Individual Retirement Accounts

IRAs have always been a great tax-favored way for you to save for retirement, and now, thanks to the Economic Growth and Tax Relief Reconciliation Act of 2001, they’re better than ever.

The IRA was originally designed for American workers striving to save for retirement. But over the years, Congress did not adjust the maximum contribution limits to keep pace with inflation.

Today, as people live longer, they are more eager than ever to save for retirement, but find that their employer-sponsored plans and Social Security are not enough to provide for a secure retirement.

With the enactment of President Bush’s tax bill, IRAs are getting a much-needed face-lift to help Americans start saving like never before. Starting with tax year 2002, this exciting new law:

• Boosts annual contribution limits.
• Provides “catch-up” contributions for people age 50 and older.
• Makes it easier to consolidate assets in IRAs and employer-sponsored plans.
• Offers a tax credit to low- and middle-income people who make IRA contributions.

NEW IRA CONTRIBUTION LIMITS
The Maximum annual limit for both traditional and Roth IRA contributions will be raised, in incremental steps, to $5,000 by the year 2008. The limit will be increased to $3,000 for 2002 through 2004, $4,000 for 2005 through 2007, and $5,000 for 2008 through 2010. For tax years beginning after 2008, the $5,000 limit will be adjusted for inflation in $500 increments.

CATCH-UP CONTRIBUTION AGE 50 OR OLDER
A special exception applies if you are age 50 or older that allows you to contribute an additional $500 to an IRA for the 2002 through 2005 tax years, and an additional $1,000 for 2006 through 2010. This limit will not be adjusted for inflation.

PROVISION FOR THE NEW INCOME TAX CREDIT FOR THOSE WITH LOWER TO MODERATE INCOMES
To make savings even more attractive, if you are a low- or middle-income wage earner, you will be eligible for an income tax credit for contributions to an IRA. The amount of the tax credit depends on your adjusted gross income. The maximum tax credit is equal to $1,000. For example, depending upon your adjusted gross income, a contribution of $2,000 could be made to a traditional or Roth IRA, producing a $1,000 tax credit. This provision is effective for tax years 2002 through 2006.

                                                                          NEW ROLLOVER PROVISIONS
Now there are more options for you if you leave your job and want to take your retirement plan assets with you. Employees have always been able to roll over taxable distributions from Section 401 and 403(b) plans to an IRA. In 2002 and later years, you will also be able to roll over nontaxable voluntary employee contributions and distributions from governmental Section 457 plans to an IRA.

AFFECT OF THE NEW LAW ON EDUCATION IRAs
One of the biggest drawbacks to the Coverdell Education Savings Account (ESA), formerly know as the Education IRA, when it was originally enacted was the $500 annual contribution limit. The new law expands the contributions limit to $2,000 and increases the income limits if you are married and filing jointly making the Coverdell ESA a much more attractive savings plan. Furthermore, you will be able to make tax-free withdrawals from the accounts for elementary and secondary school costs as well as college. Covered expenses include tutoring, computer equipment, room and board, uniforms, extended day program costs and even Internet access.

SEE YOUR CREDIT UNION FOR YOUR IRA NEEDS
When you have determined which IRA or combination if IRAs best meets your savings needs, stop by your credit union. We can help you open accounts, make contributions, transfer funds and answer your questions. There has never been a better time to make an IRA part of your financial plan.

Not intended as tax advice. Please consult a tax professional.

Choose the IRA that meets your needs.

The following chart highlights the details and advantages of the accounts. Your tax adviser can offer more guidance on which IRA may be best for your specific situation.

The relatively high income limits of traditional IRAs are enabling more people to make tax-deductible contributions. In addition, penalty-free withdrawals are allowed for qualified higher-education expenses and for a first-time home purchase.

Contributions to a Roth IRA or a Coverdell ESA are not tax-deductible, but both offer the opportunity for tax-free earnings.

If you have a question or would like help in opening an account, call us or stop in today for more information on the benefits of a credit union IRA.

	Roth IRA	Traditional IRA	Coverdell Education Savings Account (ESA)***
Who Can Contribute?	Anyone under age 701/2 who has income from compensation (or who is filing jointly with a spouse who earns compensation), with the following MAGI:* Up to $95,000 for single filers Up to $150,000 for joint filers Reduced contributions allowed for higher incomes: Up to $110,000 for single filers Up to $160,000 for joint filers	Anyone under age 701/2 who has income from compensation (or who is filing jointly with a spouse who earns compensation)	Anyone who has MAGI: Up to $95,000 for single filers Up to $150,000 for joint filers Some people with hither MAGI may be able to make smaller contributions Contributions not allowed after the beneficiary reaches age 18 (except for special-needs beneficiaries)
How Much Can I Contribute?	$3,000 through 2004 Higher limit if age 50 or older Cannot exceed compensation Reduces contributions that can be made to traditional IRAs	$3,000 through 2004 Higher limit if age 50 or older Cannot exceed compensation Reduces contributions that can be made to Roth IRAs	$2,000 per child Limit applies to all Coverdell Education Savings Accounts (ESA) for the same child
Who Can Make Deductible Contributions?	No one can deduct contributions	Fully-deductible contributions: Single individuals not active in employer retirement plans (regardless of income) Single individuals active in employer retirement plans with MAGI of less than $34,000 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 MAGI of less than $54,000 Married individuals not active in employer retirement plans with spouses who are, as long as MAGI is $150,000 or less. Individuals with incomes exceeding the above limits may be able to deduct an amount that is less than the maximum amount that can be contributed.	No one can deduct contributions
What Are the Tax Advantages?	Earnings are tax-free if account is open for five tax years and withdrawn for a qualified reason (age 59 1/2, disability, death, or a first-time home purchase**) Not required to start withdrawals at age 70 1/2	Earnings grow tax-deferred until withdrawn Contributions may be tax-deductible	Withdrawals for certain qualified education expenses are tax-free Special-needs beneficiaries can withdraw funds tax-free to pay for qualified education expenses at any age Qualified education expenses may include tuition, fees, books, computer equipment and technology required for elementary, secondary and post-secondary education A beneficiary may receive tax-free distributions from a Coverdell ESA in the same year he or she claims the Lifetime Learning or HOPE scholarship tax credits
When can I withdraw without restrictions?	Regular contributions can be withdrawn tax- and penalty-free at any time After the account has been open five tax years, earnings can be withdrawn tax- and penalty-free for any of these reasons: age 59 1/2, disability, death, or a first-time home purchase**	Withdraw penalty-free for any of the following reasons: Qualified higher-educational expenses First-time home purchase** Age 59 ½ Disability Qualifying medical expenses exceeding 7.5% of adjusted gross income Payment to beneficiaries upon the owner's death Payments of health insurance premiums while unemployed for 12 weeks or longer	Withdrawals are tax-and penalty-free only for qualified education expenses (earnings are subject to tax and penalty for most other withdrawals) Funds can be transferred from one child's account for another child in the family

Not intended as tax advice. Please consult a tax professional.

*MAGI-Modified adjusted gross income from the federal tax form
** Lifetime limit for exemption on first-time home purchase is $10,000
***Formerly know as the Education IRA