Choosing your retirement or education savings plan is an important decision.  Denmark State Bank offers a number of FDIC insured IRA options to help you save for the future.  We offer a variety of attractive rates and terms to fit your investment objectives.  In 2001, many changes affecting IRA plans were signed into law by means of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA).  You will want to consult your tax advisor for details, but in the meantime, we can get you headed in the right direction.

* Terms from 6 months to 60 months
* Interest accrues daily on principal balance 
* Automatically renewable after 10 day grace period 
* Maturity notice mailed 10 days prior to maturity
* Penalties for early withdrawal

• Traditional IRA Accounts
• Roth IRA Accounts
• Coverdell Education Savings Accounts
• Simplified Employee Pension Plan (SEP IRA)
• Simple IRA
• Retirement Calculators
• Current Rates

The primary benefits of the Traditional IRA include the tax-deferred growth of your investments and the possible tax-deductibility of your contributions. Everyone under age 70 ½ at the end of the year, with earned income, is eligible to contribute – there’s no income limit. 

Contributions
Annual contribution limits will increase for both Traditional and Roth IRA plans to 100% of earned income to the maximum contribution limit indicated below. Eligibility income limitations will continue to apply. An individual who attains the age of 50 before the close of the taxable year may also make catch-up contributions in addition to the maximum contribution limit. 

Deductibility
One of the immediate benefits of contributing to a Traditional IRA is a tax deduction many receive on their income taxes. Traditional IRA contributors receive a 100% deduction on their annual contribution if:

• they are not an active participant under an employer’s retirement plan, or (if they are)
• during 2005, earn no more than $70,000 if married and filing jointly, $50,000 if filing singly. These amounts continue to increase through 2007 and 2005, respectively.

For those who are participants in an employer plan, Traditional IRA deductibility is gradually phased out above these income levels.

Nonrefundable Tax Credit For Regular (Or Spousal) Contributions
For tax years 2002 through 2006, certain individuals may receive a nonrefundable tax credit (not to exceed $1,000) for contributions to Traditional and/or Roth IRAs. 

If eligible, the tax credit is equal to the applicable percentage of annual IRA contributions up to $2,000. To be eligible for the tax credit the individual must satisfy the following requirements:

• Must have attained age 18 before the end of the taxable year
• Must not be a dependent or a full-time student
• Must have adjusted gross income (AGI) within limits

The following chart highlights the income levels for eligibility for the tax credit and the applicable percentage used to calculate the tax credit.

For more information on Tax Credit Contributions, please visit www.irs.gov/pub/irs-pdf/f8880.pdf.

The tax information provided is for informational purposes only and is not intended, and should not be construed, as tax advice or a recommendation. Denmark State Bank does not provide legal or tax advice and you should consult with a professional tax advisor about your individual circumstances.

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Withdrawals

• Distributions or withdrawals can begin at age 59 ½ without IRS penalty.
• Distributions will be taxed as ordinary income in the year of distribution.
• Distributions can be taken before attaining the age of 59 ½ but are subject to a 10% IRS penalty. There are some exceptions:
  • Qualifying first home purchase (subject to lifetime limit of $10,000)
  • Qualifying education expenses
  • Qualifying medical expenses
  • Receipt of your Traditional IRA assets in equal payments over your life expectancy
  • Unemployment (under certain conditions)
  • Disability or Death
  • IRS tax levy
• Distribution of a required minimum amount must begin by April 1st of the year following the year the IRA owner attains the age of 70 ½. A uniform table has been established for standardized computation of required minimum distributions.

Conversions (Traditional to Roth IRA)
A conversion is a taxable movement of cash or other assets from a Traditional IRA or a savings incentive match plan for employees (SIMPLE) IRA to a Roth IRA. One common reason why IRA holders do conversions is that they desire the tax benefits of a Roth IRA. Another benefit to converting is the ability to avoid required minimum distributions. Whatever the reasons, a conversion allows the opportunity to move such assets into the Roth IRA, if certain eligibility is met and certain procedures are followed. 

Roth IRA rules specify that assets going into a Roth IRA are taxable. Therefore, an IRA holder must pay tax on all previously untaxed dollars converted to a Roth IRA. Qualified distributions from a Roth IRA, however, are not taxed when distributed, unlike many Traditional and SIMPLE IRA distributions.

Eligibility:

• Income in the year of conversion cannot exceed $100,000 (Income is the same for both single individuals and married couples).
• Must file a joint tax return, if married.

Some individuals may convert to a Roth and discover at the end of the year that their AGI was over $100,000. In this situation, an investor may reverse the transaction and transfer their Roth IRA back to a Traditional IRA.

If you are interested in establishing a Traditional IRA, please contact the IRA department at any of Denmark State Bank’s locations for further assistance. You can also visit www.irs.gov/pub/irs-pdf/p590.pdf for more information.

The tax information provided is for informational purposes only and is not intended, and should not be construed, as tax advice or a recommendation. Denmark State Bank does not provide legal or tax advice and you should consult with a professional tax advisor about your individual circumstances.

You will need Adobe Acrobat Reader to view the file. If you do not have Adobe you can click here to download a free copy of it.

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Roth IRA Accounts

The Roth IRA provides no deduction for contributions, but instead provides a benefit that isn’t available from any other form of retirement savings: if you meet certain requirements, all earnings are tax free when you or your beneficiary (ies) withdraw them. Other benefits include avoiding the early distribution penalty on certain withdrawals, and avoiding the need to take minimum distributions after age 70 1/2. 

Contributions
Individuals of any age can contribute to a Roth IRA as long as they have earned income and their modified adjusted gross income is below $110,000 (single) or $160,000 (joint). Allowed contributions begin to phase out at $95,000 (single) and $150,000 (joint). You can contribute to both a Traditional IRA and a Roth IRA; however, the total contributions between the two accounts cannot exceed the following limits:

Nonrefundable Tax Credit For Regular (Or Spousal) Contributions
For tax years 2002 through 2006, certain individuals may receive a nonrefundable tax credit (not to exceed $1,000) for contributions to Traditional and/or Roth IRAs. 

If eligible, the tax credit is equal to the applicable percentage of annual IRA contributions up to $2,000. To be eligible for the tax credit the individual must satisfy the following requirements:

• Must have attained age 18 before the end of the taxable year
• Must not be a dependent or a full-time student
• Must have adjusted gross income (AGI) within limits

The following chart highlights the income levels for eligibility for the tax credit and the applicable percentage used to calculate the tax credit.

Withdrawals
When you make a withdrawal from your Roth IRA, your contributions are considered the first amounts taken from the account. Once the contributions are exhausted, any conversions would be taken next, then earnings. Roth contributions can be withdrawn at any time, IRS penalty and tax-free.

Earnings can be distributed tax-free if the Roth IRA holder first made a Roth IRA contribution at least five years ago AND one of the following events occurs:

• attaining age 59 ½
• incurring a disability
• purchasing a first home
• death (payments to beneficiaries)
  

Distributions are not required to be taken by Roth IRA holders at age 70½.

Conversions (Traditional to Roth IRA)
If you have decided that the Roth IRA may be suitable for you, you can convert your Traditional IRA into a Roth IRA. In order to do this, your modified adjusted gross income must be below $100,000. One thing to keep in mind is that if you perform a conversion, you will have to pay taxes on any deductible contributions you made to a Traditional IRA, as well as any earnings in the account. 

If you are interested in establishing a Roth IRA, please contact the IRA department at any of Denmark State Bank’s locations for further assistance. You can also visit www.irs.gov/pub/irs-pdf/p590.pdf for more information.

The tax information provided is for informational purposes only and is not intended, and should not be construed, as tax advice or a recommendation. Denmark State Bank does not provide legal or tax advice and you should consult with a professional tax advisor about your individual circumstances.

You will need Adobe Acrobat Reader to view the file. If you do not have Adobe you can click here to download a free copy of it.

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Coverdell Education Savings Accounts (Formerly Education IRA)

A Coverdell Education Savings Account (ESA) is an investment tool created for the purpose of paying for the future cost of a child’s education. The plan allows total after-tax contributions of $2,000 per year for each child until they reach the age of 18 (extended if the child is a special needs child). These contributions and their subsequent earnings are tax-free when withdrawn to pay for qualified education expenses at elementary, secondary or post-secondary schools (private or religious). The deadline for contributions is the due date for filing the tax return for such taxable year not including extensions (usually April 15th).

Who can invest? – The answer to that question is “almost anyone”
There are two key limitations:

• Each child can receive a total of $2,000 per year in contributions from all sources. It does not make a difference if this is done in a single account or multiple accounts designed to benefit the same child.
• A person may be limited in the amount of their contribution if their modified adjusted gross income exceeds $95,000 for single filers or $190,000 for joint filers. Above these income levels, the ability to contribute is phased out. If income exceeds $110,000 for single filers, or $220,000 for joint filers, no contribution is allowed.

