The 10 IRA Types

1. An Individual Retirement Account is an IRA set up with a financial institution like a bank, broker, or mutual fund in which contributions may be invested in many types of securities such as stocks, bonds, money market, CDs, etc.
   
2. An Individual Retirement Annuity is an IRA set up with a life insurance company through the purchase of a special annuity contract.
   
3. An Employer and Employee Association Trust Account, or Group IRA, is an IRA set up by employers, unions, and other employee associations for employees or members.
   
4. A Simplified Employee Pension (SEP-IRA) is an IRA set up by an employer for a firm's employees. An employer may contribute up to $30,000 or 15% of an employee's compensation annually to each employee's IRA. (See SIMPLE).
   
5. A Savings Incentive Match Plan for Employees IRA (SIMPLE-IRA) is an IRA set up by a small employer for a firm's employees. Employees may contribute up to $6,000 per year to these IRAs and will receive some level of a matching percentage of pay from their employer. Between the employer and the employee, up to $12,000 may be contributed annually to the participant's account. (See SEP).
   
6. A Spousal IRA is an IRA funded by a married taxpayer in the name of his or her spouse who has less than $250 in annual compensation. The couple must file a joint tax return for the year of contribution. The working spouse may contribute up to $2,000 per year to the Spousal IRA and up to $2,000 per year to his or her own IRA. A couple, then, may contribute up to $4,000 per year provided neither IRA receives more than $2,000.
   
7. A Rollover (Conduit) IRA is an IRA set up by an individual to receive a distribution from a qualified retirement plan. Distributions transferred to a rollover IRA are not subject to any contribution limits. Additionally, the distribution may be eligible for subsequent transfer into a qualified retirement plan available through a new employer. To retain this eligibility, the IRA must be composed solely of the original distribution and earnings (i.e., no other contributions or rollovers may be added to or mingled with the IRA), and the new employer's plan must permit the acceptance of rollover contributions.
   
8. An Inherited IRA is an IRA acquired by the non-spousal beneficiary of a deceased IRA owner. Special rules apply to an inherited IRA. A tax deduction is not allowed for contributions to this IRA, a rollover to or from another IRA is not permitted, and the proceeds must be distributed and taxed within a specific period as established by the Internal Revenue Code. If the owner died before beginning required minimum distributions, then the beneficiary must receive distribution of the inherited IRA by December 31 of the fifth year following the owner's death. Alternatively, the IRA may be paid as an annuity or in installments payable over a period not extending beyond the beneficiary's life expectancy. If the owner had begun to receive required minimum distributions while living, then the beneficiary must receive the remainder of the IRA at least as quickly as the owner would have under the schedule of distribution selected by that owner prior to death.
   
9. An Education IRA (EIRA) is an IRA established on or after Jan. 1, 1998, to provide funds that will allow a beneficiary to attend a program of higher education. There is no tax deduction allowed for the contribution, but all deposits and earnings may be withdrawn free of tax and penalties if used to pay for the costs of higher education. Contributions are limited to a maximum of $500 per year, but that's in addition to the $2K limit on any other IRA. They may be made regardless of the beneficiary's income, but cannot be made on or after the beneficiary's age reaches 18. If distributions exceed the education expenses, the earnings must be included ratably in gross income and are subject to the 10% excise tax to the extent of the excess. Contributions begin to phase out at $150K for joint filers and $95K for single filers. The EIRA, if unused on or before age 30, may be transferred to another qualifying family member as the new beneficiary for educational use. Such transfers must occur before the beneficiary reaches age 30.
   
10. A Roth IRA is an IRA authorized on or after January 1, 1998, in which:
    1. Contributions to the account are not deductible.
    2. "Qualified" distributions (i.e., withdrawals) from the account are not taxable; and
    3. Earnings on the account are taxable only when a withdrawal is not a "qualified" distribution.

1. Made after the taxpayer attains age 59 1/2.
2. Made to a beneficiary after the taxpayer's death.
3. Made because the taxpayer is disabled.
4. Made by a first-time home buyer to acquire a principal residence.

Annual contributions to a Roth IRA are limited to $2,000 minus the taxpayer's traditional IRA contributions. Contributions to a Roth IRA may be made even after the owner reaches age 70 1/2. The $2,000 limit is phased out as AGI increases from $150,000 to $160,000 (married filing jointly) or $95,000 to $110,000 (single filer).

Amounts in traditional IRAs may be transferred to Roth IRAs provided the taxpayer's AGI (married or single) for the transfer year is $100,000 or less. Transferred amounts must be included in that year's income, but the money transferred will be exempt from the 10% excise tax for a withdrawal prior to age 59 1/2. If the transfer occurs in 1998, income from the transfer may be spread and taxes due may be paid over four years (i.e., one-fourth of the transferred amount is included as taxable income in 1998, 1999, 2000 and 2001). No withdrawal allocable to earnings on the transferred amounts can be a qualified distribution unless made more than five years after the transfer.

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