Individual retirement account

An individual retirement account or IRA is a form of "individual retirement plan", provided by many financial institutions, that provides tax advantages for retirement savings in the United States. An individual retirement account is a type of "individual retirement arrangement" as described in IRS Publication 590, individual retirement arrangements (IRAs). The term IRA, used to describe both individual retirement accounts and the broader category of individual retirement arrangements, encompasses an individual retirement account; a trust or custodial account set up for the exclusive benefit of taxpayers or their beneficiaries; and an individual retirement annuity, by which the taxpayers purchase an annuity contract or an endowment contract from a life insurance company.

As of 2010, low savings rates, financial crises, and poor stock market performance had caused retirement savings account values to fall so low that 75% of Americans nearing retirement age had less than $30,000 in their retirement accounts, which Forbes called "the greatest retirement crisis in American history."

There are several types of IRAs:

The last two types, Rollover IRAs and Conduit IRAs, are viewed by some as obsolete under current tax law (their functions have been subsumed by the Traditional IRA), but this tax law is set to expire unless extended. However, some individuals still maintain these arrangements in order to keep track of the source of these assets. One key reason is that some qualified plans will accept rollovers from IRAs only if they are conduit/rollover IRAs.

A self-directed IRA is identical to an IRA. The term "self-directed" is redundant because all IRAs are self-directed. The difference in terminology is typically attributed to the types of investments which are allowed to be held in custody by the IRA custodian. A self-directed IRA custodian frequently permits the IRA account owner to make investments into a broader range of alternative investments. Some examples of these alternative investments are: real estate, private mortgages, private company stock, oil and gas limited partnerships, precious metals, horses, and intellectual property. While the Internal Revenue Code (IRC) has placed a few restrictions on what can be invested in, the IRA custodian may impose additional restrictions on what assets they will custody. Self-directed IRA custodians, or IRA custodians who specialize 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 correct self-directed IRA custodian. Most custodians which handle stocks, bonds, and mutual funds are not capable of providing proper custody to alternative investments.

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