An individual retirement account ( IRA ) is a form of "individual retirement plan", provided by many financial institutions, which provide tax benefits to pension savings in the United States. Individual retirement accounts are a type of "individual pension arrangement" as described in IRS 590 Publications, individual pension arrangements ( IRAs ). The term IRA , is used to describe both individual pension accounts and broader categories of individual pension arrangements, including individual retirement accounts; trust or custodial account established for the exclusive benefit of the taxpayer or their beneficiary; and individual retirement annuities, where taxpayers purchase an annuity contract or a donation contract from a life insurance company.
Video Individual retirement account
Jenis
There are several types of IRAs: Traditional IRAs - contributions are often tax-deductible (often simplified as "money saved before tax" or "contributions made to pre-tax assets"), all transactions and income in the IRA have no tax effects, and withdrawals at pensions are taxed as income (except for those parts of the withdrawal that correspond to non-deductible contributions). Depending on the nature of the contribution, the traditional IRA can either be a "reduced IRA" or an "irreversible IRA". The traditional IRA was introduced with the Employee Retirement Income Act of 1974 (ERISA) and was popularized by the Economic Recovery Tax Act of 1981.
- myRA - the Obama administration initiative 2014 based on Roth IRA
The last two types, IRNA Rollover and IRIA Channels, are viewed by some as obsolete under current tax laws (their functions have been incorporated by Traditional IRAs), but these tax laws are set to expire unless renewed. However, some individuals still maintain this arrangement to track the source of these assets. One of the main reasons is that some eligible plans will receive rollovers from IRAs only if they are IRA channels/rollovers.
Self-directed IRAs are identical to IRAs. The term "self-directed" is redundant because all IRAs are self-directed. The terminology difference is usually associated with the type of investment that is allowed to be retained by the IRA custodian. A self-directed IRA custodian often allows the IRA account owner to invest in a wider alternative investment. Some examples of these alternative investments are: real estate, personal mortgages, shares of private companies, oil and gas, limited partnerships, precious metals, horses, and intellectual property. Although the Internal Revenue Code (IRC) has put some restrictions on what can be invested, the IRA bearer can impose additional restrictions on what assets they will control. Self-directed IRA guardians, or IRA custodians specializing in alternative investments, are better equipped to handle transactions involving alternative investments. When looking to invest IRA assets into alternative investments, it is important to choose the right independent IRA board. Most custodians who handle stocks, bonds, and mutual funds are unable to provide the right custody for alternative investments.
Beginning with the Economic Growth and Reconciliation Act of 2001 Trust Tax (EGTRRA), many restrictions on what types of funds can be rolled into the IRA and the type of IRA funds plan can be rolled out to be very relaxed. Additional laws since 2001 have more restrictive restrictions. Basically, most retirement plans can be rolled into the IRA after meeting certain criteria, and most retirement plans can receive funding from the IRA. Exemplary examples are non-governmental plans 457 that can not be rolled into anything but other non-governmental plans.
The tax treatment for the above IRA types (except for IRA Roth) is very similar, especially for rules regarding distribution. IRIA SEP and SIMPLE IRA also have additional rules similar to eligible rules that govern how contributions can and should be made and what employees are eligible to participate.
Maps Individual retirement account
Funding
Individual pension arrangements were introduced in 1974 with the enactment of the Employees Retirement Income Act (ERISA). Taxpayers can contribute up to fifteen percent of their annual income or $ 1,500, whichever is less, annually and reduce their taxable income by the amount of their contribution. Contributions can be invested in US bonds specifically paying six percent interest, an annuity that begins paying by the time it reaches the age of 59Ã,½, or trust managed by the bank or insurance company.
Initially, ERISA limits IRAs to workers not covered by eligible work-based pension plans. In 1981, the Economic Recovery Tax Act (ERTA) allowed all taxpayers working under the age of 70 1/2 to contribute to the IRA, regardless of their coverage under an eligible plan. It also increases the maximum annual contribution to $ 2,000 and allows participants to contribute $ 250 on behalf of unemployed spouses.
The 1986 Tax Reform Act eliminates a reduction for IRA contributions among workers covered by a job-based pension plan that earns more than $ 35,000 if one or more than $ 50,000 if the archives are married together. Other taxpayers can still make non-compensatory contributions to the IRA.
The maximum amount allowed for IRA contributions was $ 1,500 from 1975 to 1981, $ 2,000 from 1982 to 2001, $ 3,000 from 2002 to 2004, $ 4,000 from 2005 to 2007, and $ 5,000 from 2008 to 2010. Beginning in 2002, those over the age of 50 can make an additional contribution called "a catch-up contribution."
