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CASH MANAGEMENT

Traditional IRA

A traditional IRA is a personal savings plan that gives you tax advantages for saving for retirement. Contributions to a traditional IRA may be tax-deductible, either in whole or in part. The earnings on the amounts in your IRA, as well as your tax-deductible contributions, are not taxed until they are distributed.

Benefits:

  • Tax-deferred earnings so you can grow your savings
  • Tax deductions for IRA annual contributions (subject to eligibility criteria)
  • No income limit, provided you are not participating in an employer-sponsored retirement plan
  • Flexibility to convert to a Roth IRA

Eligibility:

  • Individuals must be younger than age 70½ to make contributions.
  • Individuals must have earned income in the year that they make a contribution.
  • If you can't deduct your contributions, you can still make non-deductible contributions and benefit from tax-deferred investment earnings.
  • Even if you're in an employer-sponsored retirement plan, you can also contribute to a Traditional IRA.
  • Your income determines how much of your IRA contribution is tax-deductible.

Contribution Limits:

Traditional IRA limits on annual contributions for 2013* are:

  • $5,500 for single individuals up to age 50
  • $6,500 for single individuals age 50 and over
  • $11,000-$13,000 for married couples filing jointly ($5,500 maximum for each joint filer up to age 50, $6,500 each for those 50 and older)
  • If you wish, you can contribute to a Traditional IRA and a Roth IRA in the same year, but your total contribution is limited to the amounts shown above.

Distributions:

  • You are required to pay federal income taxes on your Traditional IRA withdrawals once you start taking distributions.
  • You can begin making penalty-free withdrawals as early as age 59½; withdrawals prior to age 59½ may incur a 10% early withdrawal penalty.
  • Required distributions generally must begin at age 70½; significant tax penalties can apply for failure to take minimum required distributions.
  • Early distributions can be taken without a penalty if the funds are used to buy a first home or for qualified higher-education expenses.

*Eligibility and contribution amount information is valid as of January 1, 2013.

First American Bank & Trust and its directors, officers, employees (collectively, "First American") are not permitted to give legal or tax advice. While First American can assist clients in the areas of estate and financial planning, only an attorney can draft legal documents, provide legal services and give legal advice. Customers of First American should consult with their legal and tax advisors prior to entering into any financial transaction or estate plan.

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