Personal Banking

IRA's


Traditional IRA

Tax Savings, Tax Deferred Earnings, and Retirement Security

Discover the Benefits of the Traditional IRA!

What is the Traditional IRA?
The Traditional IRA is a retirement account that allows you to defer taxes on your earnings until they are withdrawn. Also, certain contributions are tax deductible in the tax year for which they are made (please consult with a tax advisor or attorney).

Am I eligible for a Traditional IRA?
If you are under the age of seventy and a half for the entire tax year and have earned income (or your spouse has earned income), you are eligible to establish a Traditional IRA, even if you already participate in any type of government plan, tax sheltered annuity, simplified employee pension (SEP) plan, savings incentive match plan for employees of small businesses, or qualified plan (pension or profit sharing) established by an employer.

How much can I contribute?

You may contribute any amount up to:

  • 100% of your compensation, or
  • The contribution maximum limit for the designated tax year, which ever is less.
  • The minimum amount to open the account is $500.

When is the contribution deadline for funding a Traditional IRA?

Traditional IRA's for the taxable year can be opened and funded any time between January 1st and the date your tax return is due for the year, excluding extensions. This is normally April 15th of the following year.

Will my contribution be tax-deductible?
Deductibility of your contribution is based on whether or not you or your spouse are active participants in an employer-maintained retirement plan and your Modified Adjusted Gross Income (MAGI). You may be eligible for the maximum deduction, partial deduction, or no deduction. Even if you are not eligible for a deductible contribution, you can still make non-deductible contributions to a Traditional IRA and take advantage of the tax-deferred earnings.

Do I pay taxes on the earnings?
All earnings on your Traditional IRA contributions (deductible and/or non-deductible) remain tax-deferred until you make withdrawals from the account. They are then taxed as income in the year they are withdrawn.

When can I withdraw funds without incurring any IRS Penalties?
You can withdraw funds from your Traditional IRA without incurring a 10% IRS premature distribution penalty any time after you reach age fifty-nine and a half. You can avoid the penalty before age fifty-nine and a half for the following exceptions:

  • Total and permanent disability
  • Eligible medical expenses in excess of 7.5% of adjusted gross income
  • Health insurance for IRA owners receiving unemployment compensation for 12 consecutive weeks during the current or preceding tax year
  • Qualified educational expenses
  • Qualified first-time home buyers

How are funds taxed at distribution?
If you are over age fifty-nine and a half, simply include the taxable portion of the amount withdrawn (generally, deductible contributions and all earnings) as income. However, if you are under age fifty-nine and a half, and do not meet one of the exceptions, you must also pay a 10% IRS penalty for premature distributions. The non-deductible portion of the distribution is not taxable when withdrawn nor is it subject to the 10% premature distribution penalty.

When must I withdraw funds?
The year in which you turn seventy and a half, you must begin to take minimum required withdrawals or severe penalties will be imposed.

What happens in the event of my death?
Your named beneficiary(ies) will receive the entire proceeds of your Traditional IRA. The manner in which your beneficiary(ies) receives the funds is determined by the election made by your beneficiary(ies) within the guidelines of the law.

How do I find out more about Traditional IRA's?
For additional information, please contact our IRA Department at (479) 229-3311


ROTH IRA

Discover the Benefits of the Roth IRA!

What is the Roth IRA?
The Roth IRA is a non-deductible retirement account that features Tax-Free withdrawals for certain distribution reasons after a five-year holding period.

Am I eligible for a Roth IRA?
Basically, there are two requirements for eligibility to contribute to a Roth IRA: you must have earned income (or your spouse must have earned income) and your Modified Adjusted Gross Income (MAGI) cannot exceed certain limits.

How much can I contribute?
As long as you are within the prescribed MAGI limits, you may contribute any amount up to:

  • 100% of your compensation, or
  • The contribution maximum limit for the designated tax year, which ever is less (see the chart below).

Note: It's important to realize that maximum limit for the designated tax year is the aggregate amount that you can contribute to any Roth and/or Traditional IRA in a given year. For example, if you contribute $1500 to a Roth IRA, the most you could contribute is $1,500 to a Traditional IRA for 2002 tax year if you are under 50 years of age.

When is the contribution deadline for funding a Roth IRA?
Roth IRA's for the taxable year can be opened and funded any time between January 1st and the date your tax return is due for the year, excluding extensions. This is normally April 15th of the following year.

Do I pay taxes on my earnings?
No, provided you take the earnings as part of a qualified distribution. That's the best part of the Roth IRA. Unlike a Traditional IRA, you cannot take a tax deduction for any of the contributions that you make to a Roth IRA. However, when you're ready to take a qualified withdrawal, you pay no taxes on any of the earnings that your money has generated.

