Roth IRA

Over the past year, we have all been impacted in some way by the economic downturn. At Eisenhower Bank, we understand that you work hard for your money and strive to achieve financial security. A Roth IRA may be an important component of your financial success.

There are two ways to create a Roth IRA. The first is a direct contribution. Married taxpayers with joint adjusted gross income below $166,000 (or $105,000 if single) can contribute up to $5,000 per year directly to a Roth IRA (or up to $6,000 per year if your over 50 years of age). The second way to create a Roth IRA is by converting (rolling over) a qualified plan such as a traditional IRA, 401K, qualified pension, 403(b), or 457 plan into a Roth IRA. Historically, only taxpayers with modified adjusted gross income of less than $100,000 could roll-over qualified plans into Roth IRAs. However, beginning in 2010, this income limitation is repealed – allowing all taxpayers, regardless of income, to convert (roll-over) qualified plans into a Roth IRA.

With a Roth IRA, contributions/conversions are made on an after-tax basis. However, since you have already paid tax on the money, the contributed/converted amount can be withdrawn tax free anytime (subject to investment restrictions). Interest, capital gains, and dividends earned on the contributed/converted amount can be withdrawn tax free after the taxpayer reaches 59 ½ years of age (if the account is at least 5 years old). Furthermore, unlike a traditional IRA, taxpayers are not required to start pulling money out when the owner reaches 70 ½ years of age. This creates a valuable tool to pass assets to future generations. If not needed, the Roth IRA can be passed-on to future generations and they can also withdraw the funds income tax free.

As mentioned previously, when you create a Roth IRA, you must pay income tax on the money in the year it is contributed. However, there is a special one-time tax deferment option in 2010. For money rolled-over to a Roth IRA in 2010, the law permits taxpayers the option to pay all the tax on their 2010 tax return, or defer the tax – paying half the tax in 2011 and the other half in 2012.

For over 68 years, Eisenhower Bank has provided exceptional products and services to assist our clients in reaching their financial goals. Today, Eisenhower Bank remains not only unshaken in these uncertain times, but we have also become increasingly solid and stable. If you think a Roth IRA may be right for you, read the recommended articles, consult with your tax professional and consider Eisenhower Bank.