General Rules for IRAs

Some rules that apply to all kinds of IRAs.

Most of the rules that apply to traditional IRAs also apply to Roth IRAs. There are important differences, of course, and those are spelled out on other pages. This page summarizes some of the most important rules that apply to both types of IRAs.

Trust or Custodial Account

Your IRA must be maintained as a trust or custodial account at a bank, a federally insured credit union, a savings and loan association, or an entity approved by the IRS to act as trustee or custodian. Other approved entities include mutual funds, stock brokers and insurance companies. The assets of your IRA can't be commingled with other assets (for example, you can't have a joint IRA with your spouse).

Contributions

There are special rules for Roth IRA contributions. But some rules for regular IRA contributions apply to the Roth IRA, too.

Timing

You can set up a Roth IRA at any time. However, you can make contributions for a given year only during the period that begins on the first day of the year and ends on the due date of your return for the year — not including extensions. If you file your tax returns on the calendar year (as nearly all people do), you can make your contribution for any year during the period from January 1 of that year until April 15 of the following year. (If April 15 falls on a weekend or holiday, the deadline is the first weekday after April 15 that isn't a holiday.)

• If you make a contribution to an IRA on or before April 15 it's important to designate whether the contribution is for the current year or the preceding one.
• When you designate a contribution for the previous year, you're treated as if you made the contribution on December 31.
• You can file your tax return before you make your contribution. If you do this, report the contribution that you intend to make (if you're contributing to a traditional IRA). If you end up not making the contribution, you should file an amended return notifying the IRS of this fact. (Contributions to Roth IRAs aren't deductible, so you don't have to report these contributions on your return in any event.)

Cash Only

Your regular (non-rollover) contribution to an IRA must be made in cash. You're not allowed to contribute property (such as stocks and bonds) except when you're completing a rollover from another IRA.

Prohibited Transactions

There are various things you're not permitted to do with a regular IRA. The same rules apply to Roth IRAs. Examples of prohibited transactions:

• Borrowing from your IRA or using it as security for a loan.
• Selling property to your IRA, or buying property from it.
• Buying property for your personal use with funds held by your IRA (before the funds have been distributed to you).
• Investing your IRA in certain "collectibles."

by Kaye Thomas, author, Tax Guide for Investors