Individual Retirement Accounts can be part of the foundation of a financially secure retirement. For many years, millions of individuals have made annual contributions to IRAs or used them to receive distributions from retirement plans upon changing jobs or retiring. A few years ago, a new form of IRA was created called the Roth IRA. The Roth IRA offers some advantages over the traditional IRA but comes with some limitations.

Here is a comparison of some of the key features of each:

Anyone under the age of 70½ with earned income can contribute to a traditional IRA. For a Roth IRA, you must still have earned income but there is no age restriction. However, there are income limits for Roth IRAs. For 2009, single tax return filers can make full contributions if their income is less than $105,000. The limit for joint filers in 2009 is $166,000. Partial contributions are allowed if your income exceeds those amounts (up to $120,000 and $176,000 respectively).

Taxability of Earnings
Earnings on funds in a traditional IRA are tax deferred. Roth IRAs provide for tax-free growth.

Contribution Limits
The contribution limits for both types of IRAs are the same. In all cases, contributions must not exceed earned income.

  • 2009 contributions - $5,000
  • After 2009, the limits will be adjusted for inflation in $500 increments.

In addition, workers ages 50 and over can make additional "catch-up" contributions of $1,000 in year 2009 and thereafter.

Deductibility of Contributions
Contributions to traditional IRAs are deductible if you do not participate in another qualified plan. If you are a plan participant, contributions may be deductible depending on your adjusted gross income. For 2009 contributions, single return filers receive full deductibility if AGI is $55,000 or less and partial deductibility with AGI up to $65,000. For joint return filers in 2009, the limits are $89,000 and $109,000.

Contributions to a Roth IRA are not tax deductible.

Taxability of Withdrawals
For traditional IRAs, any earnings and deductible contributions are subject to tax on withdrawal. All distributions from a Roth IRA are tax-free.

Penalty for Early Withdrawals
Both types of IRAs impose a 10% early withdrawal penalty tax on distributions taken before reaching age 59½. There are a few exceptions for death, severe hardship and other situations.

Mandatory Distributions
For a traditional IRA, you must start taking distributions in the year you reach age 70½. However, for 2009 only, there are no minimum distribution requirements. There are no required distributions for the Roth IRA.

Which IRA is right for you?
If your income level precludes you from getting a deduction for contributions, the answer is easy – choose the Roth IRA.

If your contributions to a traditional IRA would be deductible, the question is harder. Generally, if you are younger, the attraction of tax-free distributions would outweigh the immediate benefit of the deductions. If you expect your marginal tax rates to remain at their current level or increase, the odds favor the Roth IRA.

If you have significant other assets and would like to use your IRA to pass significant wealth on to future generations, the tax-free nature of the Roth IRA is extremely attractive.

Should You Convert Your IRA to a Roth IRA?
There are some special rules that enable you to convert a regular IRA into a Roth IRA. Many people find that the attractions of tax-free distributions and no required distributions make a Roth IRA conversion worth considering. However, there are limitations and costs.

First, to be eligible for the conversion, your adjusted gross income in the year of conversion must not exceed $100,000. In addition, you must pay taxes on the accumulated value of the IRA (less any non-deductible contributions you have made) when you make the conversion. As a result of the 2006 tax law changes, beginning in 2010, there will be no income limitations on conversions and the resulting tax can be paid over two years.

Be sure to consult your tax advisor if you believe converting makes sense. Most professionals have software that can help with the analysis.

Hot Topics

What is FAIRWINDS' Routing Number?


What are the 2013 IRA and HSA contribution limits?

Find out here.

When will I receive my 2012 5498 form?

Find out here.

What is a Routing Number?

FAIRWINDS' routing number (263181368) is used to identify FAIRWINDS Credit Union from other financial institutions and in no way identifies you or your accounts to others.

A routing transit number (RTN) is a nine digit bank code, used in the United States, to facilitate the sorting, bundling, and shipment of paper checks back to the drawer's (check writer's) account.

The RTN is also used by Federal Reserve Banks to process Fedwire funds transfers, and by the Automated Clearing House (ACH) to process direct deposits, bill payments, and other such automated transfers.

What can I do with my Relationship Rewards points?

Relationship Rewards provide you the opportunity to enjoy special member benefits including:

  • Buying down the interest rate on a loan.
  • Increasing your rate on a new CD.
  • Reducing service charges on additional products and services.
Learn more about our Relationship Rewards program.

How do I send or receive a wire?

