IRAs – Traditional, Roth, and Coverdell

Which Is Right For You?

Traditional

A traditional IRA may provide you significant immediate tax savings, and due to the deferral of all taxes on earnings, the power of compound earnings is strengthened.
With a traditional IRA:

• Earnings accumulate tax-deferred
• Contributions are tax-deductible if you qualify

Roth

With a Roth IRA, contributions are not tax deductible; however, this IRA option presents other advantages. Where a traditional IRA provides tax-deferred growth with the deferral ending at withdrawal, your earnings may be tax-free in a Roth IRA. After an account has been held at least five years, withdrawals from a Roth IRA can be made tax-free when:

• You reach age 59½; or
• You use withdrawals for a first-time home purchase for you or an eligible family member; or
• You are disabled; or
• Distributions are made to a beneficiary after your death.

Coverdell Educational

You also have the option of saving for your child’s educational future. A Coverdell Education Savings Account (CESA), formerly Educational IRA, became available January 1, 1998, for savings in a tax-free program for a minor’s education.

• Unlike state 529 plans, Coverdell ESAs can be used to pay for qualified elementary and secondary education expenses.
• Earnings grow on a tax-deferred basis, and distributions are tax-free if the money is used to pay qualified education expenses.

Choosing An Account

Many elements may factor into your choice of an IRA, including:

• Your current tax bracket and the one you expect to be in during retirement. This will affect the relative value of a current tax deduction versus taxes that may be due in retirement.
• Other retirement assets available. If you have enough income from other sources to fund your retirement and want an account to build assets for future generations, a Roth IRA might be your choice. Unlike a traditional IRA, it has no requirement that you begin taking minimum distributions at a certain age.
• The length of time until you retire. Over time, the future savings of tax-free withdrawals may become more valuable than the current savings available from a deduction.

Put Us In Your Savings Plans

We can help you open a new IRA account (Traditional or Roth), Coverdell Education Savings Account (CESA), or transfer an existing IRA to the Credit Union. Our terrific rates for IRAs make Financial Builders FCU a smart place to save.