Grim, Biehn & Thatcher
When Individual Retirement Accounts were created by ERISA (the federal pension law) in 1974, the concept was fairly simple. Eligibility to make IRA contributions and the amount of the contribution were restricted, and there was only one type of IRA. Over 30 years later, the original ERISA concept has been expanded dramatically with numerous types of IRAs available (traditional, non-deductible, Roth, SEP-IRAs, education IRAs, etc.). The contribution and deduction limits (with COLA’s), eligibility restrictions and distribution requirements are complex and confusing. Penalty taxes are imposed on excess contributions to IRAs or a failure to take the minimum required distributions after age 70 ½ or the death of the IRA owner. Furthermore, the tax treatment of the contributions you make to the IRA will determine the tax treatment of later distributions to you from the IRA. You should keep detailed records of contributions, rollovers and distributions for each of your IRAs. Do not assume that the IRS, the IRA custodian or even your investment advisor will be able to provide you with the historical information necessary for a determination of the taxability of your distributions. Without that evidence, otherwise non-taxable distributions may be subject to tax.