Individual retirement arrangement

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Related to Individual retirement arrangement: individual retirement account, Individual retirement annuity

Individual retirement arrangement (IRA).

An individual retirement arrangement (IRA), which may be set up as either an account or an annuity, allows people with earned income to contribute to a tax-deferred traditional IRA or a tax-free Roth IRA.

Your contribution can be as much as the annual cap, though it can't be more than you earn. The cap is $4,000 for 2007 and $5,000 for 2008. If you are 50 or older, you can make an additional catch-up contribution of $1,000 a year.

You can contribute to a traditional IRA regardless of your income, and you may qualify to deduct your contribution if your modified adjusted gross income is less than the ceiling for your tax filing status. You may also qualify if you're not eligible to participate in an employer sponsored plan where you work.

You qualify for a Roth if your modified adjusted gross income is less than the ceiling for your filing status.

If you open a traditional IRA, you usually can't withdraw without penalty before you turn 59 1/2 and you must begin minimum required distributions (MRDs) by April 1 of the year following the year you turn 70 1/2.

Income taxes figured at your regular rate are due on your earnings and on any contributions you deducted on your tax return in the year for which you made them.

With a Roth IRA your withdrawals are free of federal income tax provided you're at least 59 1/2 and your account has been open at least five years. There are no required withdrawals.

Dictionary of Financial Terms. Copyright © 2008 Lightbulb Press, Inc. All Rights Reserved.

Individual Retirement Arrangement (IRA)

An individual retirement arrangement is a trust set up to receive retirement contributions of individuals. The arrangement may be in the form of an individual retirement account or individual retirement annuity. The amount that may be contributed is limited. Amounts earned in the IRA are not taxed until they are withdrawn.
Copyright © 2008 H&R Block. All Rights Reserved. Reproduced with permission from H&R Block Glossary
References in periodicals archive ?
Nutter, "Accumulation and Distribution of Individual Retirement Arrangements, 2000," SOI Bulletin, Spring 2004, Volume 23, Number 4, pp.
Publication 590, Individual Retirement Arrangements (IRAs), Internal Revenue Service, Department of Treasury, for more information on eligibility requirements and limitations.
Individual Retirement Arrangements (IRA's) were created by the Employee Retirement Income Security Act (ERISA) of 1974.
[2] See Publication 590, Individual Retirement Arrangements (IRA's) (Including Roth IRA's and Education IRA's), Internal Revenue Service, Department of the Treasury, for more information on eligibility requirements and limitations.
3 See Appendix 1, Table 1 (Single life expectancy) page 55 (Publication 590 Individual Retirement Arrangements (Revised 1/94).
Neither ERISA nor IRS protections apply to assets held under individual retirement arrangements (including SEPs and SIMPLE IRAs), government plans, or most church plans.
The 15% excise tax applied to excess distributions from qualified retirement plans, tax-sheltered annuities and individual retirement arrangements (IRAs).
However, there is another exception that can be found in IRS publication 590, Individual Retirement Arrangements. Commonly referred to as the "substantially equal periodic payments" exception, it allows an individual to withdraw money from a 401(k) or IRA without incurring the 10% early withdrawal penalty, but has the following restrictions:
IRD includes any account balances in the decedent's qualified pension and profit-sharing plans and individual retirement arrangements (IRAS),[4] as well as a lump-sum distribution from a decedent's IRA that consists of both deductible and nondeductible contributions.

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