on.”

    RCB Bank can help you get started. One product it offers is an 18-month variable IRA that can be set up as a Traditional or Roth. You can open the IRA with an initial $250 deposit and then add $1 or more at any time. The plan offers automatic ­renewal or the ability to make plan changes at the end of its term. Plus, it is FDIC insured.

    If you can’t make the initial $250 deposit, you still have options, said Pilgrim. “Take what you can from each paycheck, put in a savings account until you build up to $250, and then open up an IRA account. Don’t leave your financial future up to chance, start saving ­however much you can now.”

    Stop by any RCB Bank branch to talk about opening a Traditional or Roth IRA or ­other options that may be open to you. 

For more information, contact

RCB Bank

www.RCBbank.com