If you are under age 70 1/2 for the entire tax year and have earned income (or your spouse has earned income), you are eligible to establish a traditional IRA. You may contribute any amount up to 100 percent of your compensation or $2,000, whichever is less. Tax deduction of your contribution is based on whether or not you are an active participant in an employer-maintained retirement plan. If you're single and not an active participant, you are eligible for a full ($2,000) deduction no matter how large your income. If you or your spouse are active participants, the deductible amount is dependent on your MAGI and income tax-filing status. You may be eligible for the maximum deduction, a partial deduction, or no deduction. Even if you are not eligible for a deductible contribution, you can still make nondeductible contributions to a traditional IRA and take advantage of the tax-deferred earnings. All earnings on your traditional IRA contributions (deductible and/or nondeductible) remain tax deferred until you make withdrawals from the account. They are then taxed as income in the year they are withdrawn. You can withdraw funds from your traditional IRA without incurring a 10 percent IRS premature-distribution penalty any time after you reach age 59 1/2. You can avoid the penalty before age 59 1/2 if you become disabled, if the distributions are part of substantially equal periodic payments, for medical expenses in excess of 7.5 percent of your adjusted gross income, for health care insurance if you've been receiving unemployment compensation for at least 12 weeks, for qualified higher education expenses, or for first-time home purchase. If you are over age 59 1/2, include the taxable portion of the amount withdrawn (generally, deductible contributions and all earnings) as income. When you reach age 70 1/2 year, you must begin to take minimum required withdrawals or severe penalties will be imposed.
There are two requirements for eligibility to contribute to a Roth IRA: you must have earned income(or your spouse must have earned income) and your modified adjusted gross income (MAGI) cannot exceed certain limits. You may contribute any amount up to 100 percent of your compensation or $2,000, whichever is less, as long as your MAGI is within prescribed limits. These prescribed limits are: Single Filers - MAGI of $95,000 or less, full $2,000 contribution; MAGI between $95,000 and $110,000, partial contribution; MAGI of $110,000 or more, no contribution; Married, Joint Filers - MAGI of $150,000 or less, full $2,000 contribution; MAGI between $150,000 and $160,000, partial contribution; MAGI of $160,000 or more, no contribution. Money contributes to a Roth IRA is taxable as income in the year it is earned. There is no taxes on the earnings (provided you withdraw the earnings as part of a qualified distribution). When you're ready to take a withdrawal, you pay no taxes on any of the earnings that your money has generated. Qualified tax-free distributions are those taken after the five-year holding period for any of the following reasons: after reaching age 59 1/2, permanent disability, a first-time home purchase, or in the event of your death. The 10 percent IRS premature distribution penalty does not apply to earnings you withdraw when you take any of the qualified distributions listed above. In addition, the 10 percent IRS penalty is also waived for certain other distribution reasons. For these distributions, taxes on any earnings will apply. Roth IRA distributions that are subject to taxes (on any earnings withdrawn) but no penalty include: substantially equal periodic payments, medical expenses in excess of 7.5 percent of your adjusted gross income, health care insurance if you're been receiving unemployment compensation for at least 12 weeks, qualified higher education expenses and distributions taken within the first five years for any of these reasons: age 59 1/2, death, disability, or first-time home purchase. Distributions taken from a Roth IRA for any reason other than a qualified reason or one of the reasons listed here are subject to both taxes and a 10 percent IRS penalty on any earnings withdrawn. Qualified distributions from a Roth IRA are, as mentioned above, not subject to federal income taxes (state taxes may apply). Beyond that, another helpful feature of the Roth IRA is that, for nonqualified distributions, original contribution amounts are returned first. Contributions (as opposed to earnings) are not subject to taxation or the 10 percent IRS premature-distribution penalty when distributed. In other words, you can always get back your principal tax free and IRS penalty free for any reason. There are no required distributions from a Roth IRA.
Parents can establish education IRAs for each child under the age of 18 and make annual nondeductible contributions of up to $500 to each. Tax-free distributions must be made prior to age 30 and used to pay for undergraduate or graduate education expenses such as tuition, books, and room and borad. The ability to make contributions is phased out between AGI of $150,000 and $160,000 for joint filers and between $95,000 and $110,000 for single taxpayers.
Rate Information - Your interest rate and annual percentage yield may change.
Frequency of rate changes - We may change the interest rate on your account at any time.
Determination of rate - At our discretion, we may change the interest rate on your account.
Compounding and crediting frequency - Interest will be compounded every day. Interest will be credited to your account every quarter.
Effect of closing an account - If you close your account balance before interest is credited, you will not receive the accrued interest.
Daily balance computation method - We use the daily balance method to calculate the interest on your account. This method applies a daily periodic rate to the principal in the account each day.
Accrual of interest on noncash deposits - Interest begins to accrue on the business day you deposit noncash items (for example, checks).
When investing in time deposits, you contract to keep your funds on deposit at a fixed interest rate until the maturity date. See certificate of deposit.