Roth and Traditional IRAs

FAQ

Traditional IRA

Yes, typically IRA distributions are taxable income when you withdraw the funds from your IRA. You should always consult your tax advisor for specific information.

Yes, any of our banking centers can assist you with IRA questions and transactions.

Yes, but only if you are under the age of 70 ½  and you have earned income for at least as much as you are contributing.

Yes, First Federal can help you with the rollover by sending a rollover acceptance to the plan administrator for your 401(k).

Yes, but the interest rate will change to the current rate available at the time of maturity.

Opening your IRA is no more difficult than opening any other bank account. We’ll be happy to assist you at any of our banking centers. Please bring the following information with you to set up your IRA:

Identification

  • Your Social Security number
  • Names and address of your beneficiaries
  • Social Security numbers of your beneficiaries
  • Dates of birth for your beneficiaries
  • Phone numbers for your beneficiaries


To discourage people from withdrawing funds, the federal government imposes a penalty for early distributions. There is a 10% penalty for withdrawing all or any part of the account before age 59½, with the following exceptions:

  • In the event of death or total disability
  • You may withdraw nondeductible contributions (note, earnings on these contributions will be taxable)
  • As a qualified first-time homebuyer, you may withdraw up to $10,000 during your lifetime
  • If you use the withdrawal to pay for medical expenses in excess of 7.5% of your adjusted gross income or to purchase health insurance after receiving unemployment compensation for more than 12 weeks
  • The money is paid out in a series of payments made over your life expectancy (or the joint life expectancy of you and your beneficiary)
  • Once you reach age 59½, you can begin taking money out of your account without penalty, as long as the IRA has been open at least 5 years. If you opened the account at age 55, you will have to wait until age 60 to take distributions. However, many people prefer to leave their funds untouched until they actually need them. This allows their money to continue growing through tax-deferred compounding interest.

You are required to begin taking distributions from your account by April 1, following the year in which you turn 70½. Government regulations specify a minimum amount you must withdraw each year. Failure to do so will result in substantial penalties. It's important to remember that if you have withdrawn money at any time prior to age 70½, you cannot count those withdrawals toward your required minimum upon reaching 70½. Likewise, after age 70½, if you take more than the required minimum distribution in one year, you can't reduce a future year's minimum distribution by the excess.


If your 70th birthday falls on or before June 30th of a given year, you must take your first distribution no later than April 1 of the following year. If you turn 70 on or after July 1 you don't reach 70½ until the following year - and, therefore, don't have to take your first distribution until April 1 of the year after that. Your second and subsequent distributions must be taken by December 31 of the year to which they apply.

Here's an example. If you turn 70 in June of this year, you may take your first distribution any time up until April 1 of next year. You will be required to take your second distribution by December 31 of that same year. If you turn 70 on or after July 1 of this year, you may take your first distribution any time up until April 1 of the year after next. And you will be required to take your second distribution by December 31 of that same year.


Earnings from your IRA funds are taxed as ordinary income. Your original contributions may or may not be taxable, depending on whether you took a tax deduction when you made them. If you have made both deductible and non-deductible contributions to your IRA, you will be required to take proportionate distributions of both. Your tax advisor can help you calculate how much tax you’ll have to pay.

There are two basic options for Traditional IRA distributions after age 59½  without penalty:

  • You may withdraw your entire or any portion of the balance in your IRA account
  • You must begin to take Required Minimum Distributions (RMDs) from your Traditional IRA in the year in which you reach age 70½. Or you may take sums larger than the RMDs as you need them.


Roth IRA

The main difference is contributions made to a Roth IRA are not tax-deductible. Contributions to a Traditional IRA are tax-deductible. However, you won’t pay taxes on Roth IRA distributions in retirement, assuming they’re qualified withdrawals. Any taxable amount would be the earnings only. 

Qualified withdrawals include:

It’s made after the 5-year holding period beginning with the first taxable year for which a contribution is made for your benefit, and one of the following conditions

  • You are age 59½ or older
  • Disability distributions
  • Death
  • First-time homebuyers (exceptions apply)


Yes, any First Federal Bank banking center can assist you with Roth IRA questions and transactions.

Yes, if you have taxable income for at least as much as you are contributing. And your income falls within the guidelines established by the IRS. 

Yes, First Federal can help you with the rollover. However, you should always consult a tax advisor about your specific situation because you must include the rollover money as income.

Yes, a conversion is removing your funds from your Traditional IRA and placing them in a Roth IRA. You will pay taxes as part of this conversion. But you won’t pay taxes when you make qualified withdrawals from the Roth IRA. Unlike a Traditional IRA, there is no required timeframe to begin withdrawing your Roth IRA funds.

A benefit to converting your Traditional IRA to a Roth IRA is that earnings on the assets are tax free when withdrawn. The contribution part of your asset has already been taxed when you converted and won’t be taxed when you withdraw from your Roth.

Another benefit is there are no Required Minimum Distributions on Roth IRAs. You may wait as long as you like to withdraw your funds or you may begin withdrawing anytime after you reach the age of 59½ and the 5-year holding period has been satisfied. Withdrawals can be made prior to age 59½ but are subject to a 10% penalty and taxation on the earnings.


Yes, but the interest rate will change to the current rate available for that term at the time of maturity.

The minimum opening deposit for our variable-rate Certificate is $100. The minimum opening deposit for our fixed-rate Certificate is $1,000. First Federal also offers an IRA Savings with a minimum opening balance of $100.

 

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