Current Limitations:
- IRAs can be funded only with cash or cash equivalents. Trying to transfer any other type of asset to an IRA is a forbidden transaction and disqualifies funds from its tax benefits.
- In addition, the IRA (or other tax-advantaged retirement plan) can be funded only by what the IRS calls "taxable compensation". This in turn means that certain types of income can not be used to contribute to the IRA; These include but are not limited to:
- All taxable income that has not been loaded.
- Any tax-free income other than military salary.
- Social Security Payments, whether retirement pensions or disability payments, may or may not be taxed, but in both cases are not eligible.
- Child support payments are accepted. (On the other hand, separate maintenance allowances and maintenance payments, if taxable, qualify.)
- Graduate school donations, unless they are reported on W-2 (indicating that they are compensated for services provided, typically teaching).
- Rollover, transfers, and conversions between IRAs and other pension arrangements may include any assets.
- 2014 and 2015: the total contribution a person can make to all traditional IRAs and their Roth should be no more than a lower sum: $ 5,500 ($ 6,500 if they are 50 years or older), or the income they earn for year.
- This limit applies to total annual contributions to traditional IRA Roth and IRA. For example, a 45-year-old, who put $ 3,500 into a traditional IRA this year so far, can put $ 2,000 more into this traditional IRA, or $ 2,000 in a Roth IRA, or some combination of the two.
- The amount of partially deductible traditional IRA contributions is deducted for income levels beyond the threshold, and is eliminated entirely beyond any other threshold, if the contributors or the contributing pairs are covered by the company's pension plan. The dollar amount from the threshold varies depending on the status of the tax filing (single, married, etc.) and where the spouse is covered at work (see IRS 590-A Publications, "Contribution to Individual Retirement Arrangements (IRA)").
Limited investment
Once money is in the IRA, IRA owners can direct custodians to use cash to purchase most types of publicly traded securities (traditional investments), and non-tradable securities (alternative investments). Specific assets such as collections (eg, Art, baseball cards, and rare coins) and life insurance can not be held in the IRA. U.S. Internal Revenue Code (IRC) only describes what is not allowed in the IRA. Some assets are allowed under IRC, but guards may add additional restrictions to accounts held in their custody. For example, IRC allows IRAs to own parts of rental properties, but certain guards may not allow this to be held in their custody.
Although there are very few restrictions on what can be invested in the IRA, some restrictions are related to actions that will create a forbidden transaction with that investment. For example, an IRA may own a portion of rental real estate, but IRA owners can not receive or provide direct benefits from/to this real estate investment. Examples of such benefits are the use of real estate as the owner's personal residence, allowing parents to stay on property, or allowing IRA account owners to fix leaking toilets. The IRS specifically states that guards can apply their own policies above the rules imposed by the IRS. It should also be noted that neither the guard nor the administrator can advise.
Many IRA guards restrict investments available to traditional brokerage accounts such as stocks, bonds, and mutual funds. Investments in asset classes such as real estate will only be permitted in IRAs if real estate is held indirectly through security such as the trust of a traded or non-traded real estate investment (REIT). Self-directed IRA guardians/administrators may permit real estate and other non-traditional assets held in a form other than REIT, such as rental property, raw land, or fishing rights.
Publicly traded securities such as options, futures or other derivatives are allowed in the IRA, but certain guards or brokers may limit their use. For example, some preferred brokers allow their IRA account to hold stock options, but others do not. It should also be noted that the use of certain derivatives or investments involving leverage may be permitted by IRCs, it may also cause IRAs to pay taxes under the Unconditional Income Tax (UBIT) rules. Self-directed IRAs that make alternative investments such as real estate, horses, or intellectual property, can involve more complexity than IRAs that hold only stocks or mutual funds.
IRAs may borrow or lend money but such loans do not have to be personally guaranteed by IRA owners. Any loan on assets in the IRA will be required to become a non-recourse loan. The loan can not be personally secured by the owner of the IRA account, or the IRA itself. It can only be secured by the assets in question. IRA owners can not guarantee the IRA as a guarantee against external debt.
Distribution of funds
Although funds can be distributed from the IRA at any time, there are limited circumstances when money can be distributed or withdrawn from the account without penalty. Unless there are exceptions, money can usually be deducted penalty as taxable income from the IRA after the owner reaches the age of 59½. Also, non-Roth owners should begin to take on distribution at least the minimum amount calculated before April 1 of the year after reaching the age of 70Ã,½. If the minimum required distribution is not taken a penalty is 50% of the amount that should have been taken. The amount to be taken is calculated based on factors taken from the appropriate IRS table and is based on the owner's life expectancy and possibly its partner as beneficiary if applicable. At the time of the owner's death, the distribution must proceed and if there is a designated beneficiary, the distribution may be based on the life expectancy of the recipient.
