The following is a list of frequently asked questions about IRA accounts. If you'd like more information about IRAs with Reading Co-operative Bank, please contact us.

• What is a traditional IRA?
• Am I eligible to have a traditional IRA?
• What is compensation?
• How much can I contribute to my IRA?
• Do I pay taxes on the earnings of my IRA?
• Do I get a tax deduction for my contribution?
• What if I'm not eligible for a deductible IRA contribution?
• When can I withdraw funds from my traditional IRA without incurring any IRS penalties?
• If I participate in a retirement plan with my employer, am I still eligible for an IRA?
• How much is deductible from my taxes?
• When can I withdraw from a traditional IRA?
• When MUST I begin taking distributions from a traditional IRA?
• What is a Roth IRA?
• Am I eligible to have a Roth IRA?
• When can I withdraw from a Roth IRA?
• What is a Coverdell Education Savings Account?
• Am I eligible to contribute to a Coverdell Education Savings Account?
• How long can I continue to contribute to a Coverdell Education Savings Account?
• Are distributions from a Coverdell Education Savings Account tax-deductible?
• Can you help me learn more about which IRA is right for me?
• What happens to my traditional IRA after death?
• What happens to my Roth IRA after death?

What is a traditional IRA?

Since 1975, IRA’s (Individual Retirement Accounts) have been offered as a type of retirement plan.  Traditional IRAs provide tax-deferred earnings and the possibility for tax-deductible contributions.

For more details, just contact us.

Am I eligible to have a traditional IRA?

Individuals who are under 70-1/2 years old for the entire tax year -- and who have earned compensation or have received alimony -- may contribute to a traditional IRA.

What is compensation?

Compensation is the salary or wages you receive as an employee. If you are self-employed, compensation is your net income for personal services performed for the business. All taxable alimony is considered compensation. Interest, dividends, and most rental income is passive income and are not considered compensation.

How much can I contribute to my IRA?

You may contribute any amount up to 100 percent of your compensation or $5,000, whichever is less, to a traditional IRA (or to both a traditional and a Roth IRA). Additional catch-up contributions can be made by qualified individuals over fifty.

Do I pay taxes on the earnings of my IRA?

All earnings on your IRA contributions (deductible and/or non-deductible) remain tax-deferred until you make withdrawals from the account.

Do I get a tax deduction for my contribution?

Deductibility of your contribution to a traditional IRA is based on whether or not you or your spouse is an active participant in an employer-maintained retirement plan:

• If you are single and not an active participant, you are eligible for a full deduction of your contribution, no matter how large your income.
• If you are not an active participant, but your spouse is, you are still eligible for a full deduction if you file jointly and your combined modified adjusted gross income (MAGI) is below $179,000 (2009). You can receive a partial deduction if your joint MAGI is between $166,000 and $176,000 (2009).
• If you are an active participant, the deductible amount is dependent on your MAGI and income tax-filing status.

So you may be eligible for the maximum deduction, a partial deduction, or no deduction. We can help you determine which category you’re in. Just contact us.

NOTE: with a Roth IRA, contributions are NOT tax deductible.

What if I'm not eligible for a deductible IRA contribution?

You can still make non-deductible contributions to your IRA. You may also be eligible for a Roth IRA, depending on your MAGI.

When can I withdraw funds from my traditional IRA without incurring any IRS penalties?

You must pay income tax on distributed amounts from a traditional IRA that are attributable to deductible contributions and earnings. Amounts withdrawn prior to age 59-1/2 are also subject to an additional 10% early-withdrawal penalty, unless one of the following exceptions applies to the distribution:

• It is made due to death or disability.
• If it made in the form of certain periodic payments.
• It is used to pay medical expenses in excess of 7.5% of AGI.
• It is used to purchase health insurance for unemployed individuals.
• It is used for qualified education expenses.
• It is used for first-time home buyer expenses in excess of $10,000.

If I participate in a retirement plan with my employer, am I still eligible for an IRA?

Yes.  You can participate in both plans, assuming you meet the eligibility requirements of age and compensation.  There are, however, limits on the tax deductibility of traditional IRAs, depending on your income.

How much is deductible from my taxes?

If you and your spouse are not covered by an employer-sponsored retirement plan, you will receive a full deduction regardless of your income. If you DO participate in an employer-sponsored retirement plan, your income and filing status will determine the amount that your contribution is deductible from taxes. The following figures illustrate the increasing maximum income levels for single filers and couples filing jointly to deduct all or part of their IRA contributions:

Furthermore, an individual who does not participate in an employer plan -- but their spouse does -- may deduct their regular IRA contributions, provided that their combined adjusted gross income level is below $166,000 (2009). They will be allowed a smaller maximum deduction if their adjusted gross income is higher, provided it is not over $176,000 (2009).

When can I withdraw from a Traditional IRA?

You can withdraw funds from your IRA any time after you reach 59-1/2. Distributions taken prior to this age are subject to a 10% early-withdrawal penalty.

When MUST I begin taking distributions from a traditional IRA?

Distributions must start by April 1 following the year in which the participant reaches 70 -1/2. Failure to begin distributions at this point will draw penalties. Required minimum distributions may be deferred in 2009.

What is a Roth IRA?

Since 1995, Roth IRAs have been offered as a type of retirement plan.  Roth IRAs provide additional incentives to increase retirement savings.   Unlike traditional IRAs, contributions to a Roth IRA are not tax-deductible. However, the money in your Roth IRA, including earnings, can be withdrawn tax-free, assuming you follow the plan guidelines.

Am I eligible to have a Roth IRA?

Unlike a traditional IRA, Roth IRA participants may continue to make contributions after they have reached 70-1/2. Individuals who have earned compensation -- or who have received alimony -- may contribute to a Roth IRA, provided their income falls within the following guidelines:

When can I withdraw from a Roth IRA?

You may withdraw your Roth IRA contributions at any time. Qualified distributions may be withdrawn tax- and penalty-free. But non-qualified distributions may be taxable and subject to an IRS 10% early-distribution penalty.

For the money to be considered a “qualified” distribution, you must have been a participant in the Roth IRA for over five years, beginning with the first year in which the account was converted or a contribution was made, AND you have reached age 59-1/2, OR

• The distribution is paid following your becoming permanently and totally disabled.
• The distribution is paid to you for the first-time purchase of a home (up to $10,000).

The 10% IRS early-withdrawal penalty will not apply to non-qualified distributions to which one or more of the following exceptions apply:

• You have reached age 59-1/2.
• The distribution is paid to a beneficiary after your death.
• The distribution is paid following your becoming permanently and totally disabled.
• The distribution is paid in part as a series of substantially equal periodic payments.
• The distribution is used to pay for medical expenses in excess of 7.5% of your AGI.
• The distribution is used to pay for health-insurance premiums if you have been unemployed 12 or more weeks.
• The distribution is used for the first-time purchase of a home (up to $10,000).
• The distribution is used to pay for qualified higher-education expenses.

What is a Coverdell Education Savings Account?

Formerly known as Education IRAs, Coverdell Education Savings Accounts are an ideal way for you to begin saving money to help a child, grandchild or any young person you know pay for higher-education expenses down the road.

Contributions to a Coverdell Education Savings Account are not tax-deductible, but distributions used to pay for the qualified education costs of the named beneficiary are generally tax-free.

Am I eligible to contribute to a Coverdell Education Savings Account?

You can contribute up to $2,000 annually -- per beneficiary below the age of 18 -- provided you meet the following income limits:

Beneficiaries are limited to receiving a total of $2,000 in contributions to one or more Coverdell Education Savings Accounts annually, regardless of the contributors' limits. Your contributions to a Coverdell Education Savings Account are separate from contributions made to a traditional or Roth IRA and therefore may be made in addition to your contribution limits for those types of accounts.

Corporations and other entities, including tax-exempt organizations, are permitted to make contributions to Coverdell Education Savings Accounts, regardless of the income of the corporation or entity, in the year of the contribution.

How long can I continue to contribute to a Coverdell Education Savings Account?

You may continue to contribute to the account until the named beneficiary reaches the age of 18. No contributions can be made to the account after that time. If the beneficiary qualifies as a special-needs beneficiary, you may continue to make contributions to their account after they reach 18.

Are distributions from a Coverdell Education Savings Account tax deductible?

Distributions from a Coverdell Education Savings Account -- which are used to pay for the qualified education expenses* of the beneficiary -- are tax-free. Any amount of the distribution in excess of the qualified expenses, which is not attributable to contributions, will be taxed as earned income.

Can you help me learn more about which IRA is right for me?

Visit any Reading Co-operative Bank branch location, and we will help you determine which retirement plan best suits your needs and qualifications. For more information or to speak with a customer representative, please contact us.

What happens to my traditional IRA after death?

You may designate one or more beneficiaries to receive your IRA after your death. If your spouse is your beneficiary, he or she may directly transfer your traditional IRA to his or her own IRA tax-free. In addition, all beneficiaries have the option of taking a lump-sum payment or periodic payments over a number of years. Any tax-deferred money in your traditional IRA at the time of death will be taxed when it is distributed to your beneficiaries.  For more information or to speak with a customer representative, please contact us.

What happens to my Roth IRA after death?

You may designate one or more beneficiaries to receive the proceeds from your Roth IRA after your death, once the five-year test has been met. For more information or to speak with a customer representative, please contact us.

IMPORTANT NOTE: The information on this Web page is not intended to provide specific advice or recommendations for any individual. We recommend that you also consult your attorney, tax or financial advisor regarding your personal situation and needs.