Individual Retirement Arrangements (IRAs)

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An individual retirement account is a trust or custodial account set up in the United States for the exclusive benefit of a taxpayer or his beneficiaries. A taxpayer creates this account with a written document. The document must show that the account meets all of the following requirements:

  • The trustee or custodian must be a bank, a federally insured credit union, a savings and loan association, or an entity approved by the IRS to act as trustee or custodian.
  • The trustee or custodian generally should not accept contributions of more than the deductible amount for the year. However, rollover contributions and employer contributions to a simplified employee pension (SEP) can be more than this amount.
  • Contributions, except for rollover contributions, must be in cash.
  • The taxpayer must have a non-forfeitable right to the amount at all times.
  • The account holder cannot use money in the account to buy a life insurance policy.
  • The account holder cannot combine assets with other property, except in a common trust or investment fund.
  • Distributions must begin by April 1 of the year after the taxpayer reaches age 70.5.

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