There are some exceptions to the rule that the penalty applies to distribution before the age of 59Ã,½. Each exception has detailed rules to be followed for exemption. This group of exceptional penalties is known as the withdrawal of adversity. Exceptions include:
- Part of the over-reimbursed medical expenses of more than 7.5% of adjusted gross income
- Distribution is no more than the cost of health insurance when idle
- Disability (defined by not being able to engage in useful activities)
- Amount distributed to beneficiaries of IRA owners who have died
- Distribution in annuity form (see substantially same periodic payments)
- Distribution is nothing more than the cost of quality higher education from the owners or their children or grandchildren
- Distribution to buy, build, or rebuild the first house ($ 10,000 maximum lifetime)
- Distribution due to IRS charges from plan
There are a number of other important details that govern different situations. For Roth IRAs with only contribution funds, the basis can be withdrawn before the age of 59½ without penalty (or tax) on the first entry first basis, and the penalty will apply only to growth (taxable amount) taken before 59½ where exceptions do not apply. The amount converted from traditional to Roth IRA must remain in the account for at least 5 years to avoid punishment for basic withdrawal unless one of the above exceptions applies.
If contributions to the IRA are not recoverable or the IRA owner chooses not to claim any deductions for such contributions, the distribution of an unexplained amount is taxable and free of penalties.
Status of bankruptcy
In the case of Rousey v. Jacoway, the United States Supreme Court ruled unanimously on April 4, 2005, under section 522 (d) (10) (E) of the United States Bankruptcy Code (11 USCÃ,§Ã, 522 (d) (10) (E)), the debtor in bankruptcy may waive his IRA, up to the amount necessary for retirement, from a bankruptcy estate. The court stated that because the right to withdrawal is based on age, the IRA should receive the same protection as other pension plans. Thirty-four states already have laws that effectively allow an individual to free the IRA in bankruptcy, but the Supreme Court ruling allows for federal protection of the IRA.
Prevention of Bankruptcy Abuse and the Consumer Protection Act of 2005 extend protection to IRAs. Certain IRAs (rollover of Simple SEP or IRA, Roth IRA, individual IRAs) are exempted up to at least $ 1,000,000 (adjusted periodically for inflation) without necessarily showing a requirement for retirement. The law provides that "such amounts can be increased if the interests of justice require." Other IRAs (rollover of most corporate sponsored pension plans (401 (k), etc.) and non-rollover SEP and SIMPLE IRAs) are completely excluded.
BAPCPA 2005 also increases the insurance limit of Federal Deposit Insurance Corporation for IRA deposits in banks.
The US Court of Appeals for the Eleventh Circuit has determined that if the IRA is engaged in a "forbidden transaction" under the Internal Revenue Code 408 (e) (2) and 4975 (c) (1), the assets in the IRA will no longer qualify for protection bankruptcy.
With respect to the inherited IRA, the United States Supreme Court ruled, in the case of Clark v. Rameker in June 2014, that the funds in the inherited IRA do not qualify as "pension funds" in the sense of federal bankruptcy law, 11 USC section 522 (b) (3) (C).
Protection from creditor
There are several options for protecting the IRA: (1) rolling it into eligible plans such as 401 (k); (2) taking distribution, paying taxes and protecting proceeds along with other illiquid assets; or (3) relying on state exceptions for IRA. For example, California exclusion laws stipulate that IRAs and self-employed plan assets are waived only to the extent necessary to provide support from debtor judgment when the debtor is retired and for support of spouses and dependents of the debtor's judgment, taking into account all the resources that may be available for supporting debtor judgment when debtor retired judgment. "What is reasonably required is determined on a case-by-case basis, and the courts will consider other funds and the income streams available to the beneficiaries of the plan.The skilled, educated, and retired debtors are usually given little protection under the law, California law because the court considers that the debtor will be able to provide a pension.
Many countries have laws that prohibit the assessment of lawsuits to be met by confiscating IRA assets. For example, IRAs are protected up to $ 500,000 in Nevada from Writs of Execution. However, this type of protection usually does not exist in the case of a divorce, a failure to pay taxes, a trust deed, and fraud.
