Individual retirement account (IRAccount)

Definition

Individual retirement account (IRAccount )is the account version of an individual retirement arrangement, and is issued by a bank, credit union, brokerage firm, savings & loan, or other financial institution that satisfies the requirements established under the tax code IRC § 408(n).

There are several versions of an IRAccount, (a) traditional IRAccount, where assets accrue earnings on a tax-deferred basis and distributions are treated as ordinary income, (b) Roth IRAccount, where assets accrue on a tax-deferred basis, but qualified distributions are tax-free (c) SEP IRAccounts, which are established and funded by business owners/employers for their employees.

The funding vehicle for a SEP IRAccount is a traditional IRA and (d) SIMPLE IRAccount, are established and funded by business owners/employers for their employees. Employees may also make salary deferral contributions to SIMPLE IRAccount, and versions of SEPs that are referred to as SARSEPs.

Referring Cite

IRC § 408(a), IRS Publication 590

Additional Helpful Information

Individuals may contribute up to 100% of their taxable compensation/income up to the dollar limit that is in effect for the year to their traditional and/or Roth IRAccounts. Individuals who reach age 50 by the end of the year may contribute additional amounts referred to as ‘Catch-up’ contributions. The dollar limits for 2002 to 2009 are as follows:

• An individual can split the annual limit between a traditional and a Roth IRAccount, or contribute the entire amount to either. Eligibility requirements apply to Roth IRAccount contributions.
• These contributions must be made in cash

Related Articles Tutorial or Other Content