Individual Retirement Accounts
IRAs are one of the safest ways to invest for retirement
Bank-offered IRAs are one of the safest ways to invest for retirement as they are FDIC insured. They also offer steady returns. Depending on your needs, First Fidelity Bank offers traditional IRAs, Roth IRAs, and Coverdell Education Savings Accounts. All First Fidelity Bank IRAs are No Fee IRAs. If you transfer your IRA to a new custodian, a $20.00 transfer fee will apply.
Many people are able to deduct the full amount of any contribution made to a traditional IRA. Plus, even if a contribution to a traditional IRA is not tax-deductible, it earns tax-deferred interest. Contributions to a Roth IRA or a Coverdell Education Savings Account are not deductible. However, all earnings are tax-free when withdrawals are made in accordance with legal guidelines. Consult your tax adviser regarding deductibility of contributions and tax deferral of interest.
The maximum amount you can contribute to a traditional or Roth IRA each year is the lesser of
- the annual IRA maximum, or
- the amount of your taxable compensation
Depending on your income and age, you can contribute up to $5,500 to your IRA in current tax year. You can also contribute an additional $1,000 if aged 50 or older. Working spouses may each invest up to the individual maximum amount. Contributions to a Roth IRA may be further limited if your modified adjusted gross income exceeds certain levels. See IRS Publication 590, Individual Retirement Arrangements and consult your tax adviser for more information.
Generally, you may contribute up to $2,000 to a Coverdell Education Savings Account each year per beneficiary. The designated beneficiary must be 18 years of age or younger (or be a special needs beneficiary). The maximum amount you may contribute is reduced if your income exceeds certain levels. See IRS Publication 970, Tax Benefits for Education and consult your tax adviser for more information.
It is allowed to own a traditional IRA as well as a Roth IRA and make contributions to both in the same year. However the total combined contribution for the year may not exceed the maximum contribution described above. You must decide whether it is better to make a contribution to a traditional IRA, which might give you an immediate tax deduction, or contribute to a Roth IRA where you forgo the deduction but have the possibility of long-term growth that may later go untaxed. The amount of contributions you may make to a Coverdell Education Savings Account does not affect the amount you may contribute to other IRAs.
IRA investments may be withdrawn at any time, but the distributions may be subject to a 10% tax penalty in certain situations. Generally you do not have to pay the 10% tax penalty on distributions from a traditional IRA if the withdrawal is made
- after you reach age 59½
- on account of your total disability or death
- for a first-time home purchase
- to pay certain medical expenses
- to pay higher education expenses
Withdrawals from a Roth IRA are subject to the 10% tax penalty unless the Roth IRA has been opened for at least five years and the distribution is made
- after you reach age 59 ½,
- on account of your death or disability
- for a first-time home purchase
If the money is withdrawn from the IRA for a first-time home purchase, an IRA holder may not withdraw more than $10,000 in a lifetime.
The designated beneficiary of a Coverdell Education Savings Account can take a distribution at any time. Generally, distributions are tax-free if they are not more than the beneficiary’s adjusted qualified education expenses for the year. If the distribution exceeds the amount of the beneficiary’s adjusted qualified education expenses for the year, a portion of it will be taxable. Although some exceptions apply, generally if you receive a taxable distribution from a Coverdell Education Savings Account, you also must pay a 10% additional tax penalty on the amount included in income.
See IRS Publication 970, Tax Benefits for Education or consult your tax adviser for more information.