When can I withdraw funds without incurring any IRS Penalties?
You can withdraw funds from your Roth IRA without incurring a 10% premature distribution penalty for qualified distributions. A qualified distribution from the Roth IRA is when the Roth IRA has met the five year holding period, and:

  • The Roth IRA owner attains the age of fifty-nine and a half
  • Total and permanently disabled
  • Paid to the beneficiary upon the IRA owner's death
  • Qualified first-time home buyers

The penalty but not taxes may be waived on earning for certain exceptions:

  • Substantially equal periodic payments
  • Eligible medical expenses in excess of 7.5% of adjusted gross income
  • Health insurance for IRA owners receiving unemployment compensation for 12 consecutive weeks during the current or preceding tax year

What is the Five Year Holding Period?
The five-year holding period begins with the tax year for which the first Roth IRA contribution is made.

What if I need access to my money now?

A helpful feature of the Roth IRA is that, for non-qualified distributions, original contribution amounts are returned first. Contributions (as opposed to earnings) are not subject to taxation or the 10% IRS premature distribution penalty. In other words, you can always get back your principal tax and IRS penalty free for any reason.

When must I withdraw funds?
You never have to take distributions from your Roth IRA. Assets held in a Roth IRA are not subject to age seventy and a half required minimum distributions.

What happens in the event of my death?
Your named beneficiary(ies) will receive the entire proceeds of your Roth IRA. The manner in which your beneficiary(ies) receives the funds is determined by the election made by your beneficiary(ies) within the guidelines of the law.

How do I move funds from a Traditional IRA to a Roth IRA?
For a rollover or conversion to a Roth IRA, the amount rolled over or converted from the Traditional IRA will be subject to full taxation. However, the funds will not be subject to a 10% premature distribution penalty. Rollovers from a Traditional IRA to a Roth IRA are not subject to the one rollover per 12-months rule.

Note: Conversions/rollovers to Roth IRA's completed in 1998 allowed the taxes to be paid ratably over a four-year period. After 1998, such conversions/rollovers are fully taxable in the year of the distribution.

How do I find out more about Roth IRA's?
For additional information, please contact our IRA Department at (479) 229-3311.


SEP IRA

(Simplified Employee Pension)

Discover the Benefits of the Simplified Employee Pension Plan!

What is the Simplified Employee Pension Plan?
A Simplified Employee Pension (SEP) Plan is a retirement plan established by an employer for the employee. Each year, the employer may contribute a certain percentage to each eligible employee's IRA.

Am I eligible for a SEP?
Any employer, whether a corporation, partnership, or a self employed individual, may establish a SEP even if there are no other employees.

When is the contribution deadline for funding my employee's SEP?
The deadline for opening or contributing to an employee's SEP is your business's income tax filing deadline, including extensions.

Must I make a contribution for each of my employees?
Under a SEP, you must contribute a uniform percentage of compensation for each eligible employee, although you are allowed to exclude certain classes of employees if you choose. Possible cases for exclusion are:

  • Age - You may exclude employees who are under 21 years of age. But, once the employee is eligible, contributions must continue for them even when they are over age seventy and a half.
  • Service - You may exclude workers who have not worked for you at least three of the immediately preceding five years.
  • Minimum Compensation - You may exclude employees who have earned less than $450 from you during the current year (subject to annual cost-of-living adjustments).
  • Nonresident - You may also exclude nonresident aliens receiving no U.S. taxable earned income from you.
  • Union - You may exclude union members if retirement benefits were the subject of good faith bargaining.

Must I contribute the same percentage each year?
No. You may vary your contribution percentage any time prior to the last day for making a contribution. Not only may you vary your contribution, if you wish, you may skip the contribution entirely for any year. This provides total flexibility of contributions.

What happens to the funds after I make the deposits into my employee's SEP?
Once the SEP contribution has been made, the employee's IRA account will be subject to all of the Traditional IRA rules. These include all qualified and non-qualified distributions.

When can the employee withdraw funds without incurring any IRS Penalties?
Funds can be withdrawn from the SEP without incurring a 10% IRS premature distribution penalty any time after the employee reaches age fifty-nine and a half. The penalty can be avoided before the employee reaches age fifty-nine and a half for the following exceptions:

  • Total and permanent disability
  • Eligible medical expenses in excess of 7.5% of adjusted gross income
  • Health insurance for IRA owners receiving unemployment compensation for 12 consecutive weeks during the current or preceding tax year
  • Qualified educational expenses
  • Qualified first-time home buyers

How are funds taxed at distribution?
If the employee is over age fifty-nine and a half, simply include the taxable portion of the amount withdrawn (generally, deductible contributions and all earnings) as income. However, if the employee is under age fifty-nine and a half, and does not meet one of the exceptions, a 10% IRS penalty for premature distributions must be paid. The non-deductible portion of the distribution is not taxable when withdrawn nor is it subject to the 10% premature distribution penalty.

When must the employee withdraw funds?
The year in which the employee turns seventy and a half, the minimum required distribution must be withdrawn or severe penalties will be imposed.

What happens in the event of the employee's death?
The employee's named beneficiary(ies) will receive the entire proceeds of the SEP. The manner in which the beneficiary(ies) receive the funds is determined by the election made by the beneficiary(ies) within the guidelines of the law.

How do I find out more about SEP?
For additional information, please contact our IRA Department at (479) 229-3311.