IRAs & SEPs
IRAs (Individual Retirement Accounts) and SEPs (Simplified Employee Pensions)
IRA's are tax deferred savings plans that can also provide an immediate tax deduction for those who qualify. IRA deposits can be in either an IRA savings account or IRA certificate account.
A Simplified Employee Pension (SEP IRA) is a variation of the Individual Retirement Account used in the United States.
With automatic payroll deduction, building a retirement account can be easy. Features Include:
- IRA Savings account minimum balance is $5.00
- IRA certificate minimum balance is $1,000.00
- Terms of IRA certificates are available from 90 days to 60 months
- Available monthly and quarterly E-Statements
| IRA Savings Rates | ||
| Effective Date: Thursday, April 25th, 2024 | ||
| Minimum Balance | Interest Rate | Annual Percentage Yield |
| $1.00 | 0.05% | 0.06% |
| Rates may change after the account is opened. Fees could reduce earnings on this account. | ||
| IRA Certificate Rates | |||
| Effective Date: Thursday, April 25th, 2024 | |||
| Term | Minimum Balance | Interest Rate | Annual Percentage Yield |
| 6 Months | $1,000.00 | 2.49% | 2.50% |
| 12 Months | $1,000.00 | 4.44% | 4.50% |
| 24 Months | $1,000.00 | 3.99% | 4.00% |
| 36 Months | $1,000.00 | 3.49% | 3.50% |
| 48 Months | $1,000.00 | 3.49% | 3.50% |
| 60 Months | $1,000.00 | 3.49% | 3.50% |
| Fees could reduce earnings on this account. A penalty of 90 days dividends on the amount withdrawn may be imposed for withdrawals before maturity. | |||
Traditional IRA
To qualify for a Traditional IRA, you must have earned income (wages) because contributions are based on pre-taxed earnings. If your spouse works, s/he may qualify for their own Traditional IRA. For married couples filing a joint tax return, a spouse can contribute to a Traditional IRA even if they don't generate income.
The maximum annual contribution to a Traditional IRA for 2024 is $7,000 per year if you are under 50 years old, $8,000 if you are 50 years old or more. Traditional IRA contributions can be made up to the IRS tax filing deadline, typically April 15th, in which case, the tax benefit would apply to the proceeding year. Contributions can be made up to the age of 73.
NOTE: Money invested in a Traditional IRA is pre-tax money. Paying taxes on the money invested and interest earned is deferred until money is withdrawn. Withdrawals must begin by age 73.
Traditional IRA contributions can also be tax deductible if adjusted gross income for 2024 is up to $146,000 for individuals, or $230,000 for those married filing a joint return. Limits may be lower for individuals participating in a work related retirement program such as a 401 (K).
Creighton Federal Credit Union offers both free payroll deductions (for employees of participating employees) and direct deposit services to make contributing to your IRA on a regular basis easy and hassle-free.
Roth IRA
A Roth IRA is a tax-deferred retirement account that turns the traditional IRA formula on its head: although retirement contributions are taxed up front, withdrawals can be made completely tax-free once you reach age 59 1/2 and have had a Roth IRA for five years. For some people, paying taxes now to enjoy tax-free income later may actually make more financial sense in the long term. For one thing, the Roth IRA allows investors to effectively shelter more money for retirement. Although the annual contribution limit is the same for both traditional and Roth IRAs, because your Roth contribution is made with after-tax income, the full contribution can compound substantially over the years — without incurring any future tax liability.
The amount you can contribute to a Roth IRA may be reduced or eliminated depending on your filing status and your adjusted gross income level.
Whether the Roth IRA is a better option really depends on your expectation of your future tax rate. In the past, retirees routinely moved into a lower tax bracket. However, with more people maintaining high levels of income even in retirement, it may make more sense to pay taxes on your contribution today, while you're still employed.
Although investors can certainly open both a Traditional and a Roth IRA, most financial advisers suggest that you convert your existing account to take full advantage of the Roth's long-term benefits. But before converting, consider these factors:
- You'll have to pay taxes — which can be substantial depending on how much you've amassed in your current IRA — on all deductible contributions and earnings.
- To avoid being hit with penalties, you must pay these taxes with non-IRA money. In fact, tax experts caution that if you don't have other cash handy to pay the tax, you're probably better off with a Traditional IRA.
Education IRA
The education IRA allows parents and grandparents up to $2,000 per year per child (up to age 18) to be saved to pay for college expenses. Money invested in an Education IRA does not count toward the maximum invested in other IRAs. Although money invested in an Education IRA is post-tax money, the interest earned is tax exempt. Money withdrawn can be used for tuition, room and board, books and school supplies.
All funds must be distributed by age 30 or rolled over to a new Education IRA for the benefit of another qualified family member.
SEP – Simplified Employee Pension
A Simplified Employee Pension (SEP IRA) is a variation of the Individual Retirement Account used in the United States. SEP IRAs are adopted by business owners to provide retirement benefits for the business owners and their employees. There are no significant administration costs for self-employed person with no employees. If the self-employed person does have employees, all employees must receive the same benefits under a SEP plan. Since SEP accounts are treated as IRAs, funds can be invested the same way as any other IRA.
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