What Is an IRA Share Account?

Credit unions offer tax-advantaged IRA share accounts to their members.
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An IRA, or individual retirement account, is a popular means of investing for your retirement years. An IRA carries a tax advantage in that contributions to or withdrawals from the account may be tax-free, depending on the type of IRA you own and your age. An IRA share account holds savings and investments through a credit union, which you must join in order to participate.

Initial Purchase

Credit union members who deposit their money are buying shares in the credit union, either through a regular savings account, a checking account or an IRA. Credit unions that offer IRA accounts set them up with an initial investment known as a share certificate. This document gives the value of the shares purchased and the terms of the account, including the current dividend rate. The minimum initial deposit is usually quite low; in some cases, the credit union requires no minimum at all.

Income and Rates

IRA share accounts earn dividend income on the shares initially purchased and on any additional purchases of shares you make during the life of the account. The return on the shares can be fixed at the initial purchase or variable, depending on the credit union's financial performance. In most cases, the credit union pays dividends to the share account monthly or quarterly and sets the rate close to its regular savings account rates, which track the market rates for safe, fixed-income investments such as Treasury bonds, money market funds and certificates of deposit, or CDs.

Withdrawal Penalties

Most credit unions impose a penalty if you withdraw IRA money before age 59 1/2, the guideline retirement age imposed by Internal Revenue Service rules. The IRS penalizes these early withdrawals -- whether they are set up by credit unions or other account managers -- by levying 10 percent of the withdrawal amount, in addition to taxes on the account income. You can withdraw money and avoid the penalty in special cases, such as the payment of unreimbursed medical expenses, higher education costs or the purchase of a first home.

Contributions, Income and Taxes

If you own an IRA share account, you may use the dividends to purchase additional shares. This way, the share account increases in value just as compound interest would bolster a typical bank savings account. In a traditional IRA arrangement, you can deduct contributions to the account, up to a specific limit imposed by the IRS, and the income on the shares is not taxed until you withdraw the money. In a Roth IRA, withdrawals are tax-free after age 59 1/2; however, you can’t deduct contributions to a Roth IRA from your current income for tax purposes.

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