ROTH IRA: An Amazing Tax Savings Option

Many American taxpayers regard the Roth IRA as a beneficial means of accumulating wealth that may increase your earning potential. A properly planned Roth IRA may provide years of tax deferral, far beyond that of a traditional IRA.

When signing up for a Roth IRA, you pay taxes up front and you don't have to pay any more taxes on the account ever again. In other words, your money can grow tax-deferred and withdrawals can be tax-free, if you meet certain holding period and age criteria.

Contributions: You can make a full, non-tax deductible contribution as long as you have $3,000 of earned income ($3,500 if age 50 or older) for tax years 2003 and 2004. You can participate even if you are already making contributions to an employer- sponsored retirement plan. If you think your tax bracket* will be the same or higher when you retire, the Roth IRA may be right for you.

Conversions: If you already have a traditional IRA that you would like to convert to a Roth IRA, you can do so if your adjusted gross income in the year of conversion is $100,000 or less, excluding the converted amount*. You will have to pay taxes on any contributions and earnings that have not been taxed. Converting a traditional IRA to a Roth IRA generally works best when you can pay the taxes due with money from outside the IRA.

Withdrawals: Your Roth IRA earnings can be tax-free if they are part of a "qualified" distribution. Qualified distributions are those that occur five years after the first contribution and meet one of the following conditions:

• Occur after you reach age 59 ½
• Occur as a result of death or disability
• Are used for first-time home purchases (up to $10,000 lifetime)

If your distribution does not meet these conditions, it is considered "non-qualified." This is not as bad as it may seem. Non-qualified distributions come from principal first, then from earnings. This means you get your after-tax contributions back first, which are not taxable. After you have withdrawn 100% of your principal, withdrawals are considered earnings, which are taxable and may be subject to a 10% penalty, only if the distribution is not a qualified one. Another benefit with a Roth IRA is that you do not have to start taking distributions at age 70 ½.

Ask your Space Coast Credit Union Financial Advisor, available through CUSO Financial Services L.P., our broker/dealer, for more information on the Roth IRA and how it might contribute to your retirement goals.

Call (321) 752-2222 or (800) 447-7228, ext. 9360 to schedule an appointment, or email inquiries to invest@sccu.com.

There is no cost or obligation for your meeting.

*For tax advice, consult a qualified tax professional. Products and services offered through CUSO Financial Services, L.P., are not NCUA or NCUSIF insured, not credit union guaranteed, and may lose value. Financial advisors are employees of Space Coast Credit Union and registered representatives of CFS. Space Coast Credit Union is in partnership with CFS. (Member FINRA/SIPC).

The information on this page is for educational purposes only. SCCU is not engaged in providing estate planning or other advice. Please consult with a competent estate planning professional regarding any specific estate planning questions.