Individual Retirement Accounts

Individual retirement accounts are the most popular IRA arrangement. These accounts are established with an individual retirement account document which takes the form of a trust or custodial account. Trustees or custodians of these accounts must be a bank, a federally insured credit union, a savings and loan association, or a person or organization that receives IRS permission to act as trustee or custodian.

Individual Retirement Annuities

Individual retirement annuities are similar to individual retirement accounts except that some unique rules apply to accommodate the special features inherent in annuity contracts.

First, IRA annuities may not require fixed premiums. Annual fees can be charged, and level premiums for supplementary benefits, such as waiver of premium in the case of disability, are allowed. If interest paid exceeds the guaranteed rate, a refund of premium is allowed; however, these premiums must be used to pay future premiums or buy additional benefits in a timely manner.

A life insurance policy may not be used to fund an IRA.

The IRS has liberalized the rules with respect to self-directed investments held in an IRA annuity. Effective for all tax years, the ability of the annuity contract holder to direct the investment of premiums into publicly traded securities will not result in the holder being currently taxed on earnings [Rev. Proc. 99-44, 1999-2 CB 598]. The purpose was to put annuity investments on a more level playing field with custodial accounts offered by banks and brokerage houses.