IRA

🇺🇸 An individual retirement arrangement, or IRA, is a personal savings plan which allows you to set aside money for retirement, while offering you tax advantages. You may be able to deduct some or all of your contributions to your IRA. Amounts in your IRA, including earnings, generally are not taxed until distributed to you. IRA's cannot be owned jointly. However, any amounts remaining in your IRA upon your death can be paid to your beneficiary or beneficiaries.

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.

ICI (Investment Company Institute) reports that at year end 2018, Traditional IRA's held an estimated $8.806 trillion of investor's wealth accounting for 85% of total IRA assets.

Overview
There are three types of IRAs.


 * 1) Individual retirement account: A trust created or organized in the US for the exclusive benefit of an individual or his beneficiaries.
 * 2) Individual retirement annuity: An annuity contract or an endowment contract issued by an insurance company.
 * 3) Accounts established by employers and certain associations of employees: A trust created or organized in the US by an employer for the exclusive benefit of his employees or their beneficiaries, or by an association of employees for the exclusive benefit of its members or their beneficiaries. Examples include SEP, SARSEP, and SIMPLE IRAs. See: Employer retirement plans overview.

Traditional IRA
A traditional IRA can be an individual retirement account or an annuity. It can be part of either a SEP (Simplified Employee Pension) or an employer or employee association trust account.

The traditional IRA was created in 1974 with the passage of the Employee Retirement Income Security Act (ERISA). Over the years, the Traditional IRA has been expanded to include a growing number of specialized plan types. These include the following:

Your contribution to an IRA is limited by the amount of compensation you receive during the year. Compensation includes wages, salaries, etc., commissions, self-employment income, taxable alimony and separate maintenance, nontaxable combat pay, taxable non-tuition fellowship and stipend payments.

See Roth versus Traditional for more guidance on how to choose between pre-tax and Roth contributions.

Individual retirement annuity
You 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.

Annuities may follow different rules than an individual retirement account. For example, special rules apply to figuring the required minimum distribution. Refer to IRS Publications 590-A and 590-B for guidance.

You can use the money in your traditional IRA account to buy an annuity contract. You aren't taxed when you receive the annuity contract (unless the annuity contract is being converted to an annuity held by a Roth IRA). You are taxed when you start receiving payments under that annuity contract. See IRS Publication 590-B for tax calculations regarding deductible and non-deductible contributions.

Other IRA terminology
In addition, various terms are used to describe specific types of IRAs that fit into the above categories, but have special rules and specific legal implications. These terms include:

Allowable investments
IRAs available with most custodians allow a wide range of publicly-available investments, such as: stocks, bonds, mutual funds, savings accounts, money market accounts, Certificates of Deposit (CDs), Treasury Inflation-Protected Securities (TIPS), and Real Estate Investment Trusts (REITs).

If you wish to purchase an annuity with money in your traditional IRA account, do a direct rollover to an Individual Retirement Annuity to avoid a taxable event. Annuities funded with an IRA rollover are "qualified" plans, enabling an insurance company to create an "IRA annuity", into which you can deposit your retirement funds directly. This is typically done with an immediate annuity such as a Single Premium Immediate Annuity (SPIA) in the distribution phase.

Some IRA custodians offer "Self-directed" or "Checkbook" IRAs that allow an even wider range of investments, including: IPO stock, privately-owned businesses, loans (mortgages, hard money loans, etc.), domestic or foreign real estate (including undeveloped land), private real estate funds or syndications, certain derivatives (including stock options), foreign currencies, tax liens, and others. These IRAs usually have additional fees to cover the higher management costs for these investments.

Prohibited investments and transactions
Regardless of whether an IRA is self-directed, the following types of investments and transactions are prohibited:


 * Collectibles (artwork, rugs, antiques, metals, gems, stamps, coins, alcoholic beverages, etc.), except for:
 * 1 oz, ½ oz, ¼ oz, or 1/10 oz US gold coins
 * 1 oz silver coins minted by the US Treasury Department
 * Certain platinum coins
 * Certain gold, silver, platinum, and palladium bullion
 * Life insurance contracts
 * Certain types of derivatives
 * Self-dealing transactions involving yourself, your family, or your beneficiary, including:
 * Loans to yourself or other disqualified persons
 * Personally using property purchased with IRA funds, including real estate
 * Acting as a property manager or performing maintenance on an IRA-owned rental property

Required Minimum Distributions
Traditional, SEP, and SIMPLE IRAs have Required Minimum Distributions that generally begin the year the account holder reaches age 72. See the main page for a discussion of the details.

Inherited IRAs (Traditional and Roth) inherited prior to January 1, 2020 have Required Minimum Distributions calculated by IRS Publication 590-B Distribution Table I. Inherited IRAs (Traditional and Roth) inherited after January 1, 2020 have no RMDs, but must be emptied by the end of the tenth year after being inherited, unless certain exceptions apply.

Roth IRAs have no RMDs.

Comparison to employer accounts
Traditional and Roth IRAs have many similarities with employer retirement plans: contributions are either pre-tax (traditional) or Roth, growth is tax-deferred or tax-free, withdrawals before age 59½ are penalized unless exceptions apply, and are subject to RMDs (except the Roth IRA). However, IRAs are individually-controlled accounts, and employer plans are governed by the plan rules set by the employer and the provider, and they can have important differences. Many investors will face a choice between investing in an IRA and an employer plan, such as when not contributing enough to reach the limit in both accounts, and/or when separating from an employer and deciding whether to leave investments in the existing plan or roll it into an IRA. The following table lists the differences between IRAs, 401(k)'s, and 403(b)'s (the most common employer retirement account) that should help investors choose the best account given their own personal situation. This comparison is mostly independent of the choice between Traditional versus Roth tax structures, which is a complex topic discussed on its own wiki page. Other employer plans, such as the 457(b), have important differences, and those differences are discussed on their respective plan pages.

IRS

 * Publication 590-A, Contributions to Individual Retirement Arrangements (IRAs), (PDF)
 * Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs), (PDF)
 * IRS Publication 590 Individual Retirement Arrangements (IRAs), 2013. Superseded by 590-A and 590-B.
 * IRS Whats New: IRAs and Other Retirement Plans