Introduction

An individual retirement arrangement (IRA) is a personal savings plan that offers you tax advantages to set aside money for your retirement or, in some plans, for certain education expenses. Two advantages of an IRA are:

1. You may be able to deduct your contributions in whole or in part, depending on the type of IRA and your circumstances, and
2. Generally, amounts in your IRA, including earnings and gains, are not taxed until distributed, or, in some cases, are not taxed at all if distributed according to the rules.

Chapter 1 discusses the rules for traditional IRAs (those that are not Roth, SIMPLE, or education IRAs). Chapter 2 discusses the Roth IRA, which features nondeductible contributions and tax-free distributions. Chapter 3 discusