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Solving the IRA Mystery

Answers to some of our most frequently asked questions about Individual Retirement Arrangements (IRAs).

Solving the IRA Mystery

Have you been thinking about investing into an IRA, but don’t know where to start? It’s National Save for Retirement Week, and we wanted to provide you with the answers to some of our most frequently asked questions.  We sat down with our Kearney Branch Operations Manager, Carol Pelster, to help explain.

·         What is an IRA?

o   An Individual Retirement Arrangement (IRA) is a special domestic trust, custodial account or annuity contract established to hold assets for an individual’s retirement. There can only be one owner. The IRA is a tax-advantage savings tool designed to provide retirement income.

·         What is the difference between a Traditional and a Roth IRA?

o   Traditional IRA – Pre Tax Money. Pay taxes on amount when withdrawn or taken out on.

o   Roth IRA – After Tax Money. Tax is paid when earned and interest may be tax free as well, if no exceptions. 

·         What funds go into an IRA?

o   The IRA Owner must have earned income during the year for which the regular contribution is made. Earned income may include wages, salaries, tips, bonuses, taxable alimony, commissions, professional fees or combat pay. IRA owners are responsible for determining if they are eligible to make contributions.

o   Many times employers also make a matching contribution. Check with your human resources department to see if they can help.

·         What is the difference between an IRA Savings Account and an IRA CD?

o   After establishing your IRA, the funds can be allocated to various products such as a Savings Account or a Certificate of Deposit. The Savings Account is not tied to a term like a CD is, but limitations on withdrawals and contributions may be in effect depending on the IRA owners age and earned income.

·         How much can I contribute?

o   Contribution Limit

§  2014 - $5,500 – Standard (or 100% of compensation if less than $5,500)

§  Ages 50+ add $1,000 (Catch Up Contribution)

§  Contribution may not be tax deductible if owner is over MAGI (Modified Adjusted Gross Income).

§  Seek professional tax advice.

·         What does Rollover Mean?

o   Rollover means to move IRA funds from one IRA to a like IRA.

§  Before Rollover owner receives distribution of assets: i.e. the check is made payable to the IRA owner (Constructive Receipt). The IRA owner “rolls over” the distribution to a different IRA.

·         What steps do I need to take to transfer my IRA from one financial institution to another if I have changed jobs or moved?

o   Set up new IRA Account.

o   Transfer funds from old IRA to new IRA account by wire or check. 

o   Funds must be made payable to Financial Institution for benefit of IRA holder so IRA owner does not have “Constructive Receipt” of funds.

·         What happens if I take out my contributions early?

o   There may be substantial penalties for early withdrawal, depending on owner’s age and withdrawal reason, type of IRA and length of time IRA has been opened.

o   Traditional IRA must be 59 ½ or, death, disability, IRS Levy, 1st Time home buyer, higher education, qualified reservist, etc. Tax or withdrawn money applies but may avoid penalty.

o   Roth IRA Account must be open five years. – or- Age 59 ½, disability, death or 1st time home buyers. 

Want to know more? Contact a Personal Banker Today!