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Individual retirement account
An individual retirement account (IRA) in the United States is a type of retirement savings plan offered by many financial institutions that provides tax advantages for retirement savings. It is a trust that holds investment assets purchased with a taxpayer's earned income for the taxpayer's eventual benefit in old age. An individual retirement account is a type of individual retirement arrangement as described in IRS Publication 590, Individual Retirement Arrangements (IRAs). Other arrangements include individual retirement annuities and employer-established benefit trusts.
There are several types of IRAs:
Conduit IRAs have fallen in use due to 2001 legislation that allowed for direct transfers between qualified plans without an intermediate IRA, but plan administrators may choose to accept transfers only from conduit IRAs. Transferring funds from a qualified plan to a conduit IRA preserves certain tax and asset protection advantages that apply to the qualified plan.
A self-directed IRA is considered the same by the tax code, but refers to IRAs where the custodian allows the investor wider flexibility in choosing investments, typically including alternative investments. Some examples of these alternative investments are: real estate, private mortgages, private company stock, oil and gas limited partnerships, precious metals, horses, and intellectual property. While the Internal Revenue Code (IRC) has placed a few restrictions on what can be invested in, the IRA custodian may impose additional restrictions on what assets they will custody. Self-directed IRA custodians, or IRA custodians who specialize in alternative investments, are better equipped to handle transactions involving alternative investments.
Some IRA custodians and some investment funds specialize in socially responsible investing, sometimes using public environmental, social and corporate governance ratings.
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 legislation since 2001 has further relaxed restrictions. Essentially, most retirement plans can be rolled into an IRA after meeting certain criteria, and most retirement plans can accept funds from an IRA. An example of an exception is a non-governmental 457 plan which cannot be rolled into anything but another non-governmental 457 plan.
The tax treatment of the above types of IRAs (except for Roth IRAs) are very similar, particularly for rules regarding distributions. SEP IRAs and SIMPLE IRAs also have additional rules similar to those for qualified plans governing how contributions can and must be made and what employees are qualified to participate.
Custodians can include:
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Individual retirement account
An individual retirement account (IRA) in the United States is a type of retirement savings plan offered by many financial institutions that provides tax advantages for retirement savings. It is a trust that holds investment assets purchased with a taxpayer's earned income for the taxpayer's eventual benefit in old age. An individual retirement account is a type of individual retirement arrangement as described in IRS Publication 590, Individual Retirement Arrangements (IRAs). Other arrangements include individual retirement annuities and employer-established benefit trusts.
There are several types of IRAs:
Conduit IRAs have fallen in use due to 2001 legislation that allowed for direct transfers between qualified plans without an intermediate IRA, but plan administrators may choose to accept transfers only from conduit IRAs. Transferring funds from a qualified plan to a conduit IRA preserves certain tax and asset protection advantages that apply to the qualified plan.
A self-directed IRA is considered the same by the tax code, but refers to IRAs where the custodian allows the investor wider flexibility in choosing investments, typically including alternative investments. Some examples of these alternative investments are: real estate, private mortgages, private company stock, oil and gas limited partnerships, precious metals, horses, and intellectual property. While the Internal Revenue Code (IRC) has placed a few restrictions on what can be invested in, the IRA custodian may impose additional restrictions on what assets they will custody. Self-directed IRA custodians, or IRA custodians who specialize in alternative investments, are better equipped to handle transactions involving alternative investments.
Some IRA custodians and some investment funds specialize in socially responsible investing, sometimes using public environmental, social and corporate governance ratings.
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 legislation since 2001 has further relaxed restrictions. Essentially, most retirement plans can be rolled into an IRA after meeting certain criteria, and most retirement plans can accept funds from an IRA. An example of an exception is a non-governmental 457 plan which cannot be rolled into anything but another non-governmental 457 plan.
The tax treatment of the above types of IRAs (except for Roth IRAs) are very similar, particularly for rules regarding distributions. SEP IRAs and SIMPLE IRAs also have additional rules similar to those for qualified plans governing how contributions can and must be made and what employees are qualified to participate.
Custodians can include: