IRA, ESA & SEP Frequently Asked Questions
General Questions
What is an IRA?
IRA stands for Individual Retirement Account. An IRA is one type of specific retirement account, allowed by the IRS, to provide either tax-advantage or tax deferral benefits.
Is there a minimum age requirement to open an IRA?
No, there are no minimum age requirements to open an IRA; however, earned income is a requirement to open a Traditional or Roth IRA (see www.IRS.gov for additional information)
What types of IRAs does the Credit Union offer?
The Credit Union offers Traditional IRAs, Roth IRAs, Coverdell Education Savings Accounts (ESA) and Traditional IRAs that accept Simplied Employee Pension Plan (SEP) funds.
What type of IRA savings choices does the Credit Union offer?
The Credit Union offers IRA Savings Accounts and IRA Certificates (3-60 month terms). Refer to elevationscu.com for all current rates and product offerings.
What is the deadline for members to make contributions to their IRA and/or ESA for tax year 2008?
Regular contributions to Traditional and Roth IRAs and Coverdell ESAs can be made through April 15, 2009, including tax filing extensions. Note: All prior year contribution requests must be in writing with a signature prior to making the contribution.
How much can I contribute to a Traditional or Roth IRA for the previous year (2008)?
Contribution limits for previous year (2008) for Traditional and Roth IRAs are 100% of earned income up to $5,000 for individuals under age 50, and $6,000 for individuals age 50 and older.
How much can I contribute to a Traditional or Roth IRA for the current year 2009?
Contribution limits for current year (2009) for Traditional and Roth IRAs are 100% of earned income up to $5,000 for individuals under age 50, and $6,000 for individuals age 50 and older.
What is the difference between a Traditional and Roth IRA?
Unlike Traditional IRAs, Roth IRAs are never tax deductible. Regular Contributions can be withdrawn tax and penalty free at any time with a Roth IRA (certain IRS requirements apply).
If I already have a Roth IRA, can I have a Traditional IRA too?
Yes, the limits on annual contributions apply to any combination of Traditional and Roth IRA contributions that you make for the year.
Can you convert funds in a Traditional IRA to a Roth IRA?
Yes, but you will be taxed on the amount that you convert from a Traditional IRA to a Roth IRA (certain IRS requirements apply).
If I contribute to a Coverdell ESA, can I still contribute to a Traditional or Roth IRA?
Yes, contributions to Traditional or Roth IRAs do not effect the contributions you can make to a Coverdell ESA.
Can I roll funds from a Traditional or Roth IRA into a Coverdell ESA?
No, rollovers from a Traditional or Roth IRA into a Coverdell ESA are not allowed.
Can I roll funds from my IRA Savings into a Health Savings Account (HSA)?
Yes, a one-time contribution to an HSA of amounts distributed from an IRA is permitted. Some restrictions apply.
What type of IRA will accept my Qualifed Retirement Plan Funds?
Qualifed Retirement Plan Funds can be deposited into a Traditional IRA Account or a Roth IRA Account.
Does NCUA provide Insurance coverage for Traditional and Roth IRA's?
IRA accounts are insured separately to $250,000 from other accounts that the member maintains in the same credit union. The funds in all IRAs are aggregated with other IRAs of the owner and insured up to $250,000.
Tax Information
When will I receive a 1099-R Tax Form?
The 1099-R Tax Form for all withdrawals from Traditional IRAs (including SEP plans) and Roth IRAs are mailed at the end of January.
When will I receive a 1099-Q Tax Form?
The 1099-Q Tax Form for all withdrawals from Coverdell ESAs are mailed at the end of January.
When will I receive a 5498 Tax Form?
The 5498 Tax Form for all contributions to Traditional IRAs (including SEP plans) and Roth IRAs are mailed in May.
When will I receive a 5498-Q Tax Form?
The 5498-Q Tax Form for all contributions to a Coverdell ESAs are mailed in May.
If I completed a rollover from my other financial institution to Elevations Credit Union, will I receive a 1099-R/1099-Q Tax Form(s) from Elevations Credit Union?
No. In this situation, the other financial institution will provide you with the 1099-R/1099-Q Tax Form(s). You may receive 1099-R/1099-Q Tax Form(s) for other withdrawals made from your IRA at Elevations Credit Union.
How can I pay my Business taxes?
A free service provided by the U.S. Department of the Treasury, Electronic Federal Tax Payment System (EFTPS) allows all federal tax payments to be made electronically. This includes corporate, excise and employment taxes, and 1040 quarterly estimated tax payments.
Traditional IRA
Is my Traditional IRA contribution deductible on my federal income tax return?
Contributions may be deductible based on your retirement plan coverage, filing status and income. To be sure, it is best to consult a tax advisor.
Will I owe income taxes when I withdraw from my Traditional IRA?
Yes, in most cases you will owe income taxes when you withdraw from your Traditional IRA. If you make nondeductible contributions to a Traditional IRA, a portion of each withdrawal will be treated as the nontaxable return of these contributions.
When must I begin taking distributions from my Traditional IRA?
You must begin taking RMD (Required Minimum Distributions) from your Traditional IRA the year in which you reach age 70 1/2. The RMD amount each year will be computed using an IRS formula. You can no longer make contributions to a Traditional IRA in the year you reach age 70 1/2.
If I make an early withdrawal from my Traditional IRA, (before age 59 1/2), do I pay an IRS penalty?
