Q What is it?
A The Roth IRA is a nondeductible account that features tax-free withdrawals for certain distribution reasons after a five-year holding period.

Q Am I eligible for one?
A Basically, there are two requirements for eligibility to contribute to a Roth IRA:

Q How much can I contribute?
A You may contribute any amount up to 100% of your earned income or $4,000, whichever is less through 2007, as long as your MAGI is within prescribed limits. These prescribed limits for contribution are:

In addition, if you are age 50 or over, you can make a "catch-up" contribution of $1,000. For 2008, this amount will increase to $5,000. After 2008, the contribution limit will be adjusted for cost of living increases in $500 increments through 2010.

It's important to note that $4,000 is the aggregate amount that you can contribute to any Roth and/or traditional IRA in a given year. For example, if you contribute $500 to a traditional IRA, you can only contribute $3,500 to a Roth IRA for that year.

Q Do I pay taxes on my earnings?
A No (provided you take the earnings as part of a qualified distribution). That's the best part of the Roth IRA. Unlike a traditional IRA, you cannot take a tax deduction for any of the contributions that you make to a Roth IRA. However, when you're ready to take a withdrawal, you pay no taxes on any of the earnings that your money has generated.

Q What is a qualified distribution?
A In order for earnings to be tax free, you must first meet a five-year holding period for your Roth IRA. This period begins with the tax year for which the first contribution is made. After that, any earnings you withdraw for a qualified distribution reason are tax free and IRA penalty free. Qualified distributions include:

• Distributions made on or after the date on which you attain age 59½,
• Distributions made to your beneficiary (or your estate) upon your death,
• Distributions attributable to your being disabled, and
• Qualified first-time home buyer distributions (up to $10,000).

Q Does the 10% IRS premature distribution apply if I withdraw my money before age 59 ½?
A The 10% IRS penalty does not apply to earnings you withdraw when you take any of the qualified distributions listed above. In addition, the 10% penalty is also waived for certain other distribution reasons. But, for these distributions, taxes on any earnings will apply. Distributions that are subject to taxes (on any earnings withdrawn) but no penalty include:

• Substantially equal periodic payments,
• Eligible medical expenses in excess of 7.5% of your adjusted gross income (AGI),
• Medical insurance premiums for eligible unemployed individuals,
• Qualified education expenses, and
• Distributions taken within the first five years for any of these reasons:
  • age 59 ½,
  • death,
  • disability, or
  • first-time home purchase.

Q What if I need access to my money now?
A A helpful feature of the Roth IRA is that, for nonqualified distributions, original contribution amounts are returned first. Contributions (as opposed to earnings) are not subject to taxation or the 10% IRS premature-distribution penalty when distributed. In other words, after you have met the five year holding period, you can always get back your principal tax free and IRS penalty free for any reason. The holding period begins with the tax year in which you fund your initial Roth IRA contribution.

Q When do I have to start taking distributions from my Roth IRA?
A You never have to take distributions from your Roth IRA. That's another benefit of the Roth IRA over traditional IRAs. Assets held in a Roth IRA are not subject to age 70 ½ required minimum distributions.

Q What happens in the event of my death?
A Your named beneficiary(ies) will receive the entire proceeds of your Roth IRA. The manner in which your beneficiary(ies) receives the funds is determined by the election made by your beneficiary(ies) within the guidelines of the law.

Q How do I move funds from a Traditional IRA to a Roth IRA?
A The law only allows people (single or married) with an MAGI of $100,000 or less to convert or roll over their traditional IRA into a Roth IRA. For a rollover or conversion to a Roth IRA, the amount rolled over or converted will be subject to full taxation. However, the funds will not be subject to a 10% premature-distribution penalty. Rollovers from a traditional IRA to a Roth IRA are not subject to the one rollover per 12-months rule.

Q When is the contribution deadline for funding a Roth IRA?
A Roth IRAs for the taxable year can be opened and funded any time between January 1 and the date your tax return is due for the year, excluding extensions. This is normally April 15 of the following year.

Q How do I open a Roth IRA?
A You can contact a PrimeVest Investment Executive in the CornerBank Asset Management Division by emailing us at webinv@cornerbanks.com or calling us at 1-800-408-9273.

For Federal tax questions, we encourage you to visit the Internal Revenue Services Website.

Call us at
620-221-1650 (local calls) or 1-800-408-9273
Bankline 1-800-408-9324