The ESA does not specify that the contributor must be a member of the family. With this broad range of potential contributors, it is possible that more than one person may want to contribute for the same child. A coordinated effort should be encouraged to avoid excess contributions.

Coordinating With Education Tax Credits
Beginning January 1, 2002, a designated beneficiary may be able to coordinate educational benefits from ESA and tax credits including the HOPE or Lifetime Learning tax credit as well as benefits from scholarships, as long as the benefits are not used for the same educational expenses. 

Qualified Expenses
Qualified education expenses are expenses required for the enrollment or attendance of the designated beneficiary at an eligible educational institution and include tuition and fees, the cost of books, supplies, and equipment, the amounts contributed to a qualified tuition program and, if the student is enrolled at least half-time, the cost of room and board. 

Withdrawals
Withdrawals from an ESA are free from federal income taxes as long as they’re used to cover qualified education expenses such as tuition, books, fees, supplies and equipment. If the money is used for other purposes, earnings are taxed as ordinary income and may be subject an additional 10% penalty. If the child named on the account doesn’t attend college, the account can be transferred to another member of his or her family to pay for qualified education expenses. A parent or guardian (the responsible individual) can maintain control over the account until the child reaches age 30 (longer if special-needs child). 

For more information about paving the road to success for your child, please ask one of our IRA representatives for more details or visit www.irs.gov/pub/irs-pdf/p970.pdf.

The tax information provided is for informational purposes only and is not intended, and should not be construed, as tax advice or a recommendation. Denmark State Bank does not provide legal or tax advice and you should consult with a professional tax advisor about your individual circumstances.

You will need Adobe Acrobat Reader to view the file. If you do not have Adobe you can click here to download a free copy of it.

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Simplified Employee Pension PLan (SEP IRA)

A Simplified Employee Pension Plan, commonly known as a SEP IRA, is a retirement plan specifically designed for self-employed people and small-business owners. You can establish a SEP IRA if you are a sole proprietor, in a partnership, or a business owner (of either an unincorporated or incorporated business, including Subchapter S corporations). A SEP IRA can also be established if you earn any self-employed income by providing a service, either full-time or part-time, even if you are already covered by a retirement plan at your full-time job. To establish a SEP plan, the employer must complete IRS Form 5305-SEP or an IRS approved prototype plan.

Highlights of SEP IRA

• The employer can restrict individuals under 21 years of age, and some part-time workers under a defined salary limit from being eligible for the plan, union workers who have a contract under collective bargaining, and employers can structure the plan to only allow eligibility to those who have worked 3 out of the last 5 years
  
• SEP contribution to each individuals retirement account must be allocated in a non-discriminatory manner
  
• SEP contributions to plan come directly from employer, can vary from year to year and can be discontinued as conditions warrant
  
• Traditional IRAs can accept SEP contributions
  
• SEP plan may be established and funded up to the employer’s income tax filing deadline plus extensions
  
• If SEP contribution is discontinued for any reason, it must be discontinued for all employees
  
• Each individual employee can receive up to 25% of his or her pre-tax income into the plan up to a maximum of $42,000 per year for 2005 (this is adjusted annually for inflation). Special calculations apply to sole proprietors and partnerships
  
• SEP plans are 100% vested
  
• SEP contributions grow tax-deferred until withdrawn
  
• Employers are not required nor obligated to make any contribution to their employee’s retirement accounts; however, if the employer voluntarily at their sole discretion elects to contribute for any one employee then they must put in the same percent of income for all eligible employees
  
• Loans are not permitted in this type of plan
  
• No annual reports for the employer to file with the IRS
  
• SEP Participants must begin required minimum distributions by April 1st of the year following the year they turned 70 ½
  
• Distributions taken before the participant reaches age 59 ½ may be assessed a 10% tax penalty
  
• Participants directly receive semi-annual and year-end statements from Denmark State Bank and can be set up to view their account through on-line banking at www.denmarkstate.com
  

If you are interested in establishing this SEP Plan, consult your tax and legal advisors for guidance in selecting the plan features which best suit your business’s needs. Once you are ready to adopt the Plan, please e-mail or contact the IRA department at any of Denmark State Bank’s locations for further assistance. 

http://www.irs.gov/pub/irs-pdf/p560.pdf

The tax information provided is for informational purposes only and is not intended, and should not be construed, as tax advice or a recommendation. Denmark State Bank does not provide legal or tax advice and you should consult with a professional tax advisor about your individual circumstances.

