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Individual Retirement Accounts

An Individual Retirement Account offers you one of the best ways to save for your future. Unlike most investments, depending on the IRA you choose, contributions may be tax deductible and will grow either tax-deferred or tax free. Traditional IRAs, Roth IRAs and the Coverdell Education Savings Account are available.

Traditional IRA
Changes in the tax law may make a Traditional IRA an even more attractive way for you to save for your future. The annual contribution limit increases to $3,000 for tax year 2002, $4,000 in 2005 and $5,000 in 2008. After 2008, the contribution limit will be adjusted annually for inflation in $500 increments. Contributions are fully tax deductible if you are not an active participant in an employer retirement plan. Otherwise phaseout rules apply.

Roth IRA
As long as you have earned income, you can establish and contribute to a Roth IRA even after age 70 1/2. While contributions are not tax deductible, contributions and earnings can be withdrawn tax free, and unlike traditional IRAs, you are not required to begin taking required minimum distributions after reaching age 70 1/2. By converting your Traditional IRA to a Roth IRA, you can enjoy tax-free withdrawals. However, the amount you convert is subject to income tax now.

Education Savings Account
For taxable years beginning in 2002, the annual contribution amount has been increased from $500 per beneficiary to $2,000 per beneficiary. While there is no tax deduction for amounts contributed to the account, earnings grow tax free. And, your account can be used to pay qualified elementary and secondary school education expenses as well as those for higher education.

Catch-Up Contributions
For taxable years beginning in 2002, individuals who have reached age 50 by the end of the year will be able to make additional catch-up contributions of $500 per year to their Traditional or Roth IRA. For taxable years beginning in 2006, the additional catch-up amount increases to $1,000.

Contact AFCU today for more information on the IRA products available. As always, check with your tax advisor to find out which IRA is best for you.

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