IRA Retail Staff Training 2024 PDF

Training Retail Staff Presented by Deposit Operations Learning Objectives As a result of this session, you will be able to:  Define what an IRA is  Know IRA eligibility  Understand basic differences between Trad...

Training Retail Staff Presented by Deposit Operations Learning Objectives As a result of this session, you will be able to:  Define what an IRA is  Know IRA eligibility  Understand basic differences between Traditional and Roth  Communicate the purpose and main benefits of a Traditional and Roth IRA IRA Fundamentals: What is an IRA? An IRA is a savings account which allows individuals to save money for retirement in a tax-advantaged manner. The IRS sets maximum contribution limits for IRA accounts each year. The money invested in an IRA can grow either tax-free or tax-deferred, depending on the type of IRA. Studies show most individuals will need to rely on personal savings for up to 60% of their post-retirement income. IRA is an Individual Retirement Account, which means that it can only be owned by one person.  It cannot be owned by a non-human entity such as a trust. A trust may be named as a beneficiary. An IRA is an Account, not an investment.  An IRA may contain several investments, example: Share or Certificate of Deposit  One Application = One IRA. Individual Retirement Accounts were enacted by Congress to encourage retirement saving by individual taxpayers. The tax laws governing IRAs have changed throughout the years. As a result, information regarding IRAs must be updated regularly to keep up with the changes in legislation. Example: Secure Act 2.0 (Updates coming in 2025) There is no limit on the number of IRAs a person can have. Many individuals establish multiple IRAs to diversify their retirement investments. IRAs also benefit the credit union. They create stable, long-term funds for the credit union, establish long-term member relationships, There are two types of IRAs that Alliance Catholic CU offers: Traditional IRA and Roth IRA. The IRA holder must be the primary member on the account.  Traditional vs. Roth How does a Traditional IRA differ from a Roth IRA? Which one should a member select? Though eligibility requirements differ, often the decision of whether to contribute to a Traditional IRA or Roth IRA may depend on income. Both offer flexibility, accessibility, and valuable tax benefits. If the member is eligible for both a Traditional and Roth IRA, they can contribute to both if their total contributions for the year do not exceed the annual limit.  Similarities and Differences between Roth and Traditional Can take out earnings tax-free after age 59 ½ and if held the account for more than 5 years. No RMDs Roth Income restrictions Contributions made with after- tax dollars Gross tax-free Both Yearly contribution limits (2024 $7,000/$8,000) Taxes and penalties associated if earnings are taken out early. Earnings are taxed when Tradition withdrawn al Has RMDs Contributions can be used for tax deductions Eligibility: Can a member make contributions?? Traditional – The member is eligible to contribute if they earn compensation or file a joint tax return with a spouse who earns compensation. Roth – The member is eligible to contribute if they earn compensation or file a joint tax return What is Compensation? with a spouse who earns compensation, and their MAGI is less than or within the defined Generally, compensation is monies earn from limits. working. Includes – Wages, salaries, commissions, self- employment income, alimony and non-taxable IRA contributions after age 70½: combat pay. For 2020 and later, there is no age limit on Does not include – Earnings and profits from making regular contributions to traditional or property, interest/dividend income, pension or Roth IRAs. annuity income, deferred compensation, or income from partnerships.  RMDs Traditional IRAs generally must begin taking RMD’s (Required Minimum Distributions) the year the IRA holder turns age 73. RMD is generally determined by dividing the prior year- end account balance by the life expectancy factor. It is the minimum amount that must be taken each year. Members can always take more than the RMD amount. The RMD age was increased from 70 ½ to 72 by the SECURE Act in 2020. The SECURE Act 2.0 of 2022 increased the RMD age again to age 73 in 2023. It is set to increase once again in 2033 to 75.  Quiz Time What is the purpose of an#1 to open an Who is eligible IRA? IRA? What are the tax advantages of each IRA type? Can a person have more What are the current IRA than one IRA account type? contribution limits? What is an RMD? Which IRA type requires the At what age does an RMD owner to take an RMD? begin? IRA Contributions Learning Objectives  Understand sources of contributions  Identify the types of contributions and what each one means Sources of Contributions Money is deposited (or contributed) into an IRA in several different ways. The way a contribution is deposited is similar for a Traditional and a Roth IRA. Contributions are made from two main sources. New Money- Money that IRA owners contribute to an IRA based on their compensation Old Money- Money that IRA owners move from another IRA or an employer-sponsored retirement plan  Types of Contributions Regular Transfer Rollover Recharacterizat SEP Conversion ion  Regular Contribution A Regular contribution is any amount contributed to a Traditional or Roth IRA for any tax year that cannot exceed the lessor of the published annual contribution limit or 100% of your earned income and other eligible compensation. If the owner also maintains both types of IRAs, the maximum contribution to the Traditional IRA is reduced by any contributions made to the Roth IRA.  A contribution can be made for the prior year up until the tax filing deadline for that year. Example: In 2024, Kane Brown can contribute to his IRA for 2023 tax year before the tax deadline of April15, 2024.  