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IRAs

Roth IRA

The Roth IRA is a nondeductible account that features tax-free withdrawals for qualified distributions after a five-year holding period, and reaching age 59 1/2.

Eligibility

There are two eligibility requirements for a Roth IRA: you must have earned income and your Modified Adjusted Gross Income (MAGI) cannot exceed certain limits. You may contribute 100% of your earned income up to maximum allowed. The maximum is the aggregate amount that you can contribute to any Roth and/or Traditional IRA in a given year. There are no required distributions from a Roth IRA.

Contribution Limit

The 2012 contribution limit is $5,000; the contribution limit for age 50 and older is $6,000. Five-Year Holding Period

The five-year holding period begins with the tax year for which the first contribution is made. For example, you can open a Roth IRA on April 15, 2013 for tax year 2012, and the five-year period would actually begin January 1, 2012.

Qualified Distributions

In order for earnings to be tax-free, you must first meet a five-year holding period for your Roth IRA. After that, your earnings are tax-free and IRS penalty free. Qualified distributions include:

  • Distributions made on or after the date on which you attain age 59 1/2
  • Distributions made to your beneficiary or estate upon your death
  • Distributions attributable to your being disabled, and
  • Qualified first-time home buyer distributions (up to $10,000)

IRS Premature Withdrawal Penalty

The 10% IRS penalty does not apply to earnings you withdraw under any of the qualified distributions. In addition, the penalty is waived for certain other distributions, but you will pay taxes on the earnings withdrawn on these distributions:

  • Substantially equal periodic payments
  • Eligible medical expenses in excess of 7.5% of your adjusted gross income (AGI)
  • Medical insurance premiums for eligible unemployed individuals
  • Qualified education expenses
  • Distributions taken within the first five years for these reasons: age 59 1/2, death, disability or home purchase

Distributions taken for any reason other than a qualified reason or one of the reasons listed above are subject to both taxes and the 10% IRS penalty on any earnings that are withdrawn.

Access to Funds

One of the most helpful features of the Roth IRA is that, for non-qualified distributions, original contributions are returned first, not the earnings. Your contributions are not subject to taxation or the IRS 10% penalty. In plain language, you can always get back your contributions both tax-free and IRS penalty free, for any reason.

Required Distributions

Unlike a Traditional IRA, you are never required to take distributions, at age 70 1/2 or at any other age.

Contribution Deadline

IRAs for the taxable year can be opened and funded at any time between January 1 and the date the tax return is due, excluding extensions. For most people, this means that you can fund a 2012 IRA from January 1, 2012 through April 15, 2013.

Mid American Credit Union8404 West Kellogg DriveWichita, KS 67209316.722.3921Fax 316.722.0920Privacy Policy