Individual Retirement Accounts (IRA)

It is never too early to begin saving for retirement with an Arkansas Federal Credit Union Individual Retirement Account (IRA).

Individual Retirement Accounts (IRAs) are special-purpose savings plans created by the federal government to help you build funds specifically for your retirement. At Arkansas Federal Credit Union, members have More Options and More Choices when it comes to IRAs. Arkansas Federal offers two Member's Choice retirement accounts: a Traditional IRA and a Roth IRA. Both types of retirement accounts may be established as either an IRA Share Account or one of our many Member's Choice IRA Certificates. Rules for withdrawals and tax implications vary depending on the type of account selected.

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Contributions

Every individual who earns income or receives alimony may contribute to an IRA (either Traditional or Roth). Maximum contributions per year are as follows:

• Individual Taxpayer - $4,000 and 2007 and $5,000 in 2008.
• Married Taxpayer - $10,000 in 2008 where both spouses have earned income (each spouse can contribute up to $5,000 in 2008).
• Spousal - $10,000 in 2008 for married taxpayers filing jointly. (Yearly contributions may be divided between the accounts, provided the total contribution does not exceed $10,000 in 2008 and neither account is allocated more than $5,000 in 2008).

The total yearly contribution that can be made by an individual to all IRAs (deductible pre-act and nondeductible Roth IRAs) is $5,000 in 2008, not counting rollover contributions.

Catch Up Contributions

All taxpayers age 50 and above will be permitted to contribute "catch up" contributions of $1,000 to their IRAs. These "catch up" contribution payments may be deductible in a traditional IRA or made to a Roth IRA, if the Manual Adjusted Gross Income (MAGI) limits for regular contributions for the year are met.

Deducting Traditional IRA Contributions

If you are not an active participant in an employer-sponsored pension or profit-sharing plan, you can deduct 100% of your IRA contribution from your taxable income regardless of income level. If your spouse is an active participant and your joint modified adjusted gross income is greater than $150,000, you cannot fully deduct your IRA contribution from your taxable income. Partial tax deductions are permitted for joint modified adjusted gross incomes above $150,000 and $160,000.

Deducting Roth IRA Contributions

Participating in an employer-sponsored retirement plan does not exclude you from making a non-deductible contribution to a Roth IRA

Tax-deferred Interest and Dividends

With a Traditional IRA, all earnings accumulated remain tax sheltered until withdrawn. With a Roth IRA, all earnings remain tax sheltered, and if they remain in the account for a period of five successive tax years and you are age 59 1/2, they can be withdrawn tax-free. There are certain criteria that must be met to enjoy tax-free and penalty-free distributions. Always consult your tax advisor for personal tax implications.

Withdrawals from an IRA

Withdrawals (distributions) from a Traditional IRA are permitted any time after age 59 1/2, but must start by April 1st following the year in which the participant reaches the age of 70 1/2. After age 59 1/2, you may make withdrawals even if you continue to earn income. It is not necessary to be retired in order to make withdrawals

With a Roth IRA, penalty-free and tax-free withdrawals of your contributions are permitted at any time (until total distributions from all Roth IRAs exceed the contribution amount-no distribution is subject to either taxation or penalty). Tax-free withdrawals of earnings are permitted if you satisfy two conditions. First, the plan must be open a minimum of five successive tax years. Second, the withdrawal must be made after the occurrence of one of the following events: after age 59 1/2, death, total disability, or as a qualified first-time homebuyer (up to $10,000). There is no mandatory age requirement for distributions and funds may remain in the account during the account owner's lifetime.

Penalties for Early Withdrawals

There could be a 10% penalty for withdrawing all or any part of the earnings from a Traditional or Roth IRA. Taxable distributions are not subject to the 10% early withdrawal penalty if: the individual is 59 1/2; has died; become totally disabled; or is taking equal periodic payments over his or her life expectancy for at least five years or until age 59 1/2, whichever comes later; for college expenses; for a first-time home purchase up to $10,000; for certain medical expenses; or certain other uses.

IRAs and Taxes

When you begin making withdrawals from a Traditional IRA, you will be taxed on only the amount you withdraw each year on which taxes have not previously been paid. The remaining funds continue to accumulate tax-deferred earnings. In all probability, you will benefit by the fact that you will be in a lower tax bracket than at the time you made your contribution. Since taxes are paid on the original ROTH IRA contributions in the year for which you make the contribution, you will not pay taxes in the year of the withdrawl. However, taxes must be paid on all withdrawal of earnings that have not remained for a period of five successive tax years (e.g., If a taxpayer’s first contribution is made in 2006 for 2005, 2005 is the first taxable year, and 2009 the fifth taxable year).

Dividends

Dividends for the IRA Savings Accounts are set quarterly by the Board of Directors. Members may also select one of our many Member's Choice IRA Certificate Accounts for either the Traditional or Roth IRA. IRA Certificate Account dividends are subject to change and are set according to prevailing market rates. Arkansas Federal pays a higher dividend rate than most financial institutions. Since we have no stockholders, our profits are returned to our members in the form of higher dividends!

How to Open an IRA Account

IRAs may be opened at any Arkansas Federal branch office or by contacting the Telephone Branch at 982-1000 in central Arkansas or 800-456-3000 outside central Arkansas.