In most cases, you will pay a 10% IRS penalty on early distributions before age 59 1/2. The early distribution penalty does not apply in certain situations, including first-time home purchase, qualified educational expenses, etc.
Roth IRA
Who can contribute to a Roth IRA for 2008?
Anyone with earned income (MAGI) up to $101,000 for individual filers, (phase out between $101,000 and $116,000) and $156,000 for married couples filing jointly (phase out between $159,000 and $169,000) can contribute.
Who can contibute to a Roth IRA for 2009?
Anyone with earned income (MAGI) up to $105,000 for individual filers, (phase out between $105,000 and $120,000) and $166,000 for married couples filing jointly, (phase out between $166,000 and $176,000) can contribute.
Are contributions to a Roth IRA tax deductible?
No. Roth IRA contributions are not tax-deductible.
Is there an age at which I can no longer contribute to my Roth IRA?
No. You can continue to make contributions to a Roth IRA as long as you have earned income.
Do I have to take minimum distributions from a Roth IRA when I reach age 70 1/2?
No. There are no required distributions.
When can I start taking tax-free distributions from my Roth IRA?
Regular Contributions can be withdrawn tax-free and without an IRS penalty at any time. There are two requirements to qualify for tax-free withdrawals of income on a Roth:
- Five-Year Test must be met. (Must be five years after the first year for which Roth Contributions were made).
- One of the following conditions must apply:
- You are over age 59 1/2.
- Funds are going to your beneficiary upon your death.
- You are using the funds for a first-time home purchase.
- You have become disabled.
Coverdell Education Savings Account (ESA)
Describe the individual roles involved in a Coverdell Education Savings Account (ESA).
- Grantor: Person who initially sets up the Coverdell ESA.
- Designated Beneficiary: Child for whom the ESA is being established.
- Responsible Individual: Parent or Legal Guardian of Designated Beneficiary.
- Contributor: Individual who makes contributions to the ESA.
How much can I contribute to a Coverdell ESA for the year 2008 or 2009?
The Contribution limit is $2,000 per child, per year. Contributions for the 2008 year can be made through April 15, 2009. Note: All prior year contribution requests must be in writing with a signature prior to making the contribution.
Are contributions to a Coverdell ESA tax deductible?
No. Coverdell ESA contributions are not tax-deductible.
Who can contribute to a Coverdell ESA?
Anyone with earned income (MAGI) up to $95,000 for individual filers and $190,000 for joint income filers can contribute the maximum allowable amount to a Coverdell ESA. Phase out for individual filers is between $95,000 and $110,000. Phase out for joint filers is between $190,000 and $220,000.
If I contribute to a Coverdell ESA, can I still contribute to a Traditional or Roth IRA?
Contributions to Traditional or Roth IRAs do not effect the contributions you can make to a Coverdell ESA.
How long can I contribute to the Coverdell ESA?
Contributions can be made to a child's Coverdell ESA until he or she reaches the age of 18. This age limit does not apply to special needs beneficiaries.
When can distributions begin from a Coverdell ESA?
The Responsible Individual can withdrawal funds at any time. To avoid tax conquences, the funds must be used to pay for child's (ESA Beneficiary) qualified education expenses before they reach the age of 30, (not applicable for special needs beneficiaries).
What educational expenses are considered "qualified educational expenses"?
Qualified expenses may include: tuition, fees, books, computer equipment, or technology required for elementary, secondary, and post-secondary education.
Does NCUA provide Insurance coverage for Coverdell ESA's?
Coverdell Education Saving Accounts, formerly education IRAs, are insured as irrevocable trust
accounts and will be added to a member’s other irrevocable trust accounts and insured up to $250,000.
Simplified Employee Pension Plan (SEP)
What is a Simplified Employee Pension Plan (SEP)?
SEP Plans were created to allow self-employed persons, sole proprietorships, partnerships, small busineses, small employee groups, and corporations to provide retirement plans via an easily established and maintained retirement program.
Does the Credit Union offer IRAs that accept SEP contributions?
Yes, the Credit Union offers Traditional IRAs that accept SEP Contributions. SEP Plans that are held in Traditional IRAs follow similar IRS rules to Traditional IRAs. Regular Contributions can be made in addition to SEP Contributions, as long as the funds are kept separate.
How much can be contributed to a SEP Plan for the prior-year 2008?
Up to 25% of your salary can be contributed to a SEP Plan (up to a maximum of $46,000). Certain IRS requirements apply.
How much can be contributed to a SEP Plan for the year 2009?
Up to 25% of your salary can be contributed to a SEP Plan (up to a maximum of $49,000). Certain IRS requirements apply.
Are SEP Plan contributions tax deductible?
Generally, if they were made by your employer, you cannot deduct these contributions. If you made the contributions as a self-employed person they may be deductible. Consult a tax advisor.
Can prior-year contributions to a SEP Plan be made?
The Credit Union can accept the prior-year funds but cannot indicate that the SEP contribution is for the prior-year. The employer must notify their tax advisor if the contribution is for a prior-year.
How long can SEP Plan contributions be made?
SEP Plan contributions can be made until the employee retires, regardless of age.
How are SEP contributions taxed?
SEP Plan contributions, made by an employer, are not included in the employee's income for tax purposes, and an employee does not pay taxes on the balance in their SEP account(s) until the funds are withdrawn.
Are minimum distributions required on a SEP Plan?
Yes. Distributions are required once you reach the age of 70 1/2.
Does NCUA provide Insurance coverage for SEP IRA's?
SEP IRA's are coverered by the same Insurance rules as IRA's.
