September 28, 2020
An Individual Retirement Account (IRA) offers you a flexible way to invest for your future. An IRA may be funded with contributions each year or can receive rollover contributions from other retirement plans such as 401(k)s or 403(b)s. If you have multiple retirement and investment accounts, consolidating your assets with Hills Bank can make it easier for you to keep track of your money and manage your investments. There are two basic types of IRAs—Traditional and Roth. Contributions to a Traditional IRA may be tax deductible. Roth IRA contributions, also called after-tax contributions, are not tax deductible.
Traditional and Roth IRAs may be invested in cash/money market, CDs, stocks*, bonds*, and mutual funds*. IRAs may not be invested in life insurance, antiques, or collectibles (including coins). The IRS’ rules for IRA real estate investments are complicated. Hills Bank cannot serve as the custodian or trustee for an IRA that holds real estate.
|Traditional IRA||Roth IRA|
|Eligibility||Starting Jan. 1st, 2020, all those with earned income may continue to fund their IRA without regard to age.||Anyone receiving eligible compensation for the year, provided their Adjusted Gross Income (AGI) falls below a specified income level.|
|Tax Deductible Contributions?||Yes, but phased out as income increases over a specified level. Contributions grow tax deferred until funds are withdrawn, then subject to ordinary income tax rates.||No. Contributions grow tax free as long as funds are not withdrawn before age 59.5 and the Roth IRA has been opened and funded for 5 years or more.|
|Withdrawals/Distributions||Withdrawals are subject to ordinary income tax rates.||Income tax free provided the 5 year requirement has
been satisfied and withdrawals take place after age
|Required Minimum Distributions (RMDs)||RMDs pushed back to age 72, provided the IRA owner did not attain age 70.5 prior to Dec. 31, 2019. Required beginning date (RBD) for affected IRA owners will be April 1st of the year following the year in which the IRA owner attains age 72.||RMDs do not apply during your lifetime.|
|Early Distribution Penalty||10% if distribution is made before attaining age 59.5. (Some exceptions may apply.)||10% penalty on earnings only if distribution is made before attaining age 59.5. (Some exceptions may apply.)|
Traditional IRA vs Roth IRA
Which is better for you?
While a Traditional IRA offers immediate tax savings, consideration should be given to balancing immediate tax savings with the potential income tax impact of later distributions. The earnings for a Traditional IRA grow tax deferred and a Roth IRA’s earnings grow tax free. Distributions from a Traditional IRA are subject to income taxes at ordinary tax rates while distributions from a Roth IRA are potentially income tax free. This means the earnings are not subject to income tax.
Perhaps the real question should be, is it better to pay taxes now or pay taxes later?
How Can Hills Bank Help with IRA Needs?
We have options based on your investment preferences – Certificates of Deposit in a variety of terms and investment portfolios in varying risk levels.
Have your retirement funds in the same place as the rest of your accounts.
Work with someone you know
Your Personal Banker or an expert from our Wealth Management group.
Contact a Personal Banker by calling 1-800-445-5725 or a Wealth Management Representative at 1.800.899.8858 today!
This information is intended to provide general information only and should not be relied upon in place of tax or legal advice. It is not intended to provide a detailed explanation of rules or how such rules may apply to your individual circumstances. Please contact your tax or legal professional to obtain advice on your particular situation. All material is confidential or proprietary to Hills Bank and may not be reproduced or distributed without the consent of Hills Bank. All information is believed to be reliable, but not guaranteed. *Investment products are not a deposit, not FDIC insured, not insured by any federal government agency, carry no bank guarantee, and may go down in value.