IRAs

Related Topics

Individual Retirement Accounts (IRAs) were created by the United States Congress as special savings accounts to encourage people to save for their retirement. Members can earn interest or dividends for long term IRA share or certificate investments by depositing specific amounts for a set period of time.

IRA shares and IRA certificates can have fixed or variable rates. Fixed dividends are usually paid according to the amount and term of the certificate. Certificates are issued in various dollar increments and for various terms.

The financial institutions that maintain IRAs are referred to as the trustee or custodian of the account. The trustee or custodian and the IRA account holder have various legal and contractual rules they must follow.

The Internal Revenue Service (IRS) requires tracking and reporting of many types of financial information. IRA/IRS reports assist the federal government, members, and credit unions in tracking details such as year-to-date dividends, IRA distributions, contributions, and balances.

Credit unions must also keep track of the movement of IRA funds, whether through an internal transfer or change of investment, through a trustee-to-trustee transfer, or through a rollover in or out of an IRA.

IRA Types

There are two types of IRAs and one education savings plan.

  • Traditional IRAs allow an individual to contribute funds and defer paying taxes until the funds are disbursed from the Traditional IRA account.
  • Roth IRAs allow an individual to contribute funds and taxes are not deferred.
  • Coverdell Education Savings Accounts (ESA) allow an individual to contribute funds per child until age 18.

The maximum age limit of 18 for contributions to a student’s education IRA can be waived for special needs students that require longer to complete their education.

Establish an IRA

To establish an IRA, the credit union must first have the following documents:

  • Plan agreement
  • Disclosure statement
  • Financial disclosure

Contributions & Dividends

Money going into IRAs comes either as a deposit, which is referred to as a contribution, or as a dividend. When contributions are made, the credit union must record the following information:

  • The amount of the contribution
  • The type of contribution
  • The tax year the contribution is intended for. Contributions may be made for Roth, Traditional and ESA IRAs until April 15th for the prior year.
  • The date on which the contribution is made

Refer to the latest Year-End Bulletin and Information on www.porticousers.com for IRA contribution limits.

Distributions

Money going out of IRAs is a withdrawal. The designation of why or how the money was withdrawn is referred to as a distribution. Credit unions must keep records of specific account activity, including the earnings of the account and distributions from the account.

Periodic distributions from an IRA account may have funds originate from payroll processing or transfer file processing, both of which can have federal and state withholding.

The year in which a Traditional IRA account holder reaches age 73 (after 12/31/2022), the member must begin to take required minimum distributions (RMD). RMDs do not apply to Roth or Educational IRA accounts.

IRAdirect express Interface

IRAdirect express integrates Portico with IRAdirect®. In one seamless workflow, you can complete a paper form for the member and apply the transaction to Portico and IRAdirect, without duplicate data entry.

  • Save time and money - Apply IRA transactions to Portico and IRAdirect using a single workflow.
  • Eliminate costly errors - Built-in edits help eliminate common user errors.
  • Improve member service - Simple workflows and language help your staff confidently and accurately complete transactions.
  • Reduce work - With less errors, back-office auditing is easier and faster.
  • Simplify form completion - Forms are automatically completed during the transaction.