Individual Retirement Accounts (IRAs)
An IRA is a long-term, tax-deferred savings program designed to help you save for an enjoyable retirement or help plan for your children’s educational costs. You can add to your account in any amount at any time, up to the IRS annual limits. The money you save may even be tax deductible. Consult your tax advisor for details.
ACFCU offers these retirement account options:
- Coverdell Education
Jumbo IRA Share Certificates
For our members with deposit balances of $100,000 or more, we offer Jumbo Certificates for 6, 12, and 24 month terms. Available for Traditional and Roth IRA options only.
New to IRAs? IRAs in under 2 minutes
Roth vs. Traditional IRA.
With a Roth IRA, you pay the taxes up front (investing with after-tax income) and then the investment grows tax-free and you get to eventually spend it without ever paying any more taxes on it. A Traditional IRA is the opposite. You pay no income tax up front (contributions are tax-deductible as allowed by the IRS) but you pay taxes years from now when you cash out. So, which is better?
Taxes: Mathematically, Roth and Traditional IRAs are equivalent if your tax rate is the same now as it is when you retire. If your tax rate goes up, a Roth IRA would be preferable, while if your tax rate goes down, a Traditional IRA would be the better choice.
Therefore, the question is “Will my tax rate be higher when I retire?” There are a few factors to consider. First, national tax rates are likely to rise over the coming decades for nearly all tax brackets given the high national debt and an aging population that will ultimately mean a declining tax base. Also, as you get older you are likely to advance in your career and earn more money, potentially putting you in a higher tax bracket. On the other hand, you may have a lower income in retirement than during your working career, putting you in a lower bracket than your current one.
It’s a judgment call, but most young people who are at an early stage of their careers will likely choose a Roth IRA. For older workers nearing retirement and a declining income, a Traditional IRA may make more sense. Those are the basics. Click the link to learn more about Early Withdrawals and Distributions.
Coverdell Education Savings Accounts
A non-tax deductible savings account that features tax-free withdrawals for a child’s higher education expenses. You may contribute up to $2,000 per tax year per student. There are no minimum balance requirements and dividends are compounded and paid monthly. Penalties for early withdrawal are not charged to principal.