There are different types of Individual Retirement Arrangements that you can set up with your bank or financial institution, insurance company, mutual fund, or stockbroker. Your traditional IRA can be:
An individual retirement account. This is a trust or custodial account set up for the exclusive benefit of you or your beneficiaries. It must meet the following IRS requirements:
The trustee or custodian must be a bank, financial institution or other entity approved by the IRS.
Contributions must be in cash, not property such as securities, and must not be more than the maximum allowable amount per year, except for rollover contributions.
You must have a non-forfeitable right to the account.
You cannot use the money in the account to buy a life insurance policy.
The account must be separate – the assets (securities) in your IRA cannot be combined with other property, except in a common trust fund or common investment fund.
You must start receiving distributions by April 1 of the year after you reach age 70 ½.
An individual retirement annuity, that you set up by purchasing an annuity or endowment contract from a life insurance company. A retirement annuity must also meet IRS requirements:
You must have a non-forfeitable interest in the entire contract.
The annuity contract must provide that you cannot transfer any part of it to another person other than the entity that issues the annuity.
The premiums you pay for the annuity must be flexible so if your compensation changes, your premiums can also change.
As in the case of an individual retirement account, your annuity is subject to annual limits on contributions, and you must begin to receive distributions the year after you reach age 70 ½.
Part of a simplified employee pension (SEP). This type of arrangement allows your employer to make contributions to a SEP-IRA that your employer sets up for you. The rules for contributions and withdrawals are generally the same as for traditional IRAs, and the contributions are deductible by your employer. If you are a sole proprietor, you can open a SEP-IRA and make contributions for yourself.
Part of a trust account set up by your employer, labor union, or other employee association to provide retirement benefits. These accounts must meet the same requirements as individual retirement accounts.
When Can Contributions Be Made to an IRA?
Contributions can be made at any time during the year, and contributions for the current year can be made the following year, up until the normal due date for your tax return (April 15). If you make a contribution between January 1 and April 15, you should tell the account sponsor which year (current or previous) it is for.
You cannot make contributions the year you reach age 70 ½ or any year after that.
Non-deductible Contributions
Although your deduction for IRA contributions may be reduced or eliminated, contributions can be made to your IRA up to the general limit or, if it applies, the spousal IRA limit. The difference is your nondeductible contribution. You must file Form 8606 to report nondeductible contributions even if you do not have to file a tax return.