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An Individual Retirement Account (IRA) is an excellent tool for retirement savings. Unlike most investments, depending on the type of IRA you choose, contributions may be tax deductible and will grow either tax deferred or tax-free.

Waterbury Telephone FCU offers members a choice of three IRA options.

Traditional IRA: This program offers tax-deferred earnings. You can contribute to a Traditional IRA if you earn compensation and you will not reach age 70 ½ by the end of the year. All earnings in the Traditional IRA are not taxed until they are withdrawn. The ability to defer taxes on your earnings, and to withdraw in a year when you may be in a lower tax bracket, can mean more after-tax dollars for your retirement. Assuming eligibility, you may contribute up to $3,000 with the effective year 2002 or 100% of compensation, whichever is less. Married couples can contribute up to a total of $6,000 per year, but no more than $3,000 per spouse.

Coverdell ESA (formerly Education IRA): This program is a type of tax-advantaged savings account created by the Taxpayer Relief Act of 1977. The IRA’s sole purpose is to help you pay for your child’s higher-education expenses, such as tuition, fees, books, supplies, equipment, and, in some cases, room and board. Unlike Traditional IRA’s, your contribution is never tax-deductible. However, the Education IRA offers you the potential for tax-free withdrawals-including earnings. The total contribution to each child’s Education IRA cannot exceed $2,000 with the effective year 2002. If you are eligible, you can contribute a full $2,000 per year, per child.

Roth IRA: This program is an individual retirement account which offers unique and exciting savings opportunities. Not only can it help with retirement needs, but also a first-time home purchase or other financial goals. Unlike Traditional IRA’s, your contributions to a Roth IRA are never tax-deductible. However, the money in your Roth IRA, including earnings, can be withdrawn tax-free. Of course, you must conform to the plan provisions to get this tax-free advantage. Assuming eligibility, individuals can contribute up to $3,000 per year or 100% of their earned income, whichever is less.

These highlights will help you determine which type of IRA might be best for you. For additional information on how each type of account would benefit your specific situation, talk to your tax adviser. When you are ready to contribute to an IRA, please contact your Credit Union. We’re here to help you save for your goals with an IRA.