Individual Retirement Accounts (IRAs)

Investing in an Individual Retirement Account (IRA) at Home Federal Bank can help you plan financially for a more secure future. We can assist you in reaching your retirement goals by offering IRA Certificate of Deposit (CD) investments with terms from 3 months to 5 years or a variable rate IRA Money Market investment that can provide more liquidity.

All IRA additions (contributions) and withdrawals (distributions) are governed by an IRA Trust Agreement which you receive upon account opening.  Additionally, CD terms and early withdrawal penalties apply to all certificate investments and withdrawal limitations apply to money market investments.

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Feature Traditional IRA Roth IRA Education IRA
Modified Adjusted Gross Income Eligibility Restrictions Anyone under age 70½ with earned income may contribute. Individuals earning $133,000 or less (2017)
$135,000 or less (2018).

Married couples earning $196,000 or less (2017)
$199,000 or less (2018).

Partial contribution limits in effect for income ranges:
$120,000 -$135,000 (single)
$189,000 -$199,000 (married)
Individuals earning
$110,000 or less (2017 & 2018).

Married couples earning $220,000 or less (2017 & 2018).

Partial contribution limits in effect for income ranges:
$95,000 -$110,000 (single)
$190,000 -$220,000 (married)
Maximum Annual Contribution
Does not imply that $5,500 can be contributed to both IRA types. A maximum $5,500 can be contributed to one or the other or split between both.
$5,500
Additional $1,000 if you are 50 years of age or older.

May not exceed
taxable compensation
for the year.
$5,500
Additional $1,000 if you are 50 years of age or older.

May not exceed
taxable compensation
for the year.
$2,000 per child, under age 18 (combined maximum for all contributors)
Non-wage Earning Spousal Contribution

$5,500
Additional $1,000 if
50 or over.

$5,500
Additional $1,000 if
50 or over.
N/A
Tax Deductibility of Contributions1 Depends upon Adjusted Gross Income, tax filing status and participation in an employer-sponsored pension plan, such as a 401(k). Contributions are never deductible. Contributions are never deductible.
Tax Treatment of Earnings1 Grow tax deferred until withdrawn. Grow tax deferred and potentially tax free. Grow tax deferred and potentially tax free.
Deadline to Contribute Tax filing deadline,
not including extensions.
Tax filing deadline,
not including extensions.
Tax filing deadline,
not including extensions.
Taxes Upon Withdrawal1 Withdrawals of deductible contributions and earnings are taxed as ordinary income at the current tax bracket. None.
(For qualified distributions.)
None.
(For qualified distributions.)
Withdrawal Restrictions1 Withdrawals before age 59½ result in IRS penalties. Some exceptions for penalty free withdrawals include: first-time home purchase, college expenses, medical expenses, disability, and death. Tax-free after 5 years participation if distributed after age 59½, after owner's death, while owner is disabled or if used for first-time home purchases.

Tax-free if entire distribution is used for qualifying education expenses.
(Expenses for elementary, secondary, and post secondary education and computer technology equipment.)

Penalty free withdrawal exceptions:

  • Death
  • Disability
  • Certain Scholarship Payments
Age at Which Withdrawals Must Begin 70½ No restrictions. Distribution of remaining funds required at age 30, within 30 days after 30th birthday.

1 Consult a tax professional for tax advice.

SEP and SIMPLE Pension Plans

Plan Plan Establishment Deadline Funding Deadline Contribution Limit Eligibility Requirements
Simplified Employee Pension Plan (SEPP) IRC #408 Tax filing deadline plus extensions. Tax filing deadline plus extensions. 0%--25% or $54,000 (2017) and $55,000 (2018), whichever is less based on the first $270,000* (2017) and $275,000* (2018) of compensation.
Employer may require service of up to 3 of the 5 years preceding the year of contribution and 21 years of age.
Savings Incentive Match For Employees (Simple) IRC #408 October 1 Tax filing deadline plus extensions.
Employee Elective Deferrals up to $12,500under age 50 and $15,500* age 50 and over (2018) - employer elects either a dollar for dollar match of up to 3% of employee compensation (can be lowered to 1% in two out of five years) or provides Nonelective Deferrals of 2% of compensations.
Small Employers with 100 or less employees who received at least $5,000 in compensation during any two previous calendar years and are reasonably expected to make $5,000 during the current year.

* Subject to cost of living increases. Compensation may be adjusted annually by IRS.

