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WHAT IS AN IRA?
An Individual Retirement Account or IRA is
a retirement plan account that provides some tax advantages for saving for
retirement in the United States. There are a number of different types of IRAs,
some being employer provided plans and others usually only being set up by an
individual. The types include:
Roth IRA - money is taxed before deposit, and then accumulates tax free on the
earnings, and can be withdrawn tax free. Named for William Roth
Traditional IRA - money is deposited before tax, money accumulates tax free on
earnings until withdrawn at retirement, at which point the money is taxed.
Rollover IRA - no real difference in tax treatment from a traditional IRA, but
the funds come from another type of retirement plan and are "rolled over" into
the rollover IRA instead of contributed as cash.
Conduit IRA - Tool to transfer qualified investments from one account to
another. In order to retain certain special tax treatments, funds may not be
comingled with other types of assets, including other IRAs.
SEP IRA - for self-employed individuals.
SIMPLE IRA - A simplified employee pension plan similar to a 401(k) but with
lower contribution limits and simpler administration.
Starting with the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA),
many of the restrictions of what type of funds could be rolled into an IRA and
what type of plans IRA funds could be rolled into were significantly relaxed.
Additional acts made some further relaxations of restrictions. Essentially most
retirement plans can be rolled into IRAs after meeting certain criteria, and
most retirement plans can accept funds from an IRA.
IRAs can be funded with most types of securities, and some non security
financial instruments. There are a few things that cannot be funded into an IRA.
They include collectibles including valuable coins or bullion and life
insurance. IRAs cannot generally hold real estate unless it is held as a form of
security such as a real estate investment trust, or REIT.
The United States Supreme Court ruled on April 4, 2005 that IRAs are not subject
to seizure during bankruptcy. [1] They ruled that because rights to withdrawals
are based on age, that IRA's should receive the same protection as other
retirement plans. 34 states already had similar laws, but the Supreme court
decision allows federal protection for IRA's. [2]
Correct name
The umbrella term for the concept is legally Individual Retirement Arrangement
instead of account. The IRA can then either be an annuity (typically deferred)
or have a trust set up that meets specific criteria the Internal Revenue Service
has defined. This trust and funding by financial instruments makes it an
account, and thus the term "Individual Retirement Account", the most common name
by which IRAs are known. Even most professionals in the financial industry
believe the common term is the correct one.
The source of this article is
Wikipedia, the free encyclopedia. The text of this
article is licensed under the
GFDL
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