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February 17, 2009

Individual retirement arrangement (IRA)

Your Guide

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Individual retirement arrangement is an umbrella term that covers individual retirement account and individual retirement annuity. These are retirement savings vehicles established by individual taxpayers.

There are several versions of an individual retirement arrangement,

(a) traditional IRAs, where assets accrue earnings on a tax-deferred basis and distributions are treated as ordinary income,

(b) Roth IRAs, where assets accrue on a tax-deferred basis, but qualified distributions are tax-free

(c) SEP IRAs, which are established and funded by business owners/employers for their employees. The funding vehicle for a SEP IRA is a traditional IRA and

(d) SIMPLE IRAs, are established and funded by business owners/employers for their employees. Employees may also make salary deferral contributions to SIMPLE IRAs, and versions of SEPs that are referred to as SARSEPs.

  • Individual retirement account is the ‘account’ version of an individual retirement arrangement. The account can be established at a bank, credit union, brokerage firm, savings & loan, or other financial institution that satisfies the requirements established under the tax code IRC § 408(n)
  • Individual retirement annuity is the annuity-contract version of an individual retirement arrangement, issued by an insurance company. IRC § 408(b)

Referring Cite

IRC § 408 (a), IRC § 408 (b), IRS Publication 590

Additional Helpful Information

See the definition of IRA for more, including income limits for Roth IRAs and eligibility requirements

Written By

Denise Appleby

Denise is CEO of Appleby Retirement Consulting Inc., a firm that provides IRA resources for financial/ tax/legal professionals. She has over 20 years of experience in the retirement plans field, which includes training and technical consultation.

Denise writes and publishes educational /marketing tools for advisors; available at Denise co-authored several books on IRAs

Denise is a graduate of The John Marshall Law School, where she obtained a Masters of Jurisprudence in Employee Benefits, and has earned 5 professional retirement designations.
She has appeared on numerous media programs, sharing her insights on retirement tax laws.

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