What makes a MERS IRA right for retirees like you?
- You can simplify your finances by rolling your outside retirement accounts into a MERS IRA
- There’s no age limit on who can open an IRA
- So long you as you (or your spouse if you file jointly) have earned income, you can still contribute to your IRA
- A Roth IRA has no required minimum distributions during your lifetime, making it a good way to invest money you plan to leave to your heirs
- You may be able to withdraw funds penalty-free to pay for qualified education expenses for you, your spouse, your child or grandchild
Who Is Eligible?
To be eligible to open a MERS IRA, you must be a current or former employee of a Michigan municipality. Once you open a MERS IRA, your spouse will also be eligible for a MERS IRA, so long as you file a joint tax return.
Roth vs. Traditional IRAs
MERS offers two types of IRAs:
- A Roth IRA provides tax-free income in retirement
- A Traditional IRA allows tax-deductible contributions
Understanding the key differences between the two can help you determine which type is right for you.
View key differences (click to view)
|Tax Advantages||Contributions are made post-tax; qualified withdrawals provide tax-free income.||All or a portion of contributions may be tax-deductible; all withdrawals are subject to income tax.|
|Income Restrictions||You must be earning taxable income, however, income limits apply.||You must be earning taxable income. There is no income limit.|
(Before Age 59½)
|Before age 59½, you can withdraw your contributions at any time for any reason, without penalty or need to pay income tax.
However, if you withdraw the earnings on your contributions, you will pay income tax on the amount and a 10% penalty may apply.
|Before age 59½, you will pay income taxes on the amount you withdraw and a 10% penalty may apply.|
|Taxes on Withdrawals
(After Age 59½)
|After age 59½, withdrawals are tax-free, so long as your account has met the 5-year holding period requirement.||After age 59½, you will still have to pay income taxes on any withdrawals.|
|Required Minimum Distributions (RMD)||There are no required withdrawals.||You must start receiving distributions from your Traditional IRA by April 1 of the year following the year in which you reach age 72 (or 70½ if you reach age 70½ before 12/31/2019).|
Low Cost Investment Options
Compare the cost of a MERS IRA with other IRAs and you’ll see how MERS can help you make the most of your savings. MERS charges no annual account fee or investment transfer fees.
The MERS IRA uses the same investment menu as our other MERS programs, making it easy to select from familiar investment options. And with MERS’ professionally managed, low-cost investment choices, the MERS IRA is a smart choice for bringing diversity to your investment portfolio.
Rolling Over Outside Funds in Your MERS IRA
With a MERS Roth or Traditional IRA, you can roll over funds from our outside retirement accounts, making it easy to manage your finances in one place. Our Rollover Guide provides a quick summary of which account types can be rolled into your Traditional IRA and which types you’ll want to roll into a MERS Roth IRA.
- Download the IRA Incoming Rollover/Transfer Form (Roth and Traditional)
Funds in your MERS Roth or Traditional IRA are available to you at any time, although taxes and penalties may apply if certain criteria are not met. These criteria are different for Roth and Traditional IRAs.
Contributions to Your Account
If you have qualified earned income, you may contribute money to your IRA, regardless of your age. While there is no limit on the amount of money you can roll into your IRA account, the IRS determines how much earned income you can contribute to your IRA each year. You can view contribution limits for the current tax year on the IRS website.
Using Funds in Your Account
Withdrawals from a Roth IRA
Assets in your Roth IRA are tracked separately as either contributions you made or earnings from investment activity. You can withdraw your contributions at any time without penalty or tax. Any withdrawals you make from your account will come from your contributions, until those contributions have been depleted.
After all your contributions have been withdrawn, you may withdraw your earnings. However, you may pay income tax and a 10% penalty on withdrawals of your earnings, unless the criteria for a qualified distribution are met.
Your withdrawal is considered a qualified distribution if:
- It has been at least five years since the year you first made a contribution to a Roth IRA (counting the first year as part of the five), AND
- The distribution is taken:
- on or after the day you reach age 59 ½;
- because you are disabled; or
- by your beneficiary or your estate after your death.
Download the Roth IRA Distribution/Direct Rollover Form from the “Resource Library” in your myMERS account or call MERS Service Center to request one.
Withdrawals from a Traditional IRA
Funds in your Traditional IRA are available to you at any time. However, you may pay a 10% early withdrawal penalty if you withdraw funds before age 59 ½.
Your earnings grow tax-deferred until you take a distribution, and then you pay federal income tax and applicable state and local taxes on the taxable amount of your distribution. Your contributions and investment earnings are tracked separately for tax purposes, but each withdrawal you make will contain both contributions and earnings.
Distributions may be fully or partly taxable, depending on whether your IRA includes any non-deductible contributions.
- Fully taxable – if contributions to your IRA were eligible for full deduction, then distributions are fully taxable.
- Partly taxable – if you made non-deductible contributions to your IRA or were not eligible for a full deduction, then the amount equal to those contributions is taxable. Only the part of the distribution that represents non-deductible contributions are not taxed when distributed. If nondeductible contributions have been made, the distribution consists of both non-deductible and taxable contributions.
- Please remember you must begin taking Required Minimum Distributions when you reach age 72 if you participate in a Traditional IRA.
Download the Traditional IRA Distribution/Direct Rollover Form from the “Resource Library” in your myMERS account or call MERS Service Center to request one.
MERS IRA Handbook
Learn more about the MERS IRA by viewing the MERS IRA Handbook (pdf).