Coverdell (ESA): The sole purpose of establishing a Coverdell Educational Savings Account is to help members fund educational expenses for a child. Educational expenses include public, private or parochial elementary, secondary, or post-secondary expenses. Earnings (dividends) are TAX FREE if the earnings are used for qualified educational expenses and are taxable to the child (not the parent or the contributor) if the earnings are withdrawn for another purpose. A Coverdell Educational Savings Account encourages affordable, easy-to-manage, regular savings program for parents, and even grandparents may fund the account. Because Coverdell Savings Accounts are flexible, the funds can be moved from one family member’s account to another eligible family member’s account in the event another child needs funding for educational expenses. The maximum contributions to a Coverdell Educational Savings Account for one child cannot exceed $2,000.00 per year, regardless of who makes the contribution. There are no age requirements to contribute to a Coverdell Educational Account; however the individual making the contribution must meet the income limits illustrated in the table below in order for the contribution to be allowable.

Traditional: A Traditional IRA is a type of retirement plan that has been in existence since 1975. Traditional IRAs offer tax-deferred earnings and the possibility of having tax-deductible contributions. These tax advantages make the Traditional IRA a powerful tool in creating a balanced, long term savings plan. Members may contribute to a Traditional IRA if the member has earned compensation and if the member will not reach age 70-1/2 in the tax year of the contribution. Earnings (dividends) accrued in a Traditional IRA are not taxed until they are withdrawn. The ability to defer taxes on the earnings and to withdraw in a year when you may be in a lower tax bracket may mean more after-tax dollars for your retirement. The annual contribution limits for Traditional and Roth IRAs are illustrated in the table below.

^The $5,000 contribution limit will be adjusted for inflation in 2009 and later years in $500 increments. (It will not be increased until inflation after 2007 increases it a full $500.)

Roth: Roth IRAs offer unique and exciting savings opportunities and gives members an easy and safe way to plan for the future. A Roth IRA is an individual retirement account created by the Taxpayer Relief Act of 1997. Roth IRAs offer different incentives compared to Traditional IRAs to boost your retirement savings. Unlike Traditional IRAs, contributions to a Roth IRA are never tax-deductible and there isn’t an age requirement to contribute. However, the money contributed to a Roth IRA, including earnings (dividends), can be withdrawn tax-free! Of course a member must conform to certain tax requirements to receive this tax-free advantage. A Member is eligible to contribute to a Roth IRA if the member has earned compensation and has a certain income limit set by the United States Government. The contribution limits are listed in the illustration above for Roth IRAs. The income limits set by the United States Government are listed in the illustration below.

^^If the owner did not live with his or her spouse for even one day during the year, then he or she is considered a single filer for purposes of determining Roth IRA eligibility.

The deadline for contributing to an IRA is the deadline for filing that year’s federal tax return, usually April 15th the following year or the next business day if April 15th falls on a weekend or holiday. The contribution deadline is not extended if the IRA owner receives an extension for his or her tax return.

If you have any questions concerning eligibility, contribution limits or IRA withdrawals and distribution, please contact our Member Service Department at the toll-free number below or e-mail us at ira@pelicanstatecu.com** for more information.