Hocking Valley Bank Comprehensive Planning

Traditional IRAs

A traditional individual retirement account or individual retirement annuity (IRA) is a personal savings plan that offers tax benefits to encourage retirement savings.

For 2008 and 2009, you can contribute up to the lesser of $5,000 or 100% of your taxable compensation to a traditional IRA. In addition, individuals age 50 and older can make an extra "catch-up" contribution of an additional $1,000 in both years.

Funds in a traditional IRA grow tax-deferred until they are withdrawn. Contributions may be fully or partially tax-deductible, depending on certain factors.

Prerequisites

You have not reached age 70½ during the year of the contribution.
You have taxable compensation (i.e., wages, self-employment income) during the year.
You can deduct the full amount of your contribution provided that you are not covered by an employer-sponsored retirement plan.
If you are covered by an employer-sponsored retirement plan, your IRA deduction (if any) depends on your modified adjusted gross income (MAGI) and your federal income tax filing status. See your tax advisor for details.

Key strengths

Deductible contributions are made on a pretax basis.
Funds in your IRAs grow tax-deferred until they are withdrawn.
IRAs offer a wide range of investment choices.
$1,095,000 (as of 4/1/07) (and in some cases more) of IRA assets are protected in the event of bankruptcy under federal law.

Key tradeoffs

Your ability to deduct contributions may be reduced or eliminated if you are covered by an employer-sponsored retirement plan.
Funds you withdraw from a traditional IRA are taxable income in the year received (to the extent that the withdrawal consists of deductible contributions and investment earnings).
Withdrawals taken before age 59½ may be subject to a 10% premature distribution tax (subject to certain exceptions).
Minimum annual withdrawals are required when you reach age 70½ (required minimum distributions).
Taxable portion of distributions will be taxed at ordinary income rates even if funds represent long-term capital gains or dividends paid on stock held within the IRA.

Comparison of Traditional IRAs and Roth IRAs

	Traditional IRA	Roth IRA
Maximum yearly contribution (2008 and 2009)	Lesser of $5,000 or 100% of earned income ($6,000 if age 50 or older)	Lesser of $5,000 or 100% of earned income ($6,000 if age 50 or older)
Income limitation for contributions	No	Yes
Tax-deductible contributions	Yes. Fully deductible if neither you nor your spouse is covered by a retirement plan. Otherwise, your deduction depends on your income and filing status.	No. Contributions to a Roth IRA are never tax-deductible.
Age restriction on contributions	Yes. You cannot make annual contributions beginning with the year you reach age 70½.	No
Tax-deferred growth	Yes	Yes; tax-free if you meet the requirements for a qualified distribution.
Required minimum distributions during lifetime	Yes. Distributions must begin by April 1 following the year you reach age 70½.	No. Distributions are not required during your lifetime.
Federal income tax on distributions	Yes, to the extent that a distribution represents deductible contributions and investment earnings.	No, for qualified distributions. For nonqualified distributions, only the earnings portion is taxable.
10% penalty on early distributions	Yes, the penalty applies to taxable distributions if you are under age 59½ and do not qualify for an exception.	No, for qualified distributions. For nonqualified distributions, the penalty may apply to the earnings portion. (Special rules apply to amounts converted from a traditional IRA to a Roth IRA.)
Includable in taxable estate of IRA owner at death	Yes	Yes
Beneficiaries pay income tax on distributions after IRA owner's death	Yes, to the extent that a distribution represents deductible contributions and investment earnings.	Generally no, as long as the account has been in existence for at least five years.

Related Links:

Securities offered through INFINEX INVESTMENTS, Inc. Member FINRA/SIPC. Hocking Valley Financial Solutions is a trade name of the bank. Infinex and the bank are not affiliated.
NOT A DEPOSIT	NOT FDIC-INSURED	NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY	NOT GUARANTEED BY THE BANK	MAY GO DOWN IN VALUE