IRAs

Plan Ahead With a MAFCU IRA

MAFCU offers several types of IRAs, including Traditional, Roth, and Coverdell Education Savings Accounts. Members can easily contribute regularly to their MAFCU IRAs through the convenience of payroll deduction.

MAFCU Traditional IRA

When you put your money in a MAFCU Traditional IRA, your money grows tax deferred. The money is taxed only when it’s withdrawn, which can begin when you are age 591⁄2.

If you withdraw your money before you are 591⁄2, you will be charged a ten percent penalty, but the penalty is waived in certain circumstances. Some of these exceptions include: disability; first-time home purchase (up to $10,000); qualified education expenses; qualified medical expenses that exceed 7.5% of your adjusted gross income; and medical insurance premiums due to unemployment that lasts 12 weeks or longer.

MAFCU Roth IRA

Members contribute after-tax dollars to a MAFCU Roth IRA. The money is not taxed when it is withdrawn if the funds have been in the account for a five-year period. You are eligible to open a Roth IRA if you earn less than $114,000 per year (or $166,000 if you filed your taxes jointly).

Contributions to a MAFCU Roth IRA can be withdrawn tax-free and penalty-free any time. After the account has been opened five years, you can withdraw the earnings tax-free and penalty free when you are 591⁄2, become disabled, or purchase a first-time home (up to $10,000). IRS rules for tax year 2008 allow people under age 50 to invest up to $5,000 in a Traditional or Roth IRA, and if you are over age 50, up to $6,000.

You can contribute to both a Traditional and a Roth IRA as long as your total contributions don’t exceed the IRS limit.

MAFCU Coverdell Education Savings Account

MAFCU Coverdell Education Savings Accounts are used to fund a child’s education expenses, including books, room and board, and tuition, and can be used for private school or college. These accounts can be opened as soon as a child has a social security number. Anyone can open a Coverdell account, not just parents or guardians.

The maximum amount allowed by the IRS for Coverdell contributions is no more than $2,000 per child.

For current rates, click here. For more information on MAFCU IRA products, contact Kathleen Lewis, MAFCU’s Certified IRA Specialist and Member Service Representative at 617-525-7112.

IRAs Offer Tax-Free Savings

If you think that you are too young to start saving for retirement, then learn the words: Tax-deferred compounding.

The earnings on IRA contributions are tax-deferred; you don't pay taxes on earnings until you withdraw them. Compounding means that, over time, you earn dividends not only on the principal amount you put into an investment, but also on your earnings. With tax-deferred compounding, the earlier you start saving, the more your money can grow. See the chart for the difference it can make.

	Period	Total Principal Invested	Value at 65 in IRA (5% rate) tax deferred	Value at 65 in IRA (5% rate) taxable investment
Alex	Invests $2,000 a year, age 21-35	$30,000	$185,000	$120,796
Bonnie	Invests $2,000 a year, age 36-65	$60,000	$139,104	$110,659

IRA Tax Savings Tips

By John Carleen

It’s never too early to start saving for retirement. Anyone with a paycheck showing earned income can open an IRA (Individual Retirement Account). IRAs are savings accounts with tax advantages that provide income to you when you retire. The younger you are when you open an account, the more your money will grow.

This year, for the first time, the Internal Revenue Service (IRS) will allow you to indicate on your tax return that you would like a portion of your tax refund to be sent directly to your IRA account. This way you will be assured that your contribution is timely and qualifies for the tax deduction.

Contribute the maximum allowable to your IRA account for 2007.

Consider converting your Traditional IRAs to Roth IRAs if your 2007 income is lower than expected. You may be able to make a portion or all of your conversion tax free, or the amount of tax may be reduced if you are in a lower marginal tax bracket.

Starting in 2010, anyone will able to convert IRAs to Roth IRAs regardless of how much income they make for the year. For 2010 Roth conversions, you will also have the option to pay the taxes due in a single year or spread out payment over 2010 and 2011. Therefore, even if your income is too high this year to convert to a Roth IRA, consider contributing to a non-deductible IRA and then convert to a Roth in 2010. You will only pay tax on the appreciation and you can spread the tax due over two years.

Attorney John C. Carleen is an experienced tax lawyer and litigation manager. He is founder of the law firm Carleen and Caramanica. His practice includes business law, administrative law, probate and family law, real estate law, tax planning, and litigation.