What is an IRA?
An individual retirement account (IRA) is an account set up at the bank that allows you to save for retirement with tax-free growth or on a tax-deferred basis. There are three main types of IRAs, each with different advantages. Learn more below.
To open an IRA, consult with a Relationship Banker at any of our First National Bank locations. If you have questions about IRAs, don't hesitate to contact us.
You make contributions with money you may be able to deduct on your tax return, and any earnings can potentially grow tax-deferred until you withdraw them in retirement. Many retirees find themselves in a lower tax bracket than they were in pre-retirement, so the tax-deferral means the money may be taxed at a lower rate.
- Contributions are generally made with after-tax money, but may be tax-deductible, if you meet income eligibility.*
- Any potential earnings grow tax-deferred and are not taxed until you withdraw them after age 59 1/2.
- Anyone 18 or over with earned income can contribute to a traditional IRA. However, there are specific income limits for how much might be tax deductible.*
- You will pay taxes on your earnings and contributions when you make withdrawals.
- If you make withdrawals before you are 59 1/2, you might have to pay taxes on your earnings, plus an additional 10% tax.
- Traditional IRAs generally require you to withdraw a minimum amount of money starting at age 72.
*Contact your tax professional regarding deductibility
You make contributions with money you've already paid taxes on (after-tax), and your money may potentially grow tax-free, with tax-free withdrawals in retirement, provided certain conditions are met.
- Contributions are made with after-tax money and potential earnings grow tax-free
- You are able to withdraw your contributions tax-free and penalty-free at any time, for any reason
- Earnings can be withdrawn federally tax-free and penalty-free provided that it's been 5 years since your first contribution.
- There are specific IRS income limits for contributions to a Roth IRA
- If you make withdrawals before your are 59 1/2, you might have to pay taxes on your earnings, plus an additional 10% tax.
- Roth IRAs do not require you to withdraw a minimum amount of money at a certain age.
*Contact your tax professional regarding deductibility.
A Rollover IRA is an account that allows you to move funds from your prior employer-sponsored retirement plan into an IRA. With an IRA rollover, you can preserve the tax-deferred status of your retirement assets, without paying current taxes or early withdrawal penalties at the time of transfer. A Rollover IRA can provide a wide range of investment choices that may meet your goals and risk tolerance.
Eligible employer-sponsored retirement plans are those that you receive qualifying distributions from, and include 401(k) plans, 403(b) plans, profit-sharing plans, money purchase plans, and Keoghs/Qualified Retirement Plans (QRPs).
Plans that may not be eligible include employee stock ownership plans (ESOPs) and defined benefit plans.
You may be allowed to roll over after-tax dollars and governmental 457(b) qualifying distributions.
Contact your plan administrator(s) to find out if your particular plan is eligible for rollover.
Contributing to your IRA
Whether you choose a Traditional IRA or Roth IRA, the tax benefits allow your savings to potentially grow, or compound, more quickly than in a taxable account.
To get tax-advantaged growth from your IRA contributions, remember to these three things.
- Get started early. Starting early can make a big difference because your money has more time to grow.
- Understand your contribution limits. When you have earned income, you can contribute it to an IRA up to the maximum annual limit. Speak to a Relationship Banker to learn about current limits, including those based on your age.
- Make it a habit. Set up an automatic contribution schedule that allows you to select an amount, the date and frequency of investments.