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Understanding IRAs

An individual retirement arrangement (IRA) is a personal savings plan that offers specific tax benefits.
 
IRAs are one of the most powerful retirement savings tools available to you. Even if you’re contributing to a 401(k) or other plan at work, you should also consider investing in an IRA.
 
What types of IRAs are available?
 
The two major types of IRAs are traditional IRAs and Roth IRAs. Both allow you to contribute as much as $5,500 in 2016. You must have at least as much taxable compensation as the amount of your IRA contribution. But if you are married filing jointly, your spouse can also contribute to an IRA, even if he or she does not have taxable compensation. The law also allows taxpayers age 50 and older to make additional “catch-up” contributions. These folks can contribute up to $6,500 in 2016.
 
Both traditional and Roth IRAs feature tax-sheltered growth of earnings. And both give you a wide range of investment choices. However, there are important differences between these two types of IRAs. You must understand these differences before you can choose the type of IRA that’s best for you.
 
Note: Special rules apply to qualified individuals impacted by certain natural disasters, and certain reservists and national guardsmen called to active duty after September 11, 2001.
 
Learn the rules for traditional IRAs
 
Practically anyone can open and contribute to a traditional IRA. The only requirements are that you must have taxable compensation and be under age 70½. You can contribute the maximum allowed each year as long as your taxable compensation for the year is at least that amount. If your taxable compensation for the year is below the maximum contribution allowed, you can contribute only up to the amount that you earned.
 
Your contributions to a traditional IRA may be tax deductible on your federal income tax return. This is important because tax-deductible (pretax) contributions lower your taxable income for the year, saving you money in taxes. If neither you nor your spouse is covered by a 401(k) or other employer-sponsored plan, you can generally deduct the full amount of your annual contribution. If one of you is covered by such a plan, your ability to deduct your contributions depends on your annual income (modified adjusted gross income, or MAGI) and your income tax filing status:
 
For 2016, if you are covered by a retirement plan at work, and:
  • Your filing status is single or head of household, and your MAGI is $61,000 or less, your traditional IRA contribution is fully deductible. Your deduction is reduced if your MAGI is more than $61,000 and less than $71,000, and you can’t deduct your contribution at all if your MAGI is $71,000 or more.
  • Your filing status is married filing jointly or qualifying widow(er), and your MAGI is $98,000 or less, your traditional IRA contribution is fully deductible. Your deduction is reduced if your MAGI is more than $98,000 and less than $118,000, and you can’t deduct your contribution at all if your MAGI is $118,000 or more.
  • Your filing status is married filing separately, your traditional IRA deduction is phased out if your MAGI is less than $10,000, and there is no deduction if your MAGI is $10,000 or more.
For 2016, if you are not covered by a retirement plan at work, but your spouse is, and you file a joint tax return, your traditional IRA contribution is fully deductible if your MAGI is $184,000 or less. Your deduction is reduced if your MAGI is more than $184,000 and less than $194,000, and you can’t deduct your contribution at all if your MAGI is $194,000 or more.
 
What happens when you start taking money from your traditional IRA?
 
Any portion of a distribution that represents deductible contributions is subject to income tax because those contributions were not taxed when you made them. Any portion that represents investment earnings is also subject to income tax because those earnings were not previously taxed either. Only the portion that represents nondeductible, after-tax contributions (if any) is not subject to income tax. In addition to income tax, you may have to pay a 10 percent early withdrawal penalty if you’re under age 59½, unless you meet one of the exceptions.
 
If you wish to defer taxes, you can leave your funds in the traditional IRA, but only until April 1 of the year following the year you reach age 70½. That’s when you have to take your first required minimum distribution from the IRA. After that, you must take a distribution by the end of every calendar year until you die or your funds are exhausted. The annual distribution amounts are based on a standard life expectancy table. You can always withdraw more than you’re required to in any year. However, if you withdraw less, you’ll be hit with a 50 percent penalty on the difference between the required minimum and the amount you actually withdrew.
 
