IRA - Individual Retirement Account
The IRA is a trust or custodial account set up in the United States for the exclusive benefit of you or your beneficiaries. The account is created by a written document. The document must show that the account meets all of the following requirements:
Per the IRS code section 1.408 (12), a trustee or custodian must be a bank, savings and loan association, credit union, insurance company or any other entity which satisfies the Secretary of the Treasury’s requirements for the purpose of providing IRAs to the public.
All of these entities are examined at least annually by their respective regulatory agencies. Any of these entities may hire other firms, such as Third Party Administrators (TPAs) to perform the functions required on behalf of the trustee or custodian.
Third Party Administrators are subject to the same audit and examination process as the entities. The trustee or custodian generally cannot accept contributions of more than the statutory limitations, excluding rollovers. Contributions, with the exception of rollovers, must be in cash. The amount of money in the IRA account must always be fully vested. In other words, the owner of the account must have a non-forfeitable right to the amount of money in the account at all times. The IRA funds cannot be used to purchase a life insurance policy. Assets in the IRA cannot be combined with other property, with the exception of a common trust fund or common investment fund. The owner must begin taking contributions by April 1 of the year following the year in which he reaches the age of 70 1/2. (This provision does not apply to Roth IRAs)
Types of Individual Retirement Accounts:
1. Traditional- Spousal
2. Roth- Spousal
3. Simplified Employee Pension (SEP)
4. Savings Incentive Match Plan for Employees of Small Employers (SIMPLE)
Spousal IRA can be a Traditional or a Roth. There are two other types of accounts which operate under similar rules as IRAs. These may also be self-directed and the income on them is tax deferred. They are:
1. Coverdell Education Savings Accounts (ESAs)
2. Health Savings Accounts (HSAs)
IRAs are not qualified plans. Qualified plans are covered by ERISA, while IRAs generally are not.
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