Saving For the Future

Family First Credit Union is proud to offer Traditional and Roth IRAs as well as Coverdell Education Savings Accounts.

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Traditional and Roth IRAs

How much can I contribute into an IRA?

The Coronavirus Aid, Relief, and Economic Security (CARES) Act extended the deadline to make contributions to IRAs to July 15, 2020. On April 10, 2020, the IRS issued Notice 2020-23 to also extend the ESA contribution deadline to July 15, 2020.

For 2019, your total contributions to all of your traditional and Roth IRAs cannot be more than:

  • $6,000 ($7,000 if you’re age 50 or older), or
  • your taxable compensation for the year, if your compensation was less than this dollar limit.

The IRA contribution limit does not apply to Rollover Contributions.

IRA contributions after age 70½

While you can’t make regular contributions to a traditional IRA in the year you reach 70½ and older, you can still contribute to a Roth IRA. However, you can make rollover contributions to a Roth or traditional IRA regardless of your age.

You cannot keep retirement funds in your account indefinitely. You generally have to start taking withdrawals from your traditional IRA when you reach age 70½. Roth IRAs do not require withdrawals until after the death of the owner.

Your required minimum distribution is the minimum amount you must withdraw from your account each year.

  • You can withdraw more than the minimum required amount.

When do I need to start withdrawing from my IRA?

With Traditional IRA’s it is a requirement that by April 1 of the year following the calendar year in which you reach age 70½ you must withdraw AT LEAST your requirement minimum distribution (RMD). This number is determined by Family First Credit Union using standard IRS calculations and we will inform you of this amount prior to your first RMD.

To calculate which April 1st you would need to withdraw your first RMD, please see below:

  • Example: Your 70th birthday was June 30, 2017. You reached age 70½ on December 30, 2017. You must take your first RMD (for 2017) by April 1, 2018.
  • Example: Your 70th birthday was July 1, 2017. You reached age 70½ on January 1, 2018. You do not have an RMD for 2017. You must take your first RMD (for 2018) by April 1, 2019.

What about subsequent RMDs?

For each subsequent year after your required beginning date, you must withdraw your RMD by December 31.

The first year following the year you reach age 70½ you will generally have two required distribution dates: an April 1 withdrawal (for the year you turn 70½), and an additional withdrawal by December 31 (for the year following the year you turn 70½). To avoid having both of these amounts included in your income for the same year, you can make your first withdrawal by December 31 of the year you turn 70½ instead of waiting until April 1 of the following year.

Consequence for failing to take RMDs?

If you do not take any distributions, or if the distributions are not large enough, you may have to pay a significant excise tax on the amount not distributed as required.

**All legal/tax advice regarding Coverdell ESAs and any tax issues you may have for establishing or contributing to one must be presented to either a lawyer or certified public accountant. FFCU is NOT allowed to give advice in these areas.

Coverdell ESA

A Coverdell Educational Savings Account is an account designed to encourage savings to cover future education expenses (elementary, secondary, or college), such as tuition, books, and uniforms (for the same year as the distribution). Several important factors of a Coverdell ESA include:

  • A Coverdell is opened by an Owner (parent, grandparent, etc.) for the benefit of someone below the age of 18 (“designated beneficiary”). There does not need to be any familial relationship for an owner to create a Coverdell ESA for a designated beneficiary.
  • Coverdell ESAs have lower maximum contribution limits and anyone who falls within a certain tax bracket can contribute to a Coverdell. From 2002 to 2012, $2,000 is the maximum contribution per year per child. In other words, if there were multiple contributors and multiple ESAs for a single child, the total annual contribution of all those accounts combined must be less than $2,000 to avoid penalties. In 2013, this contribution limit was made permanent.
  • Age limit: Balances in a Coverdell ESA must be disbursed on qualified education expenses by the time the beneficiary is 30 years old or given to another family member below the age of 30 in order to avoid taxes and penalties. Designated Beneficiaries can be changed.
  • Coverdell ESAs allow withdrawing the money tax free for qualified elementary and secondary school expenses.

**All advice regarding which IRA you qualify for, which one is best for your financial situation, and any tax issues you may have with your IRA must be presented to either a lawyer or certified public accountant. FFCU is NOT allowed to give advice in these areas.

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