Publication 590
taxmap/pubs/p590-003.htm#en_us_publink1000230369You can open different kinds of IRAs with a variety of organizations. You can open an IRA at a bank or other financial institution or with a mutual fund or life insurance company. You can also open an IRA through your stockbroker. Any IRA must meet Internal Revenue Code requirements. The requirements for the various arrangements are discussed below.
taxmap/pubs/p590-003.htm#en_us_publink1000230370Your traditional IRA can be an individual retirement account or annuity. It can be part of either a simplified employee pension (SEP) or an employer or employee association trust account.
taxmap/pubs/p590-003.htm#en_us_publink1000230371An individual retirement account is a trust or custodial account set up in the United States for the exclusive benefit of you or your beneficiaries. The account is created by 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 cannot 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. See
Rollovers, later.
- You must have a nonforfeitable right to the amount at all times.
- Money in your account cannot be used to buy a life insurance policy.
- Assets in your account cannot be combined with other property, except in a common trust fund or common investment fund.
- You must start receiving distributions by April 1 of the year following the year in which you reach age
701/2. See
When Must You Withdraw Assets? (Required Minimum Distributions), later.
taxmap/pubs/p590-003.htm#en_us_publink1000230374You can open an individual retirement annuity by purchasing an annuity contract or an endowment contract from a life insurance company.
An individual retirement annuity must be issued in your name as the owner, and either you or your beneficiaries who survive you are the only ones who can receive the benefits or payments.
An individual retirement annuity must meet all the following requirements.
- Your entire interest in the contract must be nonforfeitable.
- The contract must provide that you cannot transfer any portion of it to any person other than the issuer.
- There must be flexible premiums so that if your compensation changes, your payment can also change. This provision applies to contracts issued after November 6, 1978.
- The contract must provide that contributions cannot be more than the deductible amount for an IRA for the year, and that you must use any refunded premiums to pay for future premiums or to buy more benefits before the end of the calendar year after the year in which you receive the
refund.
- Distributions must begin by April 1 of the year following the year in which you reach age
701/2. See
When Must You Withdraw Assets? (Required Minimum Distributions), later.
taxmap/pubs/p590-003.htm#en_us_publink1000230376The sale of individual retirement bonds issued by the federal government was suspended after April 30, 1982. The bonds have the following features.
- They stop earning interest when you reach age 701/2. If you die, interest will stop 5 years after your death, or on the date you would have reached age
701/2, whichever is earlier.
- You cannot transfer the bonds.
If you cash (redeem) the bonds before the year in which you reach age
59
1/
2, you may be subject to a 10% additional tax. See
Age 591/2 Rule under
Early Distributions, later. You can roll over redemption proceeds into IRAs.
taxmap/pubs/p590-003.htm#en_us_publink1000230378A simplified employee pension (SEP) is a written arrangement that allows your employer to make deductible contributions to a traditional IRA (a SEP IRA) set up for you to receive such contributions. Generally, distributions from SEP IRAs are subject to the withdrawal and tax rules that apply to traditional IRAs. See Publication
560 for more information about SEPs.
taxmap/pubs/p590-003.htm#en_us_publink1000230379Your employer or your labor union or other employee association can set up a trust to provide individual retirement accounts for employees or members. The requirements for individual retirement accounts apply to these traditional IRAs.
taxmap/pubs/p590-003.htm#en_us_publink1000230380The trustee or issuer (sometimes called the sponsor) of your traditional IRA generally must give you a disclosure statement at least 7 days before you open your IRA. However, the sponsor does not have to give you the statement until the date you open (or purchase, if earlier) your IRA, provided you are given at least 7 days from that date to revoke the IRA.
The disclosure statement must explain certain items in plain language. For example, the statement should explain when and how you can revoke the IRA, and include the name, address, and telephone number of the person to receive the notice of cancellation. This explanation must appear at the beginning of the disclosure statement.
If you revoke your IRA within the revocation period, the sponsor must return to you the entire amount you paid. The sponsor must report on the appropriate IRS forms both your contribution to the IRA (unless it was made by a trustee-to-trustee transfer) and the amount returned to you. These requirements apply to all sponsors.