In accordance with the Prevention of Bankruptcy Abuse and the Consumer Protection Act of 2005, IRAs are protected from creditors during bankruptcy up to $ 1,000,000 (adjusted for inflation, $ 1,245,475 in 2014). The exception is that inherited IRAs are not eligible for exemptions from bankruptcy real estate and thus federal laws do not protect them from creditors in bankruptcy. However, some state laws can protect IRAs inherited from creditors in bankruptcy.
Borrow
IRA owners must not borrow money from the IRA except for a 2 month period in a calendar year. Such transactions disqualify the IRA from special tax treatment. IRAs may incur debt or borrow money that is secured by its assets but the IRA owner may not guarantee or secure the loan privately. An example is the purchase of real estate in a self-directed IRA along with a non-recourse mortgage.
According to one commentator, some small planning may change the 2-month period previously mentioned into an unlimited loan. However, at Bobrow v. The Commissioner, the US Tax Court has ruled that this approach violates the US Tax Code.
Earnings from debt financed properties in the IRA may result in unrelated business taxable revenues in the IRA.
Rollover related rules and IRA transfers allow IRA owners to perform "indirect rollovers" to other IRAs. Indirect rollovers can be used to temporarily "borrow" money from the IRA, once in a twelve month period. Money should be placed in IRA arrangements within 60 days, or the transaction will be considered an early withdrawal (subject to appropriate taxes and penalties) and can not be replaced.
Double tax
Double taxation still occurs in this tax-protected investment arrangement. For example, foreign dividends may be taxable at their point of origin, and the IRS does not recognize this tax as a credible deduction. There is some controversy as to whether this violates tax treaties, such as the Convention Between Canada and the United States With Respect for Taxes on Income and Capital.
Inherit
If the IRA owner dies, different rules apply depending on who inherits the IRA (spouse, other recipients, multiple beneficiaries, and so on).
In the case of IRAs inherited pairs , the owner pair has the following options:
- treats the IRA account as his own, which means that he can name the beneficiaries for the asset, continue to contribute to the IRA and avoid having to take distribution. This avoids the payment of an extra 10% tax on the initial distribution of the IRA.
- rolling IRA funds into other plans and taking distribution as a recipient. Distribution will be determined by the minimum distribution rules required based on life expectancy of the surviving spouse.
- deny up to 100% of IRA assets, which, in addition to avoiding additional taxable income, enable their children to inherit IRA assets
- retrieves all IRA assets in one lump-sum, which may subject the pair to federal tax if certain conditions are not met
In the case of a non-inherited non-paired IRA , the recipient can not choose to treat the IRA as his own, but the following options are available:
- take the asset in cash sharing all at once, which may cause the taxpayer to submit to a federal tax that can take the bulk of the asset.
- denies all or any part of the assets in the IRA up to 9 months after the death of the IRA owner.
- if the heir is older than the IRA owner, he may take the distribution from the account based on the age of the IRA owner.
In the case of multiple beneficiaries the number of distributions is based on the age of the oldest receiver. Alternatively, some recipients may share IRAs inherited into separate accounts, in which case the RMD rule applies separately for each separate account.
Statistics
Detailed statistics on IRAs have been collected by the Employee Benefit Research Institute, in the EBRI IRA Database (Research Center on IRA), and various analyzes were conducted. An overview is given in (Copeland 2010). Some highlights from 2008 data follow:
- Average and median IRA account balances are $ 54,863 and $ 15,756, respectively, whereas the average and average individual IRAs (all accounts of the same person are combined) are $ 69,498 and $ 20,046. The average is significantly higher than the median (more than three times higher), reflecting a significant positive inclination - a very large equilibrium increase.
- The average and median balance increases with age, reaching maximum in the 65-69 age group, before leveling up to 70 and above.
- Rollovers flood contributions - the majority of IRA contributions, in dollars, come from rollover, rather than new contributions - more than 10-fold added to IRAs from rollover rather than new contributions.
- Despite many small rollovers (28.5% less than $ 5,000, and 53.1% less than $ 25,000), a large amount of rollover is quite large, with 20.2% over $ 100,000.
The IRA is divided by 33.6% traditional IRA type, 33.4% IRA rollover (combined with traditional IRA, 67 percent), 23.4% Roth IRA, and 9.6% SEPs and SIMPLE. - Excluding SPS and SIMPEL (ie, on traditional IRAS, rollover, and Roth), 15.1% of individuals holding IRAs contribute to one. The percentage was much higher for Roth IRA: 7.2% of traditional IRHA owners or rollovers (same for contribution contributions) contributed, while 29.5% of Roth IRA owners contributed.