To send a wire from FAIRWINDS, please provide the following:

  • Name, address and routing number of financial institution receiving the wire
  • Account number for the receiving account
  • Name and address of receiving account holder

There is a $20.00 service charge for an outgoing domestic wire from a personal account and a $25.00 service charge for an outgoing wire from a business account.

To receive a wire at the credit union, you will need to provide the following:

  • FAIRWINDS routing number (263-181-368)
  • Name of account holder
  • FAIRWINDS account number to receive the funds

There is a $10.00 service charge for an incoming domestic wire to a personal account and $15.00 service charge for an incoming wire to a business account.

*Please verify this information with the receiving financial institution as there may be an intermediary financial instititution involved.

When should I expect my 5498-ESA tax forms?

5498-ESA tax forms will be mailed by April 30th for all Coverdell Educational Savings Account owners who made contributions and/or rollovers into their ESA's in 2011.

5498 and 5498-SA tax forms will be mailed in mid-May for all Traditional, SEP, and Roth IRA owners and Health Savings Account owners who made contributions and/or rollovers into their IRA's and HSA's in 2011.

For questions regarding the 5498 forms please call Member Services at 407-277-5045 or visit your local branch.

When should I expect my tax forms?

FAIRWINDS mails 1099-INT and 1098 tax forms at the end of January. However, if you have e-Statements, these tax forms are available online right now!
Learn more here.

Members will only receive a 1099-INT form if the aggregate earnings amongst the accounts they are tax reported for (the primary owner) have earned at least $10 in interest.

These accounts include:
Savings, checking, money market, certificates of deposit, and US Bonds Redeemed, but do not include IRA accounts. If members have not earned at least $10 in interest, they will not receive a 1099-INT form.

Members will only receive a 1098 Mortgage Interest Statement if they paid $600 or more in interest on their mortgage.

FAIRWINDS mails 1099-R, 1099-Q, 1099-SA, and FMV/RMD statements to members by January 31st each year. We also mail 5498, 5498-SA, and 5498 ESA forms to members by the end of May.

Important information for all MasterCard® and VISA® credit and debit card holders.

You may have seen news stories recently about a potential data breach with MasterCard® and VISA® through a third-party payment processor. While there is no indication that any FAIRWINDS members have been impacted by this event, it is an opportunity to remind all consumers about the importance of being diligent, safeguarding your personal information and monitoring your accounts on a regular basis to minimize the effects of fraud.

Take the few extra steps to proactively protect your accounts. If you believe your credit or debit card information is at risk or unauthorized transactions have posted to your account, contact your financial institution immediately. In addition, you may want to consider looking into an identity theft alert program to keep you informed of activity on your accounts. There are many reputable programs available, including ID Secure. Click here to learn more.

There is an active texting scam occurring in the Central Florida area.

People are receiving a text at random stating their "card has been deactivated." This is a Scam!

Always remember, FAIRWINDS will never ask members to provide confidential information, such as debit or credit card numbers, PINs or Social Security numbers via email, text messages, direct mail or over the phone.

If you feel you are the victim of account fraud or identify theft, act immediately. This should help minimize the damage to your personal accounts and credit rating. Click here to learn more.

What are the 2013 IRA and HSA contribution limits?

Traditional and Roth IRA owners under age 50 may contribute up to $5,500 toward tax year 2013. A $1,000 catch up contribution may be added for Traditional and Roth IRA owners age 50 and over.

2013 SEP contribution limits have increased to a maximum of $51,000 or 25% of the employee's compensation, whichever is less.

HSA owners under age 55 with an individual HDHP (self coverage only) may contribute up to $3,250 toward tax year 2013. HSA owners under age 55 with a family HDHP may contribute up to $6,450 toward tax year 2013. A $1,000 catch up contribution may be added for HSA owners age 55 and over.

When will I receive my 2012 5498 form?

5498, 5498-SA, and 5498-ESA forms report IRA, HSA, and ESA contributions, rollovers, conversions, and fair market value (December 31st balance) information to the IRS and account owners. 5498 and 5498-SA forms are expected to be mailed by Saturday, May 18th.

Please contact Member Services at (407) 277-5045 or visit your local branch if you have questions about your form(s).

How can I make a prior year (2012) contribution to my IRA or HSA?

Eligible prior year (2012) IRA and HSA contributions may be made through the close of business on Monday, April 15th. The IRS requires signed documentation before contributions may be designated for a prior year.

Members can accomplish this by visiting a local branch during business hours or by submitting an e-Signed form through Retirement Central® and click Manage An Account on the left menu.