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IRA Glossary

AGI (adjusted gross income)
Your gross income, which is to say all the money you took in, less certain "adjustments" such as alimony, moving expenses, deductible retirement plan contributions, and other deductions.

Annual contribution limits
The amount of money per year you can contribute to your IRA. Annual contributions to a Roth IRA, for instance, are limited to a maximum annual amount minus the taxpayer's traditional IRA contributions. The amount you may put into an education IRA, however, is in addition to the annual limit applicable to traditional and Roth IRA contributions.

Contributions
You'd think it would be as simple as 'the money you put into an IRA, otherwise known as your principal.' But no-o-o-o. The term certainly does include the original contributions you make to your IRA account. The IRS defines "conversions" to a Roth IRA as "qualified rollover contributions," and treats these rollover funds as additional contributions in applicable IRS regulations. However, keep in mind that the distribution rules are different for "qualified rollover contributions" and regular contributions.

Distributions, or Withdrawals
Anything taken from your IRA account. In either a traditional or a Roth IRA, distributions may be comprised of earnings, additional contributions, and/or conversions. The trick is to see if the distribution is TAXABLE or not, based upon traditional IRA and Roth IRA rules.

Earnings
The money earned in your IRA as it happily grows from year to year, as distinct from any contributions that you've made to it.

Education IRA (EIRA)
An IRA established on or after Jan. 1, 1998, to provide funds that will allow a beneficiary to attend a program of higher education. more info

Employer and Employee Association Trust Account, or Group IRA
An IRA set up by employers, unions, and other employee associations for employees or members.

Individual Retirement Account
An IRA set up with a financial institution like a bank, broker, or mutual fund in which contributions may be invested in many types of securities such as stocks, bonds, money market, and CDs.

Individual Retirement Annuity
An IRA set up with a life insurance company through the purchase of a special annuity contract.

Inherited IRA
An IRA acquired by the non-spousal beneficiary of a deceased IRA owner.
Special rules apply to an inherited IRA. A tax deduction is not allowed for contributions to this IRA, a rollover to or from another IRA owned by the heir is not permitted, and the proceeds must be distributed and taxed within a specific period as established by the Internal Revenue Code. See " Designating IRA Beneficiaries" for details on the various distribution requirements of inherited IRAs.

Qualified distribution (Roth IRA)
A withdrawal from a Roth IRA that is

1. Made on or after the date you become age 59 1/2; or
2. Made to your beneficiary, or to our estate, after you die; or
3. Made to you after you become disabled within the definition of the IRS code; or
4. Used to pay for qualified first-time homebuyer expenses.

However, even if one of the qualifications above is met, the distribution is STILL not qualified if it is made within a five tax-year period.

Rollover (Conduit) IRA
An IRA set up by an individual to receive a distribution from a defined benefit, defined contribution, 403(b), or 457 retirement plan. Distributions transferred to a rollover IRA are not subject to any contribution limits. Additionally, the distribution may be eligible for subsequent transfer into a qualified retirement plan available through a new employer. To retain this eligibility through December 31, 2001, the IRA must be composed solely of the original distribution and earnings (i.e., no other contributions or rollovers may be added to or mingled with the IRA), and the new employer's plan must allow the rollover. After January 1, 2002, commingling of conduit IRA money with other IRA or qualified retirement plan money is permitted, and the mixing of such monies will have no impact on the ability to transfer those assets to a new employer's retirement plan.  

Roth IRA
An IRA authorized on or after January 1, 1998, in which

1. Contributions to the account are not deductible.
2. "Qualified" distributions (i.e., withdrawals) from the account are not taxable.
3. Earnings on the account are taxable only when a withdrawal is not a "qualified" distribution.

SEP-IRA (Simplified Employee Pension)
A traditional IRA designated to receive contributions under a simplified retirement arrangement set up by an employer for the firm's employees. An employer may contribute up to $30,000 or 15% of an employee's compensation annually to each employee's SEP-IRA.

SIMPLE-IRA (Savings Incentive Match Plan for Employees IRA)                     A traditional IRA set up by a small employer for a firm's employees. In 2001, an employee may contribute up to $6,500 per year to these IRAs. This contribution limit will increase each year through 2005, when it will reach $10,000. In 2006 and later years, the allowable contribution will increase in $500 increments whenever the cumulative effects of inflation indicate such a rise is needed.  The employer sponsoring the SIMPLE will also make a matching contribution based on a percentage of the employee's pay. Between the employer and the employee, in 2001 up to $13,000 may be contributed annually to the participant's account. 

Spousal IRA
A traditional or Roth IRA funded by a married taxpayer in the name of his or her spouse who has less than the maximum allowable annual IRA contribution in annual compensation. The couple must file a joint tax return for the year of the contribution. The working spouse may contribute up to the maximum annual limits to both the spousal and his/her own traditional or Roth IRA.

Traditional, or Regular, IRA

An individual retirement account that may have both deductible and non-deductible contributions, and in which earnings accrue tax-deferred, but will be taxed as ordinary income on withdrawal