Individual Retirement Accounts

  • Traditional IRAs offer tax deferred income
  • Fixed and Variable rates available
  • Roth and Educational IRAs also available
  • Substantial Federal penalty for early withdrawal

An Individual Retirement Account or IRA is a personal savings plan which allows you to set aside money for retirement, while offering you tax advantages. You may be able to deduct some or all of your contributions to your IRA. You may also be eligible for a tax credit equal to a percentage of your contribution. Amounts in a traditional IRA, including earnings, generally are not taxed until distributed to you. IRAs cannot be owned jointly. However, any amounts remaining in your IRA upon your death can be paid to your beneficiary or beneficiaries. A bank-issued IRA is invested in a bank CD and works similar to a regular CD except that the money is intended for retirement.  Like CDs, IRAs earn different rates for different terms.

There are several different types of IRAs:

Traditional IRA

Contributions may be tax-deductible and are made with money deposited before tax or contributions made with pre-tax assets.  All transactions and earnings within the IRA have no tax impact.  Withdrawals at retirement are taxed as income (except for those portions of the withdrawal corresponding to contributions that were not deducted). Depending upon the nature of the contribution, a traditional IRA may be referred to as a "deductible IRA" or a "non-deductible IRA."

Roth IRA

Contributions are made with after-tax assets.  All transactions within the IRA have no tax impact. Withdrawals are usually tax-free.  This type of IRA works well for individuals who will be in a higher tax bracket upon retirement than they were when they made the contribution.


A provision that allows an employer (typically a small business or self-employed individual) to make retirement plan contributions into a Traditional IRA established in the employee's name, instead of to a pension fund account in the company's name.

Education IRA (Coverdell Education Savings Account or CESA)

A tax-free educational savings account established for the benefit of a child (known as the designated beneficiary) up to age 18 which allows a maximum nondeductible annual contribution of up to $2,000 per child per year.  The earnings on the contributions accumulate tax-free if used for qualified educational expense for any level of education.


Beginning in the 2020 tax year, you may contribute to your traditional IRA in the year you turn 70 1/2 and beyond, provided you have earned income.  You may not make 2019 (prior year) traditional contributions if you are over 70 1/2.  You, and/or your spouse if you file a joint return, must have taxable compensation, such as wages, salaries, commissions, tips, bonuses, or net income from self–employment. Taxable alimony and separate maintenance payments received by an individual are treated as compensation for IRA purposes.  The deadline for contributions to a traditional IRA for the year is the due date of your return, not including any extensions of time to file.

Amounts you withdraw from a traditional IRA are fully or partially taxable in the year you withdraw them.  Withdrawals made prior to age 59 1/2 may be subject to a 10% additional tax. You also may owe an excise tax if you do not begin to withdraw minimum distributions by April 1st of the year after you reach age 70 1/2.

Although funds can be distributed from an IRA at any time, there are limited circumstances when money can be distributed or withdrawn from the account without penalties. Unless an exception applies, money can typically be withdrawn penalty free as taxable income from an IRA once the account owner reaches age 59 and a half. Also, non-Roth account owners must begin taking distributions of at least the calculated minimum amounts by April 1st of the year after reaching age 72. If the minimum distribution is not taken the penalty is 50% of the amount that should have been taken. The amount that must be taken is calculated based on a factor taken from the appropriate IRS table and is based on the life expectancy of the account owner and possibly their spouse as beneficiary if applicable. At the death of the account owner distributions must continue and if there is a designated beneficiary, distributions can be based on the life expectancy of the beneficiary.

If the contribution to the IRA was nondeductible or the IRA owner chose not to claim a deduction for the contribution, distributions of those nondeductible amounts are tax and penalty free.