What is an IRA: The Basics

Individual Retirement Accounts, commonly called IRAs, allow you take control of your future in planning for retirement. An IRA is a retirement product that is made up of security stocks, bonds, mutual funds, and/or annuities. If you’re looking for retirement options beyond those offered by an employer, an IRA could be a good option. There are many types of IRAs, and these retirement planning options allow you to set aside money with some income tax advantages.

What is an IRA: Account Types

There are many types of IRAs, including traditional, Roth, Educational, SEP, and SIMPLE, and each has its own tax advantages.

Two of the most common types are:

• Traditional IRA — allows you to deduct eligible contributions on your taxes.
• Roth IRA — does not allow you to deduct the contributions on your taxes. The Roth’s advantages come later: your earnings and gains may be completely tax-free when you withdraw the funds.

IRA Requirements

Certain requirements apply to both traditional and Roth IRAs, and the taxable income requirements are the same.

To make contributions, you must have taxable compensation. The IRS sets what are known as modified adjusted gross income limits to determine whether your contributions to a traditional IRA are deductible and whether you are eligible to make Roth IRA contributions.

To contribute to a traditional IRA, you (or you and your spouse if you file your taxes jointly) must have taxable compensation during the year you make contributions. In addition, if you are over age 72 and make a contribution, you are still required to take the required minimum disbursement. For current rules, including other tax filing and income requirements, talk with your professional tax advisor or visit irs.gov.

IRA Compensations

Taxable income that, if within IRS-defined limits, is eligible for an IRA includes:

• Wages
• Salaries
• Tips
• Commissions
• Self-employment income
• Non-taxable combat pay
• Alimony

Taxable income that is not eligible for an IRA includes:

• Earnings and profits from property
• Interest and dividend income
• Pension or annuity income
• Deferred compensation
• Income from certain partnerships

Contribute on Time

You may contribute to an IRA any time during the year and up until April 15 the following year. But keep in mind, the sooner you open an IRA and begin making contributions, the longer your money will have to grow, potentially leaving you with a better end-result. Contributions may be made up to limits defined by the IRS.

Note: If you are over age 50, you may be able to make an additional catch-up contribution after making your maximum annual contribution. Refer to the IRS website or talk with your professional tax advisor to see if you’re eligible.

Convert if it’s Right

Converting a traditional IRA to a Roth IRA, simply put, is a way to pay income taxes now and avoid paying them later. As of Jan. 1, 2010, income restrictions on converting most pre-tax retirement accounts to Roth IRAs have been removed. You will need to pay taxes on the money you convert to a Roth IRA. The money converted is taxed as income, and you pay in the year of conversion.

To be eligible for a Roth IRA conversion, you must file as single or married filing jointly.

Find out if Annuities are an Option for You

When you begin looking at retirement products, you can choose from the account types above (traditional IRA, Roth IRA, etc.). Let’s look at how this works with annuities. Annuities are retirement contracts that are set up so you make regular premium payments and receive regular payments over time. If you choose to purchase an annuity, it can be in a traditional IRA or Roth IRA. Annuities can also be set up as SEP or SIMPLE accounts; small businesses typically establish these types of accounts to provide retirement planning opportunities for employees.

WoodmenLife offers several annuity options to help you save for retirement. Talk with your local WoodmenLife Representative to determine whether an IRA is right for you and your retirement goals.

Annual minimum withdrawals must start by April 1 the year after the employee turns age 72.
Except in certain cases, penalties may apply if the employee takes out money before age 59½. Ask your WoodmenLife Representative for more information. Depending on when a withdrawal is taken, a WoodmenLife surrender charge may apply. Withdrawals during the first two years may be imposed a 25 percent IRS penalty.

WoodmenLife Traditional IRA Deferred Annuities may be purchased with rollover or direct transfer proceeds up to age 90.

A qualified distribution from a Roth IRA meets the following requirements: It is made after the five-year period beginning with the first taxable year for which a contribution is made, AND is made on or after the date you reach age 59½; made because you are disabled; made to a beneficiary or to your estate after your death; or made for first-time home purchase (subject to a $10,000 lifetime maximum).

WoodmenLife Representatives are not authorized to offer tax advice. For tax advice, consult your professional tax advisor.

Forms:

ICC10 87 4-10, 87 4-10 (XX) & O-87 4-10 (XX): ICC10 180 4-10, 180 4-10 (XX), O-180 4-10 (XX); 148-XX-0212; 7961-XX-0707, 7961-02-0905; 7962-XX-0707,7962-02-0905; 7963-XX-0707; 7964-XX-0905, 7964-02-0905, 7964-XX-0707; 7965-XX-0707

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