Income Artist

8 Useful Financial Information About Individual Retirement Accounts

Author: Jimmy Barron
Published:March 4, 2023
5 mins 9 secs

One of the many noteworthy features of your IRA, or individual retirement account, is that it is, well, individual.

What does this mean? It means that you can customize your investments as you see fit and withdraw money whenever the fancy strikes you, and you even get to control what happens to your IRA after you have died.

It goes without saying that you still have to pay taxes on distributions when they are required.

With all that being said, why don’t we take a look at some useful information you could use about Individual Retirement Accounts?

More Than One

It is ok to have more than one IRA, for a multitude of reasons. These include your adjusted gross income, or AGI, rising to the point where you are no longer able to contribute to your Roth IRA, so you open what is called a traditional IRA, or perhaps you inherited an IRA while already having one of your own.

You want to be smart when it comes to investing, with research and a lot of thought going into it, so if you are looking for the best gold IRA companies, then you need not look any further as the job has been done for you.

Remember, you can contribute to as many IRAs as you wish, but also keep in mind that the total amount that you can contribute to any and all of them is limited to the yearly maximum that is allowed by the IRS if you are in the US. 

Cash

Contributions to your regular IRAs for the year must be in cash, but this limitation does not apply to securities that have been rolled over, as these must typically be rolled over in kind, which is basically the use of a good or service as payment in lieu of cash.

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So if you are heavily into cryptocurrency, digital payments, and the like, you should certainly keep this in mind and avoid any unnecessary headaches in the future.

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Required Minimum Distributions (RMDs)

You are not required to take RMDs from all your Individual Retirement Accounts.

Owners of traditional IRAs must start taking required minimum distributions, or RMDs, by April the first of the year after they have turned 73 years old.

How is this minimum amount determined? The balance of the IRA on the 31st of December of the previous year, on top of the owner’s life expectancy, determines how much must be withdrawn.

Each year from then on, the RMD has to be withdrawn. But if you have multiple traditional IRAs, you do not have to take RMDs from all of them.

Instead, you combine all of the RMD amounts for each of your Individual Retirement Accounts and then take the total from either one IRA or a combination of them.

Spousal And Non-Spousal Beneficiaries

There are different rules governing spousal and non-spousal beneficiaries.

For the spousal type, one of the benefits of an IRA is that you have the ability to directly transfer funds to the beneficiaries without first going through probate.

They can also claim inherited IRAs as their own, which allows the spouse to add new contributions to it and control any distributions.

Non-spousal beneficiaries, on the other hand, can not treat inherited IRAs as their own, nor add any contributions to them, and they also have to have had the account liquidated within 10 years of the original owner’s demise.

US Retirement Market

IRAs are actually the biggest pool of assets in the American retirement market, with Americans holding $11 trillion in IRAs at the end of 2019, accounting for an impressive 34% of the $32.3 trillion in retirement assets.

That is a lot of money, and 44% of IRA assets, or $4.8 trillion if you are interested, were invested in mutual funds.

As we have also established, the most common type of IRA is the traditional IRA, which makes sense and was first created by the Employee Retirement Income Security Act, or ERISA, in 1974.

People of all ages have IRAs, but ownership is most common among the older groups of working-age people, which reflects the life-cycle effects of saving. 

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Transfer Or Roll Over IRA

You may want or need to move your IRA accounts from one “financial institution” to another on occasion, so if you decide to maintain the same type of IRA account with a different company, then you can transfer the assets.

With a transfer, all the assets are delivered directly from one institution to another, and the transactions are not reported to the IRS.

A rollover, on the other hand, works by taking a distribution of the assets for yourself and then rolling over the amount within 60 days. 

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Managed Accounts

You have this option available to you if you have a significant amount of money in your account and would like some assistance in managing it.

You are able to offer your financial adviser formal authority to make investment choices and even regular transactions inside a brokerage account, allowing them to do so without first telling you of their activities.

As long as your broker has reached an agreement with you to permit activities of this kind, it is perfectly acceptable for you to engage in them.

In most cases, the cost of managing your account will be assessed at a fixed rate.

You may, in essence, employ someone to take care of and manage your IRA, and in doing so, you won’t be required to provide your approval for each transaction.

Children Can Open An Account Too

Yes, you saw right, children can open an IRA as well. Anyone who is paid a salary, tips, or any other type of hourly wage for their work can contribute to a traditional IRA, which includes minors.

So, your children can theoretically start saving for retirement as soon as they get their first job, if they wish, and perhaps learn the value of investing at a young age. 

Whether you are old, young, or really young, you have the option of opening an Individual Retirement Account, and although it may seem difficult and dry, it is nevertheless significant and something you should at least be familiar with; who knows, it could come in useful one day.