Learn the rules for Roth IRAs
 
Not everyone can set up a Roth IRA. Even if you can, you may not qualify to take full advantage of it. The first requirement is that you must have taxable compensation. If your taxable compensation in 2016 is at least $5,500, you may be able to contribute the full amount. But it gets more complicated. Your ability to contribute to a Roth IRA in any year depends on your MAGI and your income tax filing status:
  • If your filing status is single or head of household, and your MAGI for 2016 is $117,000 or less, you can make a full contribution to your Roth IRA. Your Roth IRA contribution is reduced if your MAGI is more than $117,000 and less than $132,000, and you can’t contribute to a Roth IRA at all if your MAGI is $132,000 or more.
  • If your filing status is married filing jointly or qualifying widow(er), and your MAGI for 2016 is $184,000 or less, you can make a full contribution to your Roth IRA. Your Roth IRA contribution is reduced if your MAGI is more than $184,000 and less than $194,000, and you can’t contribute to a Roth IRA at all if your MAGI is $194,000 or more.
  • If your filing status is married filing separately, your Roth IRA contribution phases out if your MAGI is less than $10,000. If your MAGI is $10,000 or more, your contribution will vary between $0 and:
    • $5,500 if you're under 50
    • $6,500 if you're over 50
Your contributions to a Roth IRA are not tax deductible. You can invest only after-tax dollars in a Roth IRA. The good news is that if you meet certain conditions, your withdrawals from a Roth IRA will be completely income tax free, including both contributions and investment earnings. To be eligible for these qualifying distributions, you must meet a five-year holding period requirement. In addition, one of the following must apply:
  • You have reached age 59½ by the time of the withdrawal
  • The withdrawal is made because of disability
  • The withdrawal is made to pay first-time home-buyer expenses ($10,000 lifetime limit)
  • The withdrawal is made by your beneficiary or estate after your death
Qualified distributions will also avoid the 10 percent early withdrawal penalty. This ability to withdraw your funds with no taxes or penalties is a key strength of the Roth IRA. And remember, even nonqualified distributions will be taxed (and possibly penalized) only on the investment earnings portion of the distribution, and then only to the extent that your distribution exceeds the total amount of all contributions that you have made.
 
Another advantage of the Roth IRA is that there are no required distributions after age 70½ or at any time during your life. You can put off taking distributions until you really need the income. Or, you can leave the entire balance to your beneficiary without ever taking a single distribution. Also, as long as you have taxable compensation and qualify, you can keep contributing to a Roth IRA after age 70½.
 
Choose the right IRA for you
 
Assuming you qualify to use both, which type of IRA is best for you? Sometimes the choice is easy. The Roth IRA will probably be a more effective tool if you don’t qualify for tax-deductible contributions to a traditional IRA. However, if you can deduct your traditional IRA contributions, the choice is more difficult. The Roth IRA may very well make more sense if you want to minimize taxes during retirement and preserve assets for your beneficiaries. But a traditional deductible IRA may be a better tool if you want to lower your yearly tax bill while you’re still working (and probably in a higher tax bracket than you’ll be in after you retire). A
financial professional or tax advisor can help you pick the right type of IRA for you.
 
Note: You can have both a traditional IRA and a Roth IRA, but your total annual contribution to all of the IRAs that you own cannot be more than $5,500 for 2016 ($6,500 if you’re age 50 or older).
 
Know your options for transferring your funds
 
You can move funds from an IRA to the same type of IRA with a different institution (e.g., traditional to traditional, Roth to Roth). No taxes or penalty will be imposed if you arrange for the old IRA trustee to transfer your funds directly to the new IRA trustee. The other option is to have your funds distributed to you first and then roll them over to the new IRA trustee yourself. You’ll still avoid taxes and penalty as long as you complete the rollover within 60 days from the date you receive the funds.
 
You may also be able to convert funds from a traditional IRA to a Roth IRA. This decision is complicated, however, so be sure to consult a tax advisor. He or she can help you weigh the benefits of shifting funds against the tax consequences and other drawbacks.
 
Note: The IRS has the authority to waive the 60-day rule for rollovers under certain limited circumstances, such as proven hardship.
 
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Securities offered through LPL Financial, member FINRA / SIPC. Insurance products offered through LPL Financial or its licensed affiliates. New York Community Bank, New York Commercial Bank and Investment and Insurance Services are not registered broker/dealers and are not affiliated with LPL Financial.
 
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This site is designed for U.S. residents only. The services offered within this section are available exclusively through our U.S. Investment Representatives. LPL Financial's U.S. Investment Representatives may only conduct business with residents of the states for which they are properly registered. Please note that not all of the investments and services mentioned are available in every state.

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The Divisions of New York Community Bank

Queens County Savings Bank​

Established on April 14, 1859 in the village of Flushing, Queens County Savings Bank was the first savings bank chartered by the State of New York in the New York City borough of Queens. Until then, local residents would need to travel to Manhattan to do their banking; the opening of the borough’s first local bank was accordingly met with elation and relief.

