Traditional IRA

Q What is it?
A The traditional IRA is an account which allows you to defer taxes on your earnings until they are withdrawn. Also, certain contributions are tax deductible in the tax year for which they are made.

Q Am I eligible for one?
A If you are under age 70½ for the entire tax year and have earned income (or your spouse has earned income), you are eligible to establish a traditional IRA, even if you already participate in any type of government plan, tax-sheltered annuity, simplified employee pension (SEP) plan, Savings Incentive Match Plan for Employees of Small Employers (SIMPLE), or qualified plan (pension or profit sharing) established by an employer.

Q How much can I contribute?
A You may contribute any amount up to 100 percent of your compensation or $4,000, whichever is less through 2007. 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. In addition, if you are age 50 or over, you can make a "catch up" contribution of $1,000.

It's important to realize 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, the most you could contribute is $3,500 to a Roth IRA for that year.

Q Do I get a tax deduction for my contribution?
A Deductibility of your contribution is based on whether or not you are an active participant in an employer-maintained retirement plan. If you're not an active participant, you are eligible for a full ($4,000) deduction no matter how large your income. If you are an active participant, the deductible amount is dependent on your modified adjusted gross income (MAGI) and income tax-filing status. You may be eligible for the maximum deduction, a partial deduction, or no deduction. Even if you are not eligible for a deductible contribution, you can still make nondeductible contributions to a traditional IRA and take advantage of the tax-deferred earnings.

Q Do I pay taxes on the earnings?
A Neither PrimeVest, nor any of its representatives may give tax advice.

Q When can I withdraw funds without incurring any IRS penalties?
A You can withdraw funds from your traditional IRA without incurring a 10 percent IRS premature-distribution penalty any time after you reach age 59½. You can avoid the penalty before age 59½ if you become disabled, if the distributions are part of substantially equal periodic payments, for medical expenses in excess of 7.5 percent of your adjusted gross income, for health care insurance if you've been receiving unemployment compensation for at least 12 weeks, for qualified higher education expenses, or for a first-time home purchase.

Q How are funds taxed at distribution?
A If you are over age 59½, simply include the taxable portion of the amount withdrawn (generally, deductible contributions and all earnings) as income. However, if you are under age 59½ and do not meet one of the exceptions, you must also pay a 10 percent IRS penalty for premature distribution. The nondeductible portion of the distribution is not taxable when withdrawn nor is it subject to the 10 percent premature-distribution penalty.

Q When must I withdraw funds?
A When you reach your age 70½ year, you must begin to take minimum required withdrawals or severe penalties will be imposed.

Q How do I open a traditional 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.

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