FAQs About IRAs

Investing in an IRA at Home Federal Bank can help you plan financially for a more secure future. We can assist you in reaching your retirement goals by offering certificates ranging from 3 months to 5 years. We also have a variable rate money market IRA that can provide unlimited access to your funds. The CD terms and bank penalties apply to all certificate investments.

  1. What is an IRA?
    The IRS defines an IRA (Individual Retirement Account) as a trust created for the benefit of individuals or their beneficiaries. However, the trust must meet specific requirements as specified in Internal Revenue Code Section 408.

  2. What are the benefits of investing in a traditional IRA?
    In addition to providing an additional source of retirement income, the earnings on funds deposited in a traditional IRA are tax-deferred until they are distributed. IRA owners may also be eligible for a tax deduction for contributions made to a traditional IRA.

  3. What is required in order for a Traditional IRA owner to make a contribution?
    Any individual who has earned income and has not attained age 70½ is eligible to make an IRA contribution. Contributions also cannot be made the year in which an individual reaches age 70½.

  4. What is considered earned income for purposes of making a contribution to a Traditional/Roth IRA?
    Earned income or compensation is income received for personal services actually rendered. Wages, tips, bonuses, sick pay, and vacation pay qualify as earned income. Self-employed individuals must use their net income as earned income.

  5. What types of income are not considered as earned income for making a contribution to a Traditional/Roth IRA?
    Passive income such as earnings and profits from rental income, interest or dividend earnings from investments, pension or annuity income, and deferred compensation are not considered earned income for determining IRA contributions.

  6. How much can an individual contribute to a Traditional IRA for a tax year?
    Beginning in year 2002, individuals may contribute 100% of their earned income or the following contribution limits:

    Year Under Age 50 Age 50 and Over
    2006 and 2007 $4,000.00 $5,000.00
    2008 - 2012 $5,000.00 $6,000.00
    2013 - 2018 $5,500.00 $6,500.00

  7. Can an IRA owner file a tax return prior to making their annual contribution?
    The only requirement is that the IRA must be established and the contribution made no later than April 15, or the following Monday if the 15th falls on a weekend or holiday.

  8. What is a spousal IRA contribution?
    A spousal contribution may be made for an individual by his/her spouse when one individual has little (less the contribution limits) or no income. However, in order to make a spousal contribution, the couple must be legally married at the end of the tax year; they must file a joint tax return; their joint combined compensation must be considered to determine the total contribution amount; and the spouse receiving the contribution must earn less than the spouse contributing the contribution. Separate IRA's must be maintained for each spouse.

  9. What is the contribution limit for a spousal contribution?
    The maximum combined contributions for both spouses are the annual contribution limits or 100 percent of their combined earned income (the lesser of the two amounts). The contributions may be divided in any manner as long as neither spouse's contributions exceed the annual contribution limit.

  10. What determines if an individual's IRA contribution is deductible?
    If an individual is not an active participant in a qualified plan, the IRA contributions are fully deductible. Also, for married couples, if neither spouse is an active participant in a qualified plan, contributions are fully deductible. However, if a single individual or either spouse of a married couple is an active participant in a qualified plan, the deductibility is subject to MAGI limitations.

  11. Can an individual make a nondeductible contribution to a Traditional IRA?
    An individual who is not eligible to make a deductible contribution may make a nondeductible contribution provided they have earned income and will not attain age 70½ in the contribution tax year.

  12. What is a qualified plan?
    Qualified plans are tax-exempt trust accounts that are established for the benefit of the participant in the plan.  

  13. Can the assets in a qualified plan be rolled over into an IRA?
    When the assets in a qualified plan are distributed to the plan participant in a negotiable form, the participant may roll all or part of the distribution to another qualified plan or an IRA within 60 days of the receipt of the distribution. The plan administrator must withhold 20 percent for federal income tax when the check or property is disbursed in the name of the plan participant.

  14. What is a direct rollover?
    A direct rollover occurs when an eligible plan participant directs the administrator of a qualified plan to make the distribution check or assets payable to a successor trustee or custodian instead of the participant. The distribution and rollover of the assets allows the recipient to avoid taxation and the 20 percent federal income tax withholding.

  15. Does the rollover of additional qualified plan assets within a 12-month period violate the one-rollover-per-12-months rule?
    The one-rollover-per-12-months rule does not apply to qualified plan to IRA rollovers.

  16. When is an IRA distribution a premature distribution?
    IRA participants can take distribution from the plans at any time; however, prior to age 59 1/2 and depending on the reason for the distribution, they may be subject to an IRS 10 percent premature distribution penalty as well as the bank penalty. After age 59 1/2 distributions are no longer considered premature distributions.

