Individuals have access to a wide variety of vehicles for investing hard-earned (or not-so-hard earned) money. Some of these, including “individual retirement accounts” (or “IRAs”), provide potential benefits from a federal tax standpoint.
Over the next several weeks, I’ll be issuing a series of posts discussing IRAs in depth – general information, tax treatment, and some limitations and pitfalls. For now, let’s dive into a few basics.
What is an IRA?
Generally speaking, an IRA is a tax-advantaged retirement account owned by an individual, either for his or her own benefit or for the benefit of a third-party (a “beneficiary”). The Internal Revenue Code defines the term “individual retirement account” as follows:
A trust created or organized in the United States for the exclusive benefit of an individual or his beneficiaries, but only if the written governing instrument creating the trust meets the following requirements:
- Except in the case of a rollover contribution…no contribution will be accepted unless it is in cash, and contributions will not be accepted for the taxable year on behalf of any individual in excess of the amount in effect for such taxable year under section 219(b)(1)(A).
- The trustee is a bank…or such other person who demonstrates to the satisfaction of the Secretary that the manner in which such other person will administer the trust will be consistent with the requirements of this section.
- No part of the trust funds will be invested in life insurance contracts.
- The interest of an individual in the balance in his account is nonforfeitable.
- The assets of the trust will not be commingled with other property except in a common trust fund or common investment fund.
Recent Comments