You will need Adobe Acrobat Reader to view the file. If you do not have Adobe you can click here to download a free copy of it.

Apply Now!

Simple IRA

The SIMPLE-IRA, or Savings Incentive Match Plan for Employees-IRA, became available in 1997 and only for companies with less than 100 eligible employees. Contributions are made by both the employee and the employer. In a SIMPLE-IRA, contributions and the investment earnings can grow tax-deferred until withdrawal (assumed to be retirement), at which time they are taxed as ordinary income.

For tax year 2005, the maximum employee contribution is $10,000 (Additional $2,000 catch-up deferrals may apply to participants age 50 or older), plus your employer’s contribution. With the exception of the higher contribution limits, SIMPLE-IRAs are subject to the same rules as a regular IRA.

Highlights of Simple IRA

• Companies with 100 or fewer eligible employees that offer a retirement plan starting in 2002 or later, (assuming it had no plan in the last 3 years) receive a tax credit to offset administration and employee educational expenses for the first three years of the plan
  
• Low income plan participants receive a tax credit for plan participation; however, participant must be at least 18 years of age, cannot be a full time student and cannot be a dependent on someone else’s tax return
  
• C Corporation, S Corporations, Single Employee Corporations, Self Employed, Not For Profit Corporations, Professional Corporations, and the like can establish a SIMPLE-IRA
  
• Retirement plan funding comes from voluntary employee salary deferral, plus mandatory employer % of salary match (3% to1%)
  
• Every eligible employee who meets the requirements of plan as established by the employer must be offered access to the plan
  
• Every W-2 individual employee can voluntarily put 100% of their income into SIMPLE IRA up to maximum of $10,000 each per year (Additional $2,000 catch-up deferrals may apply to participants age 50 or older)
  
• Employer must match employee contribution dollar-for-dollar up to 3% of compensation ONLY for all eligible employees who voluntarily elect to participate in plan. However, employer can lower percentage to 1% for any two out of every five years. There is NO match for those who do not want to be in plan. OR employer can elect to contribute 2% of salary of all eligible employees whether they want to be in plan or note
  
• Employer has flexibility regarding length of employment (from one day to maximum of two years) and income level when defining who is eligible for plan. Union employees under collective bargaining can be eliminated as eligible for plan
  
• Eligible employees MUST include those who have earned at least $5,000 in compensation in the prior two years and who are reasonably expected to receive $5,000 during the coming year
  
• There is no annual discrimination or top heavy testing required for plan, no IRS filing, no 5500 reporting
  
• Employee salary reduction is made on a pre-tax basis and excludable from current income tax. Employer matching contributions are deductible (if made by due date, including extensions, for employer’s tax return)
  
• Participants are always 100% vested immediately. This includes salary reduction and employer matching contribution
  
• Loans are not permitted and there is a two year waiting period before money can be rolled into an IRA or converted to a ROTH IRA
  
• Withdrawals from SIMPLE IRA are subject to a 25% tax penalty during the first two years if under age 59 ½; 10% penalty after two years and under age 59 ½
  
• Participants direct their own investments
  
• Both employer and employee contributions can only come directly from employer and these contributions are deposited directly to participant’s SIMPLE IRA investment
  
• Participants directly receive semi-annual and year-end statements from Denmark State Bank and can be set up to view their account on-line at www.denmarkstate.com

If you are interested in establishing this SIMPLE Plan, consult your tax and legal advisors for guidance in selecting the plan features which best suit your business’s needs. Once you are ready to adopt the Plan, please contact us by e-mail or call the IRA department at any of our locations for further assistance. 

http://www.irs.gov/pub/irs-pdf/p560.pdf

The tax information provided is for informational purposes only and is not intended, and should not be construed, as tax advice or a recommendation. Denmark State Bank does not provide legal or tax advice and you should consult with a professional tax advisor about your individual circumstances.

You will need Adobe Acrobat Reader to view the file. If you do not have Adobe you can click here to download a free copy of it.

Apply Now!

Click here for Online retirement calculators that can help you determine your retirement needs and answer other common questions about your finances.
 
For more information about our IRA products e-mail info@denmarkstate.com or contact us at the location nearest you.