IRA

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Individual Retirement Account (IRA)

A retirement account that may be established by an employed person. IRA contributions are tax deductible according to certain guidelines, and the gains in the account are tax-deferred.

Individual Retirement Account (IRA) rollover

A provision of the law governing IRA's that enables a retiree or anyone receiving a lump-sum payment from a pension, profit-sharing, or salary reduction plan to transfer the amount into an IRA.

Individual Retirement Account

An account into which a worker makes contributions up to a certain limit throughout his/her working life, and from which he/she begins to take distributions following retirement. There are two types of IRA. A traditional IRA allows for tax deductible contributions and taxable distributions, while a Roth IRA has non-deductible contributions and tax-free distributions. The limit to annual contributions to an IRA varies each year and is indexed to inflation. IRAs are invested in securities and usually own common stock and certificates of deposit. See also: 401(k).

IRA

A custodial account or trust in which individuals may set aside earned income in a tax-deferred retirement plan. For individuals who earn under a specified amount or who are not in an employer-sponsored retirement plan, contributions to an IRA (subject to an annual maximum) are deferred along with any income the contributions earn. Withdrawals at retirement are fully taxable. For individuals in an employer-sponsored plan and having an adjusted gross income above a specified amount, all or part of the contribution may be taxable although any income earned in the IRA is tax deferred. The rules governing IRAs were significantly altered in the 1986 tax reform. IRA investment opportunities include certificates of deposit, mutual funds, and securities purchased through brokerage accounts. Also called individual retirement account. See also Coverdell Education Savings Account, Keogh plan, Roth IRA, self-directed IRA, simplified employee pension plan.

Is it a good idea to name my estate as the beneficiary of my IRA?

Generally speaking, this is not advisable. If you name your estate as the beneficiary of your IRA, then the assets held inside your IRA must be distributed according to your last will and testament and the proceeds of your IRA will go through probate. Most IRA owners like to keep assets inside their IRA for the longest time period allowed by law, thereby maximizing the dollars that can be accumulated on a tax-deferred basis while also delaying the payment of income taxes for as long as possible. IRAs are subject to annual required minimum distribution requirements once the IRA owner reaches age 70 ¹/₂ . These requirements are based upon either the individual life expectancy of the IRA owner or the joint life expectancy of the IRA owner and his beneficiary. Because your estate has no life expectancy, there is no way to stretch out the period during which your IRA assets can remain inside your IRA and grow tax-deferred even if this is what your IRA beneficiaries want. Thus, if you die prior to age 70 ¹/₂ , naming your estate as your beneficiary, the assets held in your IRA will have to be liquidated and proceeds disbursed over a five-year period to the beneficiaries you named in your will. If your IRA was a traditional IRA, your beneficiaries will have to include every IRA disbursement in their taxable income for the year during which the disbursement was received. If your IRA was a Roth IRA, your beneficiaries won't owe any income tax on your IRA disbursements, but they will still be forced to withdraw your IRA assets by the end of the five-year period, whereas they could have kept your IRA assets inside of your IRA for many more years if you had named specific beneficiaries for your IRA. If you die after age 70 ¹/₂ , naming your estate as your beneficiary, your IRA beneficiaries will have to take annual minimum distributions from your IRA that are based on what the federal government's actuaries have determined would have been your remaining life expectancy if you were still alive, reduced by one for each year thereafter. From a financial planning viewpoint, the biggest disadvantage of naming your estate as the beneficiary of your IRA is the basic inability to stretch out the distributions from your IRA to maximize the buildup of value and delay the payment of income taxes, as described above.

Stephanie G. Bigwood, CFP, ChFC, CSA, Assistant Vice President, Lombard Securities, Incorporated, Baltimore, MD

Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.

Individual retirement account (IRA).

Individual retirement accounts are one of two types of individual retirement arrangements (IRAs) that provide tax advantages as you save for retirement. The other is an individual retirement annuity.

Both have the same annual contribution limits, catch-up provisions if you're 50 or older, and withdrawal requirements. In addition, both are available in three varieties: traditional deductible, traditional nondeductible, and Roth.

The primary difference between the two is in the investments you make with your contributions.

You open an individual retirement account with a financial services firm, such as a bank, brokerage firm, or investment company, as custodian. The accounts are self-directed, which means you can choose among the investments available through your custodian.

In common practice, however, perhaps because more people have individual retirement accounts, the acronym IRA tends to be used to refer to an account rather than annuity or arrangement.

individual retirement account (IRA)

A retirement savings program entitling the individual to deduct contributions from gross income for purposes of calculating income taxes.The contributions are said to be from before-tax dollars.

Generally speaking, first-time home buyers can withdraw up to $10,000 from their IRA or Roth-IRA accounts,penalty free,in order to pay qualified home purchase expenses such as a down payment. Spouses can withdraw up to $20,000.There's a lifetime limit,though.Once you use up your distribution “free passes,”you can't put the money back in your account and then use it again in the future. (For more information, see Tax Topic 428,“Roth IRA Distributions,” and Publication 590,“Individual Retirement Accounts,”available at the IRS Web site, www.irs.gov.)

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.

References in periodicals archive ?

The DBM also noted that the IRA was computed based on the list of existing LGUs as of December 31, 2018.

LGUs' 2020 IRA share up 12.75%

Once money is in a traditional IRA, it can be converted to a Roth IRA, in which future distributions may be untaxed.

Double (and triple) IRA season is here

"That means that if income is under $117,000 you can contribute the full $5,500 to a Roth IRA ($6,500, if age 50 or over)," Slott says.

Using Roth 401(k)s to CySupersize' Retirement Savings: Ed Slott

The act extended significant bankruptcy protection to IRAs by exemption and exclusions of certain amounts from a bankruptcy estate.

What you need to know about bankruptcy protection for IRAs

However, it's important to ascertain that a candidate for IRA ownership is allowable.

Self-directed IRAs: opportunities and pitfalls you should know

Excluded from the one-year limit, however, are Roth conversions (rollovers from traditional IRAs to Roth IRAs), rollovers between qualified plans and IRAs, and trustee-to-trustee transfers--direct transfers of assets from one IRA trustee to another.

Top 10 Rollover Mistakes

Jamie was smart to invest at an early age and use experts to help him navigate the rules and restrictions imposed by the IRS on self-directed IRAs. This is very important because violation of the rules can put the tax-deferred status of your account at risk, as well as lead to the disqualification of the IRA and tax consequences.

Build your wealth: self-directed IRAs let you choose your investment

Distributions from a Roth IRA that has been in effect for at least five years and taken for any of the above reasons are known as "qualified distributions." These are not includible in taxable income.

Roth or traditional?

The simple stretch IRA can be established when the client attaches one or more beneficiary designations on the IRA.

S-t-r-e-t-c-h-i-n-g the value of an IRA

The inclusion of the traditional IRA in income is a result of the tax benefit received when a deductible contribution is made to a traditional IRA.

Roth IRA conversions: new rules may benefit you

In Publication 590 (Individual Retirement Arrangements (IRAs)), the Internal Revenue Service defines a traditional IRA as "any IRA that is not a Roth IRA or a SIMPLE IRA" (i.e., the term is used to distinguish the original IRA from the Roth IRA and the SIMPLE IRA).

Traditional IRA

By now, everyone knows the benefits of making contributions to an individual retirement account (IRA) as well as taking advantage of an employer's 401(k) plan.