  17. What are the eligibility requirements for IRA participants to withdraw from their IRAs to pay for qualified higher education expenses without incurring the 10 percent IRA premature distribution penalty?
    The distributed funds must be used for expenses incurred by the IRA owner, spouse, child, or grandchild of the IRA owner who is enrolled at least half time at an eligible institution of higher education. Qualified expenses include tuition, fees, books, supplies, and equipment that are required for enrollment. Certain room and board expenses may also be included.

  18. When are IRA participants required to begin taking their required minimum distributions?
    Required minimum distributions must begin the calendar year in which the participant attains the age of 70½. However, in the age 70½ year the IRA owner can defer the first distribution until April 1 of the following year. This would result in 2 distributions in one year - a distribution for the 70½ year and a distribution for the current year.

  19. Can an IRA participant with multiple IRAs take the distribution from just one IRA?
    IRA owners can combine their required distributions and withdraw them from one of their IRAs.

  20. What are the differences between a traditional IRA and a Roth IRA?

    • Roth IRAs are not tax deductible.
    • Roth IRA contributions are subject to modified adjusted gross income limits.
    • Contributions to Roth IRAs can continue after age 70½.
    • Roth IRA owners are not subject to the required minimum distribution rules.
    • Contributions are distributed before earnings.
    • Distributions may be tax free.
    • What types of investments are allowed for Roth IRA contributions?
      Certificates of deposits, mutual funds, stocks, bonds, real estate, etc. are popular investments. The bank has the ability to limit the investments offered in their IRA program. Investments in collectibles, gems, stamps, coins, and life insurance plan agreements are not allowed in an IRA.
       
  21. How much can an individual contribute to a Roth IRA in a tax year?
    Individuals can contribute up to 100% of their earned income (subject to modified adjusted gross income limits) for the tax year or the following contribution limits:
    Year Under Age 50 Age 50 and Over
    2006 and 2007 $4,000.00 $5,000.00
    2008 - 2012 $5,000.00 $6,000.00
    2013 - 2018 $5,500.00 $6,500.00

    IRA owners can contribute to a Roth IRA and a traditional IRA in the same tax year, but the total of their contributions cannot exceed the contribution limits.
      
  22. When can an IRA owner take distributions for a Roth IRA?
    Roth IRA owners can take distributions at any time. And they can withdraw regular contributions without IRS penalty at any time for any reason. However, depending on the reason for the distribution, the age of the owner, and whether or not their five-year holding period has expired, they may be subject to taxes and the IRS 10 percent premature distribution penalty on the earnings that are withdrawn.

  23. When does the five-year holding period begin for tax-free earnings distributions?
    The five-year holding period begins the first year for which a Roth IRA or conversion contribution is made.

  24. Do Roth IRA owners have a separate five-year holding period for each Roth IRA?
    The five-year holding period is per Roth IRA owner and not per each separate Roth IRA.

  25. What are the benefits of establishing a Coverdell Education Savings Account?
    Distributions for qualified higher education expenses are exempt from IRS penalty and federal income tax.

  26. Who can contribute to a Coverdell Education Savings Account?
    Any individual whose modified adjusted gross income falls within the prescribed limits can contribute to a Coverdell Education Savings Account for an eligible individual.

  27. Who is the beneficiary of a Coverdell Education Savings Account?
    The designated beneficiary is the individual for whom the account is established.

  28. Who must be the responsible individual on a Coverdell Education Savings Account?
    The responsible individual must be a parent or legal guardian of the designated beneficiary.

  29. What is the annual contribution limits to a Coverdell Education Savings Account?
    The annual contribution limit is $2000 per designated beneficiary per tax year.

  30. Can an individual make contributions to Coverdell Education Savings Account for more than one designated beneficiary?
    The only restriction concerning total contributions to Education IRAs is that total contributions for any one designated beneficiary cannot exceed $2000 per year.

  31. Are Coverdell Education Savings Account contributions tax-deductible?
    Education IRA contributions are not tax deductible.

  32. What qualifies as a higher education expense distribution?
    Qualified higher education expenses include tuition, fees, books, supplies, and equipment required for the designated beneficiary's enrollment or attendance at an eligible education institution. If the student lives off campus, room and board expenses up to $2,500 per year are also qualified higher education expenses.

  33. What is new beginning in 2002 for the Coverdell Education Savings Account?

    1. Contribution will qualify as eligible contributions even if contributions are being made to a State Tuition program.
    2. Tax-free distributions will qualify in any year the Hope Scholarship credit is taken as long as it is not being used for the same expense.
    3. Contribution limits increase to $2000 per child.
    4. The contributor may be someone other than an individual; a company or non-profit organization can make contributions for a minor regardless of income phase out.
    5. The deadline for making contribution to a Coverdell Education Savings Account will be the tax-filing deadline not including extensions - the same as Traditional and Roth deadlines. The deadline will be April 15th for the previous year's contributions.   

