TSB Money Matters

Master Your Retirement Strategy with IRA Insights

June 20, 2024 The Savings Bank Season 1 Episode 6
Master Your Retirement Strategy with IRA Insights
TSB Money Matters
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TSB Money Matters
Master Your Retirement Strategy with IRA Insights
Jun 20, 2024 Season 1 Episode 6
The Savings Bank

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Unlock the secrets to a robust retirement plan with experts Kim Cournoyer and MaryEllen Murphy from the TSB IRA Department on the TSB Money Matters podcast. Ever wondered whether a traditional or Roth IRA is right for you? This episode promises to clear up any confusion by highlighting the essential differences, including tax benefits, contribution limits, and withdrawal rules. We also demystify how IRAs stack up against employer-sponsored plans like 401(k)s and underline the importance of consulting tax advisors for personalized advice.

But that's not all—discover why professional guidance is crucial when opening an IRA or starting any retirement account. Learn how tailored advice can help you navigate the myriad of investment options and choose the ones that best align with your financial goals and risk tolerance. Whether it's understanding FDIC and DIF insurance or identifying investments that offer peace of mind, this episode equips you with the knowledge to make informed decisions for a secure retirement. Don’t miss out on this informative discussion designed to empower your financial future!

The TSB Money Matter Podcast is produced by The Savings Bank, a community bank headquartered in Wakefield, Massachusetts. The information presented is for informational purposes and should not be considered financial, legal or tax advice. Consult with a banker or financial advisor about your personal or business finances.

Member FDIC. Member DIF. Equal Housing Lender.

Visit us at www.tsbdirect.bank

Show Notes Transcript Chapter Markers

Send us a Text Message.

Unlock the secrets to a robust retirement plan with experts Kim Cournoyer and MaryEllen Murphy from the TSB IRA Department on the TSB Money Matters podcast. Ever wondered whether a traditional or Roth IRA is right for you? This episode promises to clear up any confusion by highlighting the essential differences, including tax benefits, contribution limits, and withdrawal rules. We also demystify how IRAs stack up against employer-sponsored plans like 401(k)s and underline the importance of consulting tax advisors for personalized advice.

But that's not all—discover why professional guidance is crucial when opening an IRA or starting any retirement account. Learn how tailored advice can help you navigate the myriad of investment options and choose the ones that best align with your financial goals and risk tolerance. Whether it's understanding FDIC and DIF insurance or identifying investments that offer peace of mind, this episode equips you with the knowledge to make informed decisions for a secure retirement. Don’t miss out on this informative discussion designed to empower your financial future!

The TSB Money Matter Podcast is produced by The Savings Bank, a community bank headquartered in Wakefield, Massachusetts. The information presented is for informational purposes and should not be considered financial, legal or tax advice. Consult with a banker or financial advisor about your personal or business finances.

Member FDIC. Member DIF. Equal Housing Lender.

Visit us at www.tsbdirect.bank

Ally Houghton:

Welcome to the TSB Money Matters podcast, where we dive deep into the dynamic world of banking finance and everything in between. I'm your host, Ally Houghton, and we'll be tackling topics including the landscape of financial institutions, economic trends and the ever-evolving technology shaping the future of banking. Today, my guests are Kim Cournoyer and Mary Ellen Murphy from the TSB IRA Department. Thank you for both joining me, thank you, thank you. So what do you think is the most important area to start when discussing IRAs? What are the two most common IRAs I guess that people should be looking at?

MaryEllen Murphy:

Well, the two most common are the traditional and the Roth. The most common are the traditional and the Roth, so we'll get into the specifics on both a little bit later on.

Ally Houghton:

So what is? I guess? The basic question is what is an IRA and how does it differ from other retirement accounts?

MaryEllen Murphy:

Well, ira stands for an Individual Retirement Account. It's a means of accumulating personal retirement savings that offer some tax benefits. Unlike an employer-sponsored plan such as a 401K, an individual has the option of establishing an IRA at a bank, mutual fund company or other investment company. Employer-sponsored plans are often limited to investment options provided by the company's plan administrator. Ira contributions are typically made by the individual for whom the plan is established, whereas employer plans are most likely funded through salary deferral. Iras are subject to rules set forth by the IRS that differ from employer-sponsored plans.

Ally Houghton:

What are the different types of IRAs available to people? What are each key features of each?

Kim Cournoyer:

The Savings Bank currently offers traditional, roth, inherited and SEP IRAs. Given the complexity of each type, we thought for today's purposes we would focus exclusively on the traditional and Roth IRAs. Traditional IRA the traditional IRA could potentially offer the upfront gratification of a tax deduction if you qualify. Traditional IRAs accept pre-tax contributions, which may be fully or partially deductible depending on the individual's circumstance. So, for example, the full deductibility may be influenced by whether or not the individual and or their spouse are an active participant in an employer-sponsored plan, as well as their income and filing status. We strongly suggest that this discussion is held with their tax preparer, as we are not tax advisors. Some of the specifics would be withdrawals of pre-tax contributions and earnings are taxed as ordinary income.

Kim Cournoyer:

The IRS deems 59 1⁄2 or older as the age at which withdrawals can be made from their traditional IRA without incurring the 10% IRS early withdrawal penalty. Individuals under age 59 1⁄2 are subject to the 10% early withdrawal penalty. Individuals under age 59 and a half are subject to the 10 percent early withdrawal penalty, which is collected at the time they file their taxes. Traditional IRAs currently have a required minimum distribution which must begin in the year in which the participant attains age 73, or not later than April 1st of the following year. Should that individual ought to postpone their first RMD, they would be subject to taking two RMDs in one tax year. All subsequent RMDs must be taken by December 31st each year.

