Individual Retirement Accounts

IRAs not only earn high, compounding interest, but the interest earned is tax deferred until you retire or withdraw the finds. Low cost loans are available to fund an IRA. You may also contribute to your IRA automatically through Payroll deduction.

Types:

Roth

Roth IRAs are for those with a modified gross income up to $110,000 (single filers) or $160,000 (joint filers) from compensation. Reduced contributions allow for higher incomes (up to $110,000 for single filers and $160,000 for joint filers). Total combined contributions may be up to $3,000/year or 100% of compensation (whichever is less). Higher limits if age 50 and over. Interest in not deductible, however, most contributions can be withdrawn tax- and penalty-free at any time. Earnings are tax-free if the account is open for 5 tax years and is withdrawn for a qualified reason. New Mexico Central IRAs do not require members to start withdrawals at age 701/2.

After the account has been open for 5 years, earnings can be withdrawn tax- and penalty-free for any of these reasons:

• Age 591/2
• Disability
• Death
• First-time home purchase

Earnings can be withdrawn tax- and penalty-free at any time for the following reasons (may be subject to tax):

• Qualified higher-education expenses
• First-time home purchase
• Age 591/2
• Disability
• Qualified medical expenses exceeding 7.5% of income
• Payment to beneficiaries upon the owner’s death
• Payment of health insurance premiums while unemployed

Traditional

The Traditional IRA is for anyone under age 70½ who has income from compensation (or who is filing jointly with a spouse who earns compensation). Total combined contributions may be up to $3,000/year or 100% of compensation (whichever is less). Higher limits of age 50 or older. Earnings grow tax-deferred until withdrawn. Individuals with incomes exceeding the above limits may be able to make deductible contributions of less than $3,000.

Fully deductible contributions for the Traditional IRA:

• Single individuals not active in employer retirement plans (regardless of income)
• Single individuals active in employer retirement with modified adjusted gross income of $34,000 or less
• Married couples with neither spouse active in an employer retirement plan (regardless of income)
• Married individuals active in employer retirement plans with joint tax returns showing modified adjusted gross income of $541,000 or less.
• Married individuals not active in employer retirement plans with spouses who are, as long as modified adjusted gross incomes $150,000 or less

Earnings can be withdrawn tax- and penalty-free at any time for the following reasons:

• Qualified higher-education expenses
• First-time home purchase
• Age 591/2
• Disability
• Qualified medical expenses exceeding 7.5% of income
• Payment to beneficiaries upon the owner’s death
• Payment of health insurance premiums while unemployed

Coverdell Education Savings Account (Formerly known as Education IRA)

The Coverdell Education Savings Account is for those with modified adjusted gross income up to $110,000 (single filers) or $220,000 (joint filers). The contribution limit is $2,000/year beginning in 2002. Education Savings Accounts are not deductible, however, withdrawals for qualified higher-education expenses are tax-free. Withdrawals are tax- and penalty-free only for qualified higher-education expenses (earnings are subject to tax and penalty for most other withdrawals). Funds can also be transferred from one child’s account to another child in the family.

Contributions not allowed for the Coverdell Education Savings Account:

• Once the beneficiary of the Coverdell Education Savings Account reaches age 18
• In any year that a contribution is made to a state tuition program for the same IRA beneficiary

Contributions:

• No more than $500 total each year for all Education Savings Accounts opened on each child’s behalf

For IRA Certificate Account rates, please see Certificates of Deposit

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