- Contribute concentrated to the maximum number - of those who contribute to the IRA, about 40% contribute the maximum (whether contributing to traditional or Roth), and 46.7% contribute close to the maximum (in the $ range 5,000- $ 6,000).
The Government Accountability Office (GAO) issued a report on the IRA in November 2014. This report provides GAO estimates on the number of taxpayers with the IRA as well as the estimated account balance. Here are some highlights from the report:
- For the 2011 tax year (latest available year), an estimated 43 million taxpayers have individual retirement accounts (IRAs) with a fair market value of $ 5.2 trillion (FMV).
- Some taxpayers have a combined balance of over $ 5 million in 2011. Generally, taxpayers with an IRA balance of more than $ 5 million tend to have adjusted gross revenues greater than $ 200,000, become joint reporters, and aged 65 years or older.
- In 2014, the federal government will delay about $ 17.45 billion in tax revenue from the IRA, which Congress has made to ensure fair tax treatment for those not covered by the company-sponsored pension plan.
- 98.5% of taxpayers have IRA account balances at $ 1,000,000 or less.
- 1.2% of taxpayers have IRA account balances at $ 1,000,000 to $ 2,000,000.
- 0.2% (or 83,529) taxpayers have IRA account balances of $ 2,000,000 to $ 3,000,000
- 0.1% (or 36,171) taxpayers have an IRA account balance of $ 3,000,000 to $ 5,000,000
- & lt; 0.1% (or 7,952) taxpayers have an IRA account balance of $ 5,000,000 to $ 10,000,000
- & lt; 0.1% (or 791) taxpayers have an IRA account balance of $ 10,000,000 to $ 25,000,000
- & lt; 0.1% (or 314) taxpayers have an IRA account balance of $ 25,000,000 or more
Retirement savings
While average (average) and individual median IRA balance in 2008 was approximately $ 70,000 and $ 20,000 respectively, higher balances were not uncommon. 6.3% of individuals have a total balance of $ 250,000 or more (about 12.5 times the median), and in rare cases individuals have IRAs with very large balances, in some cases $ 100 million or more (about 5,000 times the median individual balance ). This can happen when the IRA owner invests in private company shares, and the value of the stock then rises substantially.
In November 2014, the Government Accountability Office (GAO) released a report stating there were about 314 taxpayers with IRA account balances in excess of $ 25,000,000. There is also an estimated 791 taxpayers with IRA account balances between $ 10,000,000 and $ 25,000,000. The purpose of this report is to study individual retirement accounts (IRAs) and account valuations. There are growing concerns about whether tax incentives encourage new or additional savings. Congress is re-examining pension tax incentives as part of tax reforms. GAO is required to measure IRA balances and assess IRA law enforcement.
According to a study by the National Institute on Retirement Security, entitled "Retirement Pension Crisis Continues", 45% of working Americans do not have retirement account assets, either in employer-based 401 (k) plans or IRAs. Furthermore, ordinary working households hardly have retirement savings - the average retirement account balance is $ 2,500 for all working-age households and $ 14,500 for near-retired households.
While inflation-adjusted stock market values ​​generally rose from 1978 to 1997, in March 2013 they were lower than during the period 1998 to 2007. This has led the IRA to do far worse than expected when today's pensioners invested most of their savings in they. In 2010, Duncan Black wrote in an opinion column in USA Today that the average retirement account balance for workers aged 55 to 64 is $ 120,000, which "will only provide trivial supplements for Social Security", but one-third of households do not have retirement savings at all.
Similar policies in other countries
- Individual Savings Account (ISA) (UK)
- Registered Retirement Pension Plan (RRSP) and Free Savings Account (TFSA, such as Roth IRA) (Canada)
- Superannuation in Australia
See also
- Retirement plan in the United States
- Account Comparison of 401 (k) and IRA
- MyRA
- 401 (k)
- Solo 401 (k)
- Roth 401 (k)
- Rollover as Business Start
- Golden IRA
References
Note
- (5 April 2005) Court protects IRA from bankruptcy bankruptcy The Seattle Times
- IRS 590 (2005) Publication, Individual Retirement Arrangement (IRA) Copies, Craig (September 2010), IRA Balance and Contributions: Overview of IRA EBRI Database (PDF) , EBRI Issue Brief, 346 , Employee Benefits Research Institute, page 20, Executive Summary
External links
- IRA.gov Online IRA Resource Guide
- Pension Plan FAQ about IRA IRS.gov
- IRA 590 IRS.gov Publication
Source of the article : Wikipedia
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