If the IRA owner is age 50 or older by the end of the year, they may be eligible to make an additional catch-up contribution to an IRA for that tax year which is an additional $1,000.00 as of 2024.  Transfer Contribution A Transfer is a direct movement of funds from one IRA to another IRA. Transferring funds prevents the member physically receiving the money when it comes out of the IRA, so the transaction is not taxable and is not reported to the IRS. A transfer may occur between two Traditional IRAs or two Roth IRAs. The IRS does not place restrictions on when or how often transfers occur. Example: Kane Brown has a Traditional IRA at Huntington and decides to bring the IRA to ACCU for a better rate. Mr. Brown has Huntington mail a check payable to ACCU FBO Kane Brown.  Rollover A Rollover is a distribution and a subsequent tax-free movement of funds from any of the IRA owner’s Traditional or eligible employer-sponsored retirement plans to their Traditional IRA. To be tax-free on a Roth IRA it must be a movement of funds from a Roth to a Roth IRA. A rollover from an eligible employer-sponsored retirement plan to their Roth IRA will generally result in any pretax funds being subject to tax.  Effective for distributions taken after January 1, 2015, members are permitted to roll over only one distribution from an IRA (Traditional or Roth) in a 12-month period from the date of the rollover, regardless of the number of IRAs you own. There is no limit to the number of rollovers you may perform from any of your eligible employer-sponsored retirement plans to a Traditional or Roth IRA.  Any required minimum distributions paid to an IRA owner or beneficiary may not be rolled over.  A rollover generally must be completed within 60 calendar days from the date the member receives the funds.  A rollover contribution of Roth IRA assets may not be made to a Traditional IRA.  A rollover contribution of Traditional IRA assets may not be made to a Roth IRA. o Note: Generally, a contribution coded as a rollover will imply that the IRA owner had direct access to the funds.  Conversion A Conversion is a way to move assets from a Traditional IRA to a Roth IRA and can be done directly or indirectly. Like a rollover, an indirect conversion generally must be completed within 60 calendar days. Either way, the conversion is reported to the IRS, and the member must include any converted pretax amounts in the taxable income for the year of the conversion. Once assets are converted to a Roth IRA, the member cannot move the assets back to a Traditional IRA. If the member withdraws the converted funds within five years, a 10% early distribution penalty tax generally applies unless the member has a penalty tax exception. Keep in mind that certain distributions that the member receives from a Traditional IRA cannot be converted: RMDs, substantially equal periodic payments, and excess contributions.  Recharacterization Recharacterization refers to a contribution to an IRA that can be recharacterized as a contribution to a different IRA. The member can recharacterize their Roth IRA contribution into a traditional IRA contribution and vice versa, though specific deadlines apply. The member has until the due date for federal income for the year when they made the first contribution to recharacterize their contribution. If they recharacterize their contribution by this deadline, they can treat the contribution as made to the second IRA for that year. This means that they can effectively ignore the contribution you made to the first IRA. These types are not very common and Ascensus is available for assistance with this type of contribution.  SEP A SEP IRA is a simplified employee pension (SEP) plan that allows the employer to make contributions into their employee’s Traditional IRA.  The employer may make SEP contributions to the employee’s Traditional IRA within the published annual limits.  If the employer maintains a salary deferral SEP plan, the employee’s elective deferrals may not exceed the published annual limit.  If the employer maintains a salary deferral SEP plan and the owner is age 50 or older by the end of the calendar year, they may be eligible to make additional catch-up salary deferral contributions.  SEP contributions to the Traditional IRA are reported for the year in which the contributions are made. Note: ACCU no longer offers SEP IRAs.  Quiz Time #2 Which type of contribution does the member not have access 1 to the funds? Which contributions have a 60-day rule? 2 What type of contribution can the member effectively ignore 3 the first contribution? What is the difference between old money and new money? 4 Which type of IRA does ACCU no longer offer? 5 IRA Distributions Learning Objectives  Identify the types of distributions  Understand basic tax information regarding distributions Taxes-Do You Michigan is a state tax withholding state. Know? The individual must withhold state income When an individual requests an IRA tax on the distribution or fill out a MI W-4P distribution, we should obtain the form to keep on file. State withholding desired distribution amount, the regulations apply if the credit union has a reason for the distribution (for branch or an office in the state AND the reporting purposes), and an election IRA owner/beneficiary is required to file an for income tax withholding. If the income tax return in that state or is a state owner does not waive federal resident, depending on the state. income tax withholding, we must withhold income tax on the distribution. The credit union is required to withhold 10% for federal income taxes on IRA distributions that may be subject to income tax, unless the IRAs are intended to be used for retirement. owner or beneficiary elects in writing to not withhold. Withholding Therefore, the tax laws are regulations to prepays some of the federal income encourage people to leave their money in an taxes due on the distribution. IRA until they retire. Each year, distributions from an IRA must be reported to the IRA owner and the IRS using IRS Form 1099-R. The IRA owner’s Form 1099-R must be postmarked by January 31. The IRS must receive Form 1099-R information by February 28. The IRA owner is responsible for reporting the distribution correctly on their income tax Common Types of Distributions Norma Transf l er Rollov Early er  Normal A Normal distribution, for a Traditional IRA, is one in which money is received to an IRA owner who has attained age 59 ½ or older. This includes RMD-Required Minimum Distribution. These are reportable distributions to the IRS. A Normal distribution, for a Roth IRA, the IRA owner satisfied the five-year rule, and withdrawal is due to being age of 59 1/2 or older; or disability. These are reportable distributions to the IRS. A Transfer distribution is one in which money is moved directly from one IRA to another of the same type without the IRA owner ever having receipt of the money. The check must be payable to the receiving organization but can be mailed directly to the financial organization or to the member.  Note: A change of investment inside the IRA is not considered a direct transfer. This is an internal transfer, and no IRA paperwork needs to be completed outside of the transaction. A Rollover distribution is one in which money is distributed from an IRA and the IRA owner has access to the money between the time it is received and the time it is deposited back into an IRA. This is commonly referred to as an Indirect Rollover. There is another type of rollover called Direct Rollover which is a movement of money between IRAs and eligible employer-sponsored retirement plans. The IRA owner does not have access to the money.  Rollover One-Per-12-Month Rule- An IRA owner is allowed one IRA-to-IRA rollover per 12-month period, regardless of the number of IRAs a person may own.  Note- that the one-per-12-month rule does not apply to IRA transfers or retirement plan rollovers to IRAs. An Early distribution is one in which money is taken from a Traditional IRA or Roth IRA before the IRA owner attains age 59 ½. In the case of early distribution, a 10% penalty tax is imposed on the taxable portion of a distribution that is made to an IRA owner who is under age 59 ½ unless a penalty tax exception applies. The IRA owner is responsible for calculating and reporting the early distribution penalty tax and remitting the penalty tax to the IRS. Things to Keep in Mind When completing a withdrawal be sure to accurately disclosure if the IRA will remain open or closed. Partial Withdrawal-the IRA will still contain assets in any investment. Complete Withdrawal-the IRA contains zero balance on all investments but will remain open. This status should NOT be used! The credit union requires the IRA share to have a five-dollar minimum balance to remain open. Complete Withdrawal and Close- the IRA contains a zero balance on all investments and will not receive assets in the future. IRA owner should always sign the IRA withdrawal document, and the credit union representative should sign as trustee or custodian. Make sure to scan all documents to the members account in a timely manner.  Quiz Time #3 What are the four common types of distributions? 1 What is the name of the tax form withdrawals 2 reported on? What is the age that switches the type from early to 3 normal? What type of withdrawal might incur a penalty? 4 Which type of withdrawal can only be done once 5 every 12 months ?  Six Basic Steps to before Opening an IRA There are six basic steps to assist members with opening an IRA. 1. Answer Questions  Give tax information, not tax advice  Determine type of IRA that needs to be opened: Traditional or Roth 2. Describe IRA investment options Explain the IRA investments offered at the credit union IRA Share or Certificate of Deposit Steps Continued… 3. Processing in the core  Set up the investment account for the IRA in Symitar  If CD was selected, complete the Certificate Disclosure  Complete process using the IRA Interface in the specfile dropdown 4. Process the application  Complete and have member sign the application  Sign the application as the credit union’s representative  Scan all documents to the member’s account 5. Provide member with required IRA disclosures  Copy of the application  IRA agreement and Disclosure statement  Financial projection table for the investment the owner has chosen for the IRA funds 6. Encourage the member to read the enrollment materials  The IRA agreement and disclosure statement contain important information regarding administration of the IRA Symitar Interface The Symitar IRA Interface allows users to send information directly from the core to IRAdirect express via a PowerOn Specfile. The interface eliminates the need for duplicate entry while streamlining the user experience for IRA enrollments and transactions. Please note that this interface pushes information to Ascensus only. It does not write back to the core. Any information changed in IRAdirect express will need to be manually updated in Symitar as well. The procedure will provide instructions for setting up a new IRA application as well as performing deposits and/or withdrawals from existing IRAs. THINGS TO KNOW Ascensus Interface assumes that transactions have already been made within the core; meaning that the IRA has been opened and funded. The interface will display IRA transactions for the last seven days only. Please refer to the IRA Interface Procedure! Ascensus is a Ascensus We have Ascensus company that handles tax access to IRA representatives supports our IRA reporting professionals will be able to program to along with simply by assist with any ensure we are tax calling 800- questions you compliant with documents. 356-9140. may have IRA regarding IRAs. requirements Reps will ONLY and regulations. speak to CU employees.  Questions or Comments? Thank you for attending this IRA training!