Opening an IRA is a financially savvy move for retirement planning. Find out the must know basics for opening an Individual Retirement Account including how to choose an IRA, when you need IRA trusts, and when to name IRA beneficiary trusts.

Step 1: Knowing the Types of IRAs

Traditional IRA

The Traditional IRA account has few requirements for enrollment and is not attached to a company or group retirement plan. Funds are deposited into this account and are made available at a predetermined retirement age.

Roth IRA

A Roth IRA is a special type of account that is usually not taxed if certain conditions are fulfilled. This kind of account has a deposit maximum. Basically the difference is there are fewer withdrawal restrictions and requirements but different types of limitations.

Rollover IRA

The rollover IRA is a specialty type of IRA – be it Traditional or Roth originally. This type of IRA plan is meant to consolidate your retirement savings from a group retirement plan such as a company 401k.

Inherited IRA

Inherited IRA accounts usually allow the IRA beneficiary to take advantage of the account’s benefits but usually need to be restructured and certain conditions apply; this is why most banks offer this as a specialty product.

Step 2: Opening Your Account

Forms

For normal accounts, the application forms are fairly simple through most financial institutions and an account representative is usually able to explain the terms at the time of enrollment. More complicated accounts and those tied to IRA trusts and naming IRA beneficiary trusts may need additional documentation at the time of establishment. It is recommended that you consult a retirement specialist or lawyer for complex IRAs.

Contributions

The contribution is you’re initial funding to open the account; the minimum and maximum opening amounts depend on your bank.

Step 3: Naming Your Beneficiary

Spouse Beneficiary

A spouse IRA beneficiary is in the best position with regards to the account should you pass before the funds are used up. The spouse heir can simply start over with the funds in a new IRA account and the timeline for minimum withdraws starts over.

Non-Spouse Beneficiaries

An heir to an IRA who is not a spouse is not at a great advantage when it comes to inheriting an account. The non-spouse usually has to start making withdraws within the first tax year of the original account holder’s passing – this is done so the account starts being taxed right away. There is also a minimum deductible required annually so the account remains taxable – it can even be taxed as income for the beneficiary.

Step 4: Determining if You Need IRA Trusts

Naming a Trust as a Beneficiary

An IRA trust is a special designation that holds the money if the IRA account holder should you pass before the funds in the account are spent. Naming a trust as the beneficiary enables the original account holder to designate how the money is spent – for example, this allows you to make sure the money is spent on education or housing instead of at the desecration of your heirs.

Need Help?

If you are not sure as to what legal document you currently have contact one of our professionals to help you with your estate planning. They will make sure you have all of your grounds covered and have the right legal documents that best suite your wants and needs.

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