When ERISA (the federal pension law) created Individual Retirement Accounts in 1974, the concept was fairly simple. There were restrictions on eligibilities to make IRA contributions and the amount of the contributions. There was also only one type of IRA. Over 30 years later, the original ERISA concept is expanded dramatically with numerous types available (traditional, non-deductible, Roth, SEP-IRAs, education IRAs, etc.). This often means that there is more to understand, and more help needed.

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. This is also the case for 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 treatment of later distributions to you.

What should you do with your IRA?

You should keep detailed records of contributions, rollovers and distributions for each of your IRAs. Do not assume that the IRS, the custodian or even your adviser will be able to provide the information necessary. Without that evidence, otherwise non-taxable distributions may be subject to tax.

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