  34. What is a rollover?
    An IRA rollover occurs when an individual receives an IRA distribution and redeposits the funds into an IRA within 60 days of the date of receipt. This avoids the 10 percent IRS distribution penalty and taxation on the distribution amount.

  35. Can the 60-day rollover period be extended?
    The rollover must be completed within 60 calendar days. If the funds have not been rolled over within 60 calendar days from the date of receipt, the distribution must be reported as income the year of the distribution. Certain first-time homebuyer distributions may be rolled over within 120 calendar days.
    Effective August 24, 2016, financial institutions may accept “tardy rollovers” after the 60-day period if the IRA accountholder “self-certifies” the reason for the delay for certain acceptable situations.

  36. When does the 60-day period begin?
    The distribution amount is considered a rollover if the funds are deposited into an IRA no later than the 60th day after the date of receipt of the funds. The date of receipt might not be the date of the distribution.

  37. How often can an IRA owner roll over his IRA?
    Beginning January 1, 2015 an IRA accountholder will only be able to do one tax-free 60-day rollover from the total IRAs owned by the accountholder in a 12 month period beginning from the day of receipt of the funds - regardless of how many IRA plans or plan types owned.

  38. Can IRA owners roll over an IRA distribution if they are over 70½?
    There is no age restriction on IRA rollovers. However, IRA owners cannot roll over their required minimum distribution from a traditional IRA.

  39. What is an IRA transfer?
    Transfers occur when the funds in an IRA account are moved directly from one financial institution to another financial institution without the IRA owner ever having control of the assets.

  40. Is the number of IRA transfers limited during a 12-month period?
    Since the IRA owner does not have direct control of the funds, the IRA transfer option is unlimited.

FAQs About SEP and SIMPLE Programs

  1. What is a SEP?
    A SEP is a retirement plan that allows an employer to provide a retirement plan for employees by making a contribution to each eligible employee's traditional IRA. Any employer whether incorporated or unincorporated, part time or full time, can establish a SEP plan. This includes businesses that have no employees other than the owner/employee.

  2. What are the annual employer SEP contribution limits?
    In 2018, the maximum percentage is 25 percent of eligible compensation and the maximum compensation limit is $275,000. The maximum annual SEP contribution is 25 percent of up to $275,000 or $55,000 whichever is less per employee per year.

  3. What requirements are required in order for an employer to offer a SIMPLE IRA plan?
    The business must have no more than 100 employees who each earned at least $5,000 in the preceding calendar year. The employer must consider all employees whether or not they will be eligible to participate in the SIMPLE and cannot at any time during the calendar year of the SIMPLE maintain any other qualified plan, SEP, or tax-sheltered annuity.

  4. What eligibility criteria must be met in order for employees to participate in a SIMPLE IRA plan?
    The employer must allow employees to participate if they have earned at least $5,000 of compensation in each of any two preceding years and they are expected to receive at least $5,000 for the current year. An employer can also be less restrictive by lowering the income thresholds or requiring less than two years. However, they cannot make the requirements more restrictive.

  5. When can employees take distributions from a SIMPLE IRA?
    Each employee is immediately 100 percent vested and can take distributions as soon as the money is deposited. If the employee is younger than age 59 1/2 and takes a distribution within two years of the first contribution, a 25 percent premature distribution penalty will apply and the distribution will be fully taxable. Distributions after the two-year period but before age 59 1/2 will be subject to a 10 percent premature distribution penalty and the distribution will be fully taxable. Certain exception distributions may be exempt from the premature distribution penalty.

  6. Can SIMPLE contributions be made to a Roth IRA?
    Simple contributions may be made to SIMPLE IRAs only. It is possible to convert a SIMPLE to a Roth after two years but all subsequent SIMPLE contributions must be made to a SIMPLE IRA.

  7. Are there minimum distribution requirements for a SIMPLE IRA?
    The minimum distribution requirements for a traditional IRA also apply to SIMPLE IRAs.

  8. Can the employer choose the financial institution that will receive all of the SIMPLE plan contributions?
    The employer may require that each eligible employee establish a SIMPLE IRA with a particular financial institution. The designated financial institution must agree that a participant may transfer the SIMPLE IRA contributions without cost or penalty to a financial institution selected by the participant.