Individual retirement account

Starting with the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), many of the restrictions of what type of funds could be rolled into an IRA and what type of plans IRA funds could be rolled into were significantly relaxed.

[8] Initially, ERISA restricted IRAs to workers who were not covered by a qualified employment-based retirement plan.

[8] In 1981, the Economic Recovery Tax Act (ERTA) allowed all working taxpayers under the age of 70 to contribute to an IRA, regardless of their coverage under a qualified plan.

[9] The Tax Reform Act of 1986 phased out the deduction for IRA contributions among workers covered by an employment-based retirement plan who earned more than $35,000 if single or over $50,000 if married filing jointly.

limitations: Once money is inside an IRA, the IRA owner can direct the custodian to use the cash to purchase most types of publicly traded securities (traditional investments), and non-publicly traded securities (alternative investments).

Specific assets such as collectibles (e.g., art, baseball cards, and rare coins) and life insurance cannot be held in an IRA.

Some assets are allowed according to the IRC, but the custodians may add additional restrictions for accounts held in their custody.

Many IRA custodians limit available investments to traditional brokerage accounts such as stocks, bonds, and mutual funds.

[15] Self-directed IRA custodians/administrators can allow real estate and other non-traditional assets held in forms other than a REIT, such as a piece of rental property, raw land, or fishing rights.

Publicly traded securities such as options, futures or other derivatives are allowed in IRAs, but certain custodians or brokers may restrict their use.

[16] Unless an exception applies, money can typically be withdrawn penalty-free as taxable income from an IRA once the owner reaches age 59 years and 6 months.

Also, non-Roth owners must begin taking distributions of at least the calculated minimum amounts by April 1 of the year after reaching age 72.

Amounts converted from a traditional to a Roth IRA must stay in the account for a minimum of 5 years to avoid having a penalty on withdrawal of basis unless one of the above exceptions applies.

[20] The Court indicated that because rights to withdrawals are based on age, IRAs should receive the same protection as other retirement plans.

[23] With respect to inherited IRAs, the United States Supreme Court ruled, in the case of Clark v. Rameker in June 2014, that funds in an inherited IRA do not qualify as "retirement funds" within the meaning of the federal bankruptcy exemption statute, 11 U.S.C.

What is reasonably necessary is determined on a case-by-case basis, and the courts will take into account other funds and income streams available to the beneficiary of the plan.

[citation needed] Many states have laws that prohibit judgments from lawsuits to be satisfied by seizure of IRA assets.

[25] However, this type of protection does not usually exist in the case of divorce, failure to pay taxes, deeds of trust, and fraud.

[4] Any borrowing in excess of 60 days in a calendar year disqualifies the IRA from special tax treatment.

Some highlights from the 2008 data follow:[32] The Government Accountability Office (GAO) issued a report on IRAs in November 2014.

[35] The Joint Committee on Taxation reported that as of the end of 2019, there were 28,615 taxpayers with traditional and Roth IRA assets in excess of $5 million and an aggregate value totaling almost $280 billion.

[36] An investigative report in 2021 highlighted Peter Thiel, who built a Roth IRA worth $5 billion by investing in startups on terms unavailable to most taxpayers.

[41][42][43] While inflation-adjusted stock market values generally rose from 1978 to 1997, in March 2013, they were lower than during the period 1998 through 2007.

[44] This has caused IRAs to perform substantially more poorly than expected when current retirees were investing the bulk of their savings in them.

[45] In 2010, Duncan Black wrote in an opinion column in USA Today that the median household retirement account balance for workers aged 55 to 64 was $120,000, which "will provide only a trivial supplement to Social Security", but a third of households had no retirement savings at all.