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There are two types of IRAs we have encouraged people to save for life's other main events. The Education and Roth IRAs make it possible for you to save for retirement and for a child's postsecondary education or your first house. This is how they work:
- The Education IRA, now called Coverdell Education Savings Accounts, allows you to save for any postsecondary education by investing up to $2,000 a year per child younger than the age of 18. The contribution is not tax-deductible. Instead, earnings grow tax-free and you pay no taxes or penalties on money withdrawn to pay for qualified expenses before the beneficiary reaches age 30. Otherwise you pay taxes on any earnings, plus an additional 10% penalty.
- Qualified expenses include tuition, fees, books, elementary and secondary school expenses, computer technology or equipment - even online access - that the beneficiary uses while in school, and equipment required for enrollment or attendance at nearly any postsecondary educational institution. Certain room and board expenses may also qualify.
- If you're a single filer, you can contribute the full amount per year if your modified adjusted gross income [from line 31 on your federal form 1040, as adjusted] is less than $95,000. The contribution limit gradually falls as your modified adjusted gross income climbs toward $110,000, at which point you can't contribute to an education IRA. For married couples filing jointly, the income limit spans from $190,000 to $220,000.
- The Roth IRA allows you to contribute up to $4,000 a year in 2005 through 2007, and $5,000 a year in 2010. Beginning after tax year 2008, the limits will be adjusted annually for inflation in $500 increments.
- Like the Coverdell Education Savings Account, contributions to a Roth IRA are not tax-deductible. Instead, you pay no taxes when you withdraw the money provided it's been in the account at least five years and: You are older than 59 1/2, or you become disabled, or you die and it's paid to your beneficiary, or you use the money for a first-time house purchase ($10,000 lifetime withdrawal limit).
- Unlike the Traditional IRA, which requires you to begin withdrawing money at age 70 1/2, the Roth IRA has no such requirement. You can let the money keep working, while earnings continue to grow tax-free, for as long as you like.
- The income limits are identical to those for the Educational IRA.
- Even the Traditional IRA is better with higher income limits and new penalty waivers. So stop by or call Coosa Valley Federal Credit Union for details about how you can stretch your retirement savings with new and improved IRAs.
* The Credit Union provides no legal advice to members, and provides the foregoing information from a reliable resource to give our members a basis understanding of these services. You should consult with your tax or legal adviser regarding any particular and the current status of applicable federal and state laws.