Retirement Accounts Personal

A smarter way to save

An individual retirement account (IRA) from Farmers means much more than just saving for retirement. Today’s IRAs offer tax-free options, flexibility in making withdrawals and more freedom to deduct your contributions. That means you can reach your savings goal easier, smarter and faster than ever before.

Traditional IRA

The traditional IRA is an interest-bearing account that allows your money to compound and grow for future investments or cash at retirement. Deposits for the current year are accepted at any time. Deposits for the prior year will only be accepted until April 15 or the tax filing deadline of the current year. Rollovers and transfers are also eligible for deposits.

Contributions to a traditional IRA may be tax deductible and the earnings are tax-deferred until distribution. All Federal Regulations regarding individual retirement accounts (IRAs) apply.

Roth IRA

The Roth IRA is a nondeductible IRA that offers tax-deferred earnings and tax-free distributions. Tax-deferred earnings allow you to grow your nest egg at a faster pace than taxable investments. However, the best part is that they offer tax-free distributions if you follow certain requirements. That means the money you withdraw is yours alone and doesn’t have to be included as income at tax time.

Contribution Limit Chart

*Cost of living adjustments (COLA) are made in $500 increments apply to the $6,000 contribution limit, but only if the inflation adjustment results in at least a $500 increase. The extra $1,000 contribution limit available to individuals age 50+ is not adjusted for inflation.

Deducting Traditional IRA Contributions

*This category also includes a head of household.

Cost-of-living adjustments (COLAs) apply to the traditional IRA deductibility income limits. The indexed amounts are rounded to the nearest multiple of $1,000.

FDIC Insurance

The Federal Deposit Insurance Corporation (FDIC) provides deposit insurance coverage for depository institutions such as banks and savings and loan associations. The deposit insurance is used to protect deposits in the event the financial institution fails and does not have adequate funds to pay off what it owes to its depositors. The FDIC is an independent agency of the U.S. Government, and FDIC-insured deposits are backed by the full faith and credit of the United States. Visit the FDIC website for additional information.

Beginning in 2011, the coverage limit for all federally insured deposits will be increased for inflation every five years.

Insurance for IRAs increased to $250,000

The FDIC insurance limit on certain retirement accounts (including IRAs) at insured banks, savings institutions and credit unions was increased from $100,000 to $250,000, effective April 1, 2006. The higher insurance coverage applies to IRAs (Traditional, Roth and SIMPLE IRAs).

Also included are self-directed Keoghs, 457 plan accounts for state and local government employees and employer-sponsored defined contribution plans such as 401(k)s that are self-directed. Generally, self-directed means that the employee can choose which insured institution maintains his or her retirement fund deposit.

Starting April 1, 2006, all of an individual’s deposits at the same insured institution that are in the same brand category of retirement accounts are added together and the total is insured up to $250,000.

IRA FAQ

Who is eligible to contribute?

• Traditional IRA: For years prior to 2020, an individual who is under age 70½ during the entire year and has taxable compensation (or is married filing jointly and his or her spouse has taxable compensation) is eligible. For years after 2019, any individual who has taxable compensation (or is married filing jointly and his or her spuse has taxable compensation) is eligible.
• Roth IRA: An individual who has taxable compensation (or is married filing jointly and his or her spouse has taxable compensation) and whose modified adjusted gross income (MAGI) below $144,000 if single or $214,000 if married filing jointly for 2022 is eligible.

How much may be contributed?

• Traditional IRA: Individuals under age 50 may contribute 100% of taxable compensation up to $6,000 for 2022. Individuals age 50 or older may contribute 100% of taxable compensation up to $7,000 for 2022.
• Roth IRA: The terms are the same as the traditional IRA, except that an individual’s Roth IRA contribution limit is phased out based on the individual’s MAGI and tax-filing status.

What is the contribution deadline?

• Traditional IRA: The deadline is the same as the individual’s federal income tax-filing deadline, not including extensions. The 2023 deadline is April 15th.
• Roth IRA: The deadline is the same as the individual’s federal income tax-filing deadline, not including extensions. The 2023 deadline is April 15th.

Are contributions tax deductible?

• Traditional IRA: This account is fully federal income-tax-deductible if the individual (and spouse, if married) is not an active participant in an employer-maintained retirement plan. Otherwise, deduction is based on the individual’s MAGI and tax-filing status.
• Roth IRA: Roth IRAs are never federal income tax-deductible.

Are distributions taxable?

• Traditional IRA: Generally, they are fully taxable, except the portion that represents basis (after-tax funds), if any.
• Roth IRA: Generally, they are tax-free, except the earnings portion of a nonqualified distribution.

Are distributions subject to IRS 10% early distribution penalty?

• Traditional IRA: The taxable portion is subject to the IRS 10% early distribution penalty, unless the individual is age 59½ or older or an exception applies.
• Roth IRA: The taxable portion is subject to the IRS 10% early distribution penalty, unless the individual is age 59½ or older or an exception applies. Conversion funds that are distributed within five years are also subject to the IRA 10% early distribution penalty, unless the individual is age 59 ½ or older or an exception to the penalty applies.

When must distributions begin?

• Traditional IRA: Distributions must begin by April 1 of the year following the year the owner turns 72 years old (Age 70½ years old prior to 2020).
• Roth IRA: Distributions are not required during the owner’s lifetime.

Why are IRAs insured separately from non-retirement funds?

Retirement accounts are insured separately from other deposit accounts, such as a checking account, at the same institution because an IRA is held in a different right or capacity (e.g. trust or custodial account). Congress temporarily increased FDIC insurance for other deposit accounts from $100,000 to $250,000.

What if I need access to my money now?

A helpful feature of the Roth IRA is that, for non-qualified distributions, original contribution amounts are returned first. Contributions (as opposed to earnings) are not subject to taxation or the 10% IRS premature distribution penalty when distributed. In other words, you can always get back your principal tax-free and IRS penalty-free for any reason.

When is the contribution deadline for funding a Roth IRA?

Roth IRAs for the taxable year can be opened and funded anytime in between January 1 and the date your tax return is due for the year, excluding extensions. This is normally April 15 of the following year.

What is the MAGI limit for Roth IRA contributions

Cost-of-living adjustments will apply to the MAGI limits for making regular or spousal Roth IRA contributions. [IR-2021-216; Notice 2021-61]

How do I open a Roth IRA?

Simply see one of our representatives. We will explain the nature of these accounts in more detail and help you complete the simple forms necessary to establish your Roth IRA.

*Farmers National Bank is not able to give tax or legal advice. The content above is for informational purposes only. Please consult your tax, legal and accounting advisors for advice before opening an account.*