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Frequently Asked Questions
Individual Retirement Accounts
Investment ConceptsWhat is the difference between saving and investing?Savings provides funds for emergencies and for making specific purchases in the relatively near future (usually three years or less). Safety of the principal and liquidity of the funds (ease of converting to cash) are important aspects of savings dollars. Because of these characteristics, savings dollars generally yield a lower rate of return than other investment options. Investing focuses on increasing net worth and achieving long-term financial goals. Investing involves risk and the potential for loss of principal, but also offers the opportunity for appreciation over the long-term. What is diversification?Diversification is the process of spreading risk among a group of investments. For example, in a portfolio of stocks, it means reducing the risk of any individual stock by holding stock in a variety of companies. In a broader context, diversification means investing among a variety of securities to reduce the importance of any one security. Mutual funds are a great way to avoid "putting all your eggs in one basket." What is asset allocation?Asset allocation is an extension of the principle of diversification. It focuses on combining different asset categories, such as stocks, bonds, or real estate, into portfolios that target specific investment goals. Asset allocation can help reduce investment risk while enhancing return potential. Exactly how your money is allocated depends upon your time horizon, your financial goals and your tolerance for risk. What is dollar cost averaging?Dollar cost averaging takes much of the emotion and guesswork out of investing and trying to time the market. It is a technique used to soften market fluctuations on investment purchases. Basically, you invest a set amount of money on a regular basis over a long period of time, regardless of what the price of the investment is. When the value of the investment is up, you buy less shares; when the value of the investment is down, you buy more shares. The result is that you will acquire most of the shares at a below-average cost per share. What is a mutual fund?A mutual fund is an investment that pools the money of many individual investors. This money is then managed by experienced professionals, who can buy or sell a diversified or well-mixed number of stocks, bonds or money market securities for the fund. As a mutual fund investor, you own shares in a portfolio made up of as many as several hundred different securities. How risky are mutual fund investments?ALL investments involve risk. However, risk and rate of return are related. Generally, as the risk of an investment increases, the potential return increases as well. In order to become a successful investor, you must match your objectives with that of the fund (e.g. long-term growth for retirement in 15 years) and match the mutual fund's risk level to your own risk tolerance. Account DetailsHow do I establish an account?You may view the instructions on opening an account, or contact us directly for more assistance. What is the interest earned on these investments?Mutual funds do not have a fixed rate of interest as you would find with savings deposits in a federally insured account. A mutual fund makes money in two ways: by earning dividends or interest on the investments it owns, and by selling securities that have appreciated in value. Your earnings are in the form of dividends and interest that are passed on to you and the increase (or decrease) in the mutual fund's value. What is the minimum balance to open an account?The minimum balance to open a managed account (IRA or Investment) is generally $100,000. How will I make additional contributions to my account?You can establish an automatic withdrawal from your credit union or other financial institution account to your Trust Company account, which allows you to take advantage of the benefits of dollar cost averaging. In addition, you can directly transfer funds to your Trust Company account from your Alaska USA Federal Credit Union account utilizing the credit union's UltraBranch service. You can also make contributions to your account by check made payable to Alaska USA Trust Company. What is the maximum I can contribute annually?For an IRA, the maximum annual contribution as set by the IRS for 2007 is $4,000 ($5,000 for those 50 and older). For the tax years 2008 through 2010, the maximum annual contribution is $5,000 ($6,000 for those 50 and older). There is no maximum contribution limit on an Investment Account. How can I monitor my account?All investments can be viewed over the Internet through our TrustReporter Account Access Service. You will also receive a quarterly account statement which will reflect all mutual fund holdings, the market value of each mutual fund, the total value of your account, and all transaction activity that occurred during the period. Individual Retirement AccountsWhen must I open my IRA for a given tax year?You may establish or make deposits up to the filing date for that year's tax returns, excluding extensions (generally by April 15 of the following year). What is a rollover?A rollover occurs when you withdraw funds from one retirement program and deposit them in another, tax-free. This includes rollovers from one IRA to another, and rollovers from a pension plan to an IRA. Rollovers must be completed within 60 days of withdrawing the funds from one pension plan or an IRA. Only one rollover is allowed in a 12-month period. Can I convert (roll over) my Traditional IRA to a Roth IRA?Yes. Tax law provisions allow you to convert (roll over) your Traditional IRA to a Roth IRA. Certain eligibility requirements (income and tax filing status) apply, such as: your AGI cannot exceed $100,000, and married individuals filing separately may not convert Traditional IRAs to Roth IRAs. Conversion is considered a taxable distribution from your current Traditional IRA for prior earnings and deductible contributions, but not subject to the 10% penalty tax. Members should seek advice from their tax advisor or tax preparer before considering a conversion to a Roth IRA. What is direct transfer?A direct transfer occurs when you authorize your financial institution to forward your IRA directly to another financial institution. This may occur as often as you wish. Can I use my funds as collateral for a loan?Pledging IRA funds as collateral for a loan would require that the amount pledged be treated as a withdrawal. Accordingly, these funds would be subject to taxation and the withdrawal penalty, as appropriate to the IRA type. Must I contribute the full amount to my IRA each year?No. You can contribute any portion your budget allows, in one or many contributions. In fact, if you choose, you need not make any contributions in a given year. Company InformationWhat is Alaska USA Trust Company?Alaska USA Trust Company is a wholly owned subsidiary of Alaska USA Federal Credit Union. The Trust Company is a state chartered limited purpose trust company regulated by the State of Alaska, Division of Banking, Securities and Corporations. |
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