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Traditional IRAs

Will I be required to pay taxes on the money I withdraw from my IRA?

Yes, typically IRA distributions are taxable income. You should always consult your tax advisor for specific information.

Can I conduct my IRA transactions at any banking center?

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

Am I allowed to make a contribution to my IRA after I retire?

Yes, but only if you are under the age of 70 1/2 and you have earned income for at least as much as you are contributing.

Can I rollover funds from my 401(K) plan to an IRA?

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

Will my IRA Certificate of Deposit automatically renew at maturity?

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

What is the minimum dollar amount to open an IRA account?

The minimum opening deposit for our variable rate Certificate is $100.00 and the minimum opening deposit for our fixed rate Certificate is $1,000.00. First Federal also offers an IRA Savings with a minimum opening balance of $100.00.

What information should I have with me to open an IRA with First Federal?

Opening your IRA is no more difficult than opening any other deposit account. We will 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

All About Traditional IRA Distributions

What are the regulations governing IRA Withdrawals?

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 59 1/2, with the following exceptions:

• in the event of death or total disability
• you may withdraw nondeductible contributions (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
• if the funds are 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 59 1/2, 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 interest compounding.

  You are required to begin taking distributions from your account by April 1, following the year in which you turn 70 1/2. 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 70 1/2, you cannot count those withdrawals toward your required minimum upon reaching 70 1/2. Likewise, after age 70 1/2, 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.

  

When must distributions be taken?

If your 70th birthday falls on or before June 30th of a given year, you must take your first distribution no later than April 1st of the following year. If you turn 70 on or after July 1st, you don't reach 70 1/2 until the following year - and, therefore, don't have to take your first distribution until April 1st of the year after that. Your second and subsequent distributions must be made by December 31st of the year to which they apply.

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

What about taxes?

Earnings from your Individual Retirement Account 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 nondeductible contributions to your IRA, you will be required to take proportionate distributions of both. Your tax advisor can help you calculate the portion on which you must pay tax.

What are your options for distributions?

There are two basic options for Traditional IRA distributions after age 59 1/2 without penalty.

1. You may withdraw your entire or any portion of the balance in your IRA account.
2. You must begin to take Required Minimum Distributions (RMDs) from your Traditional IRA in the year in which you reach age 70 1/2. Or you may take sums larger than the RMDs as you need them.

Let's look at each option.

The first option, withdrawing all or a portion of your funds, has one distinctive disadvantage. The amount withdrawn will be subject to taxation as ordinary income in a single year. This could result in a substantial tax liability for you, and a significant decrease in the amount of money you can actually use for your retirement.

The second option requires you to take the RMD in the year in which you reach age 70 1/2. You must take the distribution for the first year by your Required Beginning Date (RBD). Your RBD is April 1st of the year following the year you reach age 70 1/2. December 31st of each subsequent year is the date by which you must take distributions for all subsequent years.

You may elect to take sums larger than the required RMDs, if you need the money to meet expenses. Bear in mind, however, that you will be taxed on the amounts you withdraw. And you run the risk of depleting your finds within your lifetime.

 

Roth IRAs

What's the difference between a Roth and a Traditional IRA?

The main difference is contributions made to a Roth IRA are not tax-deductible, as with a Traditional IRA. However, Roth IRA Distributions are not taxable, providing they are qualified withdrawals. Any taxable amount would be the earnings only. Qualified Withdrawals include:

• It is 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 59 ½ or older
• Disability Distributions
• Death
• First Time Homebuyer (exceptions apply)

Can I conduct Roth IRA transactions at any banking center?

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

Am I allowed to make a contribution to my Roth IRA after I retire?

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.

Can I rollover funds from my 401(K) plan to a Roth IRA?

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

Can I convert from a Traditional IRA to a Roth IRA?

Yes, a conversion is removing your funds from your Traditional IRA and placing them in a Roth IRA. This is a taxable transaction, however by converting it now you will not be required to pay taxes when you begin making withdrawals from your Roth, provided they are for qualified reasons. Unlike a Traditional IRA, there is no required timeframe to begin withdrawing your Roth IRA funds.

Beginning in 2010, the IRS has removed the Modified Adjusted Gross Income (MAGI) requirement and tax filing status requirement for converting your Traditional IRA to a Roth IRA. Now anyone, except a married individual who files a separate return, is eligible to perform a conversion. Converting your Traditional IRA to a Roth IRA is a taxable event, however in 2010 if you convert your Traditional IRA to a Roth IRA you will have the option to pay the taxes on the amount withdrawn over the next two years (2011 and 2012). This only applies to conversions performed in 2010. Any conversions performed after 2010 are taxable in the year of the conversion.

What are the benefits of converting my Traditional IRA to a Roth IRA?

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 therefore is not taxable 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 59 ½ and the five year holding period has been satisfied. Withdrawals can be made prior to age 59 ½ but are subject to a 10% penalty and taxation on the earnings attributable.

Will my Roth IRA Certificate of Deposit automatically renew at maturity?

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

What is the minimum dollar amount to open an IRA account?

The minimum opening deposit for our variable rate Certificate is $100.00 and the minimum opening deposit for our fixed rate Certificate is $1,000.00. First Federal also offers an IRA Savings with a minimum opening balance of $100.00.

What information should I have with me to open an IRA with First Federal?

Opening your IRA is no more difficult than opening any other deposit account. We will 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

An important note: The information presented on this page is not intended to provide specific advice or recommendations for any individual. We suggest that you consult your attorney, accountant, tax or financial advisor with regard to your personal situation before opening an IRA.