Ally Houghton:

Can you explain the contribution limits for the traditional and the Roth IRAs?

Kim Cournoyer:

Certainly, so the contribution limits for tax year 2024,. The current contribution amount for persons under age 50 is $7,000, for both the traditional and the Roth IRA, persons who happen to be age 50 or older can contribute an additional $1,000 catch-up amount, which brings their total contribution to $8,000. Contributions for the current tax year, that being 2024, began on January 1st of this year and can be made until the tax filing deadline in 2025 for tax year 2024. An individual cannot, however, exceed their maximum contribution amount, regardless of how many IRAs they currently own. So, for example, if you have five traditional IRAs or five Roth IRAs at various banks, you can't fund multiple plans for any given tax year, which would then exceed the maximum contribution limits.

MaryEllen Murphy:

So, if you don't mind, I'd like to back up a little bit and cover the Roth IRA, certainly so. Unlike the traditional IRA, the Roth IRA does not accept deductible contributions. Roth IRAs do, however, accept after-tax contributions. Therefore, withdrawals of contributions can be made at any time, tax and penalty free. Earnings are potentially tax and penalty free if certain requirements are met. The Roth IRA is subject to income limitations which may impact eligibility to make a full or partial contribution. Again, we usually suggest consulting with your tax preparer to make this determination as, again, we're not tax advisors. Similar to the traditional IRA, roth contributions can be made later in life, provided there is earned income. However, unlike the traditional Roth, iras are not subject to a required minimum distribution. The benefit of a Roth occurs on the back end, provided that a five-year holding period has been met from the time of the first Roth contribution in conjunction with a qualified distribution. Reason A qualified distribution includes several things attainment of age 59 1⁄2, being deceased, disabled or a first-time homebuyer. What factors should individuals consider when choosing between?

Ally Houghton:

a traditional and a first-time homebuyer. What factors should individuals consider when choosing between a traditional and a Roth IRA?

Kim Cournoyer:

I think that individuals should consider the benefit of a tax-deductible contribution or the delayed benefit of tax and penalty-free withdrawals in the case of the Roth. Also, the current age of the plan participant should be a factor as well. Perhaps a younger person would benefit from the long time growth of their potentially tax free earnings in lieu of the immediate gratification of a tax deduction.

Ally Houghton:

What are the penalties for early withdrawals from an IRA?

MaryEllen Murphy:

So, as we discussed earlier, if you are under the age of 59 and a half at the time of the withdrawal, you may be subject to a 10 percent early withdrawal penalty, in addition to a bank forfeited interest penalty if the IRA is invested in a bank CD.

Ally Houghton:

And can you explain the concepts of the required minimum distribution for traditional IRAs?

Kim Cournoyer:

Certainly, At the savings bank, we'll contact each individual attaining age 73 by written notification. We send a letter out, typically in the spring of the year in which you're turning 73. We're more than happy to meet with these individuals to discuss the requirements in detail which are set forth by the IRS. As we mentioned earlier, required minimum distributions must begin at age 73. Oftentimes we're asked by persons attaining that age how we come up with the amount, and the formula that the IRS has derived is that the amount of the required minimum distribution is determined by two factors traditional IRA as of December 31st in the year prior, which is then divided by your perceived life expectancy at age 73.

Ally Houghton:

What investment options are available within the IRAs?

MaryEllen Murphy:

I'll take this one. At the savings bank, we currently offer fixed rate bank CDs and IRA savings accounts. These bank investments are covered by FDIC insurance up to $250,000, and currently we also offer DIF insurance.

Ally Houghton:

What would you say? The first steps are for somebody if they're interested in opening IRA, but they're feeling overwhelmed by the process.

Kim Cournoyer:

I think individuals interested in establishing an IRA should feel free to reach out to the savings bank to meet with either myself or Mary Ellen at the IRA department. We are more than happy to go over the benefits of the traditional, the Roth and the SEP as well, with a prospective customer looking to establish a plan. We take a very hands-on approach and we understand that it can be overwhelming and we look to simplify that as much as possible.

Ally Houghton:

Do you think there is any age that's too early to open up an IRA?

Kim Cournoyer:

Well, with the income being a factor that has to be considered, that you have to have earned income. We will not open IRAs for minors, but I think the sooner the better, and I believe that people are starting to recognize that that the earlier they start to save, the more monies they're going to accumulate over their lifetime and during their working years.

MaryEllen Murphy:

Yeah, we see a lot of younger people now asking for Roths, which is a good thing.

Ally Houghton:

Do you have any final advice to anybody that's really interested in opening an IRA or starting on their retirement accounts?

Kim Cournoyer:

opening an IRA or starting on their retirement accounts. I think you need to sit down with a professional who is knowledgeable in guiding you through the process, has the benefit of extensive knowledge to offer options for each type of IRA that is available. It's not a one-fits-all decision. Certainly, I think there's information out on the Internet. There are different types of investments that people can that are offering. Some are insured. Ours at the savings bank are insured, as we mentioned earlier, by FDIC and DIF. You have to be able to sleep at night, and so you need to give consideration to not only the type of IRA that you're putting your money into, but the type of investment as well, so that you're comfortable with your overall decision.

Ally Houghton:

Great Well, thank you. I want to thank you both for joining me today and giving us some insight in IRAs and how to get started with IRAs, and we will be back soon with another edition of TSB Money Matters.

Understanding Traditional and Roth IRAs
Navigating IRA Options and Investments