While the bank expanded here and there over the course of the next 14 decades, its greatest growth occurred in just the last 15 years. In anticipation of expanding its franchise through the first of several mergers, the Bank changed its name to New York Community Bank on November 21, 2000. By the end of that year, NYCB had grown from 14 to 86 branches; today, it has more than 220 branches in five states.

In deference to its heritage as a Queens-based institution, the Community Bank operates each of its 38 branches in the county under its original name, Queens County Savings Bank.

Roslyn Savings Bank

Established in 1875, The Roslyn Savings Bank was the first financial institution headquartered in Nassau County, one of two counties--with Suffolk--that constitute Long Island, New York. Its founders wanted to build a bank that would provide the Island’s residents with a safe place for their savings, as well as the financial assistance they’d need to build or purchase homes.

A member of the NYCB Family of Bank since October 31, 2003, Roslyn Savings Bank today serves the Island’s businesses and consumers through 42 conveniently placed branch offices.

Richmond County Savings Bank

A member of the NYCB Family of Banks since July 31, 2001, Richmond County Savings Bank is the third oldest of our divisions, with roots that go back to October 30, 1886. It was then that the bank was established to serve those who lived and worked on Staten Island, and it was less than one year later that it made its first mortgage loan.

Today, nearly every street on the Island has at least one home that was financed by Richmond County Savings Bank.

Originally located in the Odd Fellows Building at the corner of Richmond Terrace and Broadway, the Bank today has 20 convenient banking locations in all.

Roosevelt Savings Bank

Roosevelt Savings Bank was established in 1895 on the corner of Gates Avenue and Broadway in Brooklyn under the name “Eastern District Savings Bank.” In 1920, the bank changed its name to honor the memory of the nation’s 26th president, Theodore Roosevelt.

In February 1999, Roosevelt Savings Bank merged with and into Roslyn Bancorp, which merged with and into New York Community Bancorp, Inc. in October 2003.  Today, Roosevelt Savings Bank serves its customers through seven branches in Brooklyn as a member of the NYCB Family of Banks.

Garden State Community Bank

Garden State Community Bank has been a member of the NYCB Family of Banks since March 2008, when we combined all the branches of four smaller New Jersey-based divisions--First Savings Bank of New Jersey, Ironbound Bank, Penn Federal Savings Bank, and Synergy Bank—into a single division with a highly relatable name.

While Penn Federal Savings Bank and Synergy Bank were directly acquired in 2007, First Savings Bank of New Jersey and Ironbound Bank were acquired in 1999 by Richmond County Financial Corp., which subsequently merged with NYCB.

By combining the strengths of these four local banks with the strengths of our institution, we established a Garden State community bank that offers more products and services, and more convenient locations, than any one of these banks provided on its own.

Today, we serve our customers through 45 branches in Essex, Hudson, Mercer, Middlesex, Monmouth, Ocean, and Union Counties, most of which first opened their doors nearly 14 decades ago.

AmTrust Bank

AmTrust Bank is one of the more recent additions to a respected banking family that has been serving customers and communities for more than 156 years.

The first branch of AmTrust Bank opened its doors in the late 1980s, when Ohio Savings Bank opened the first of its branches in south coastal Florida under the “AmTrust Bank” name. Eleven years later, it expanded again--this time to Arizona--and on December 4, 2009, it joined the NYCB Family of Banks. With our acquisition of Desert Hills Bank less than four months later, we further expanded our franchise in the Grand Canyon State.

Currently in its seventh year as an NYCB division, AmTrust Bank serves its customers through 41 convenient branches: 14 in central Arizona and 27 in Florida.

Ohio Savings Bank

Ohio Savings Bank is one of the more recent additions to a respected banking family that has been serving customers and communities for more than 156 years.

Established in 1889 as the Ohio Savings Home Loan and Building Co., the bank’s initial expansion was limited to Ohio until it opened its first Florida branch in 1989. Eleven years later, it expanded again, this time to Arizona. And seven years later, it changed its name to AmTrust Bank.

On December 4, 2009, AmTrust Bank became the newest member of our banking family, the first of our divisions to serve customers in non-contiguous states. Four months later, we elected to pay tribute to its forebear, by operating our 28 branches in Ohio under a more suitable name: Ohio Savings Bank.

To learn about our commercial bank, visit

New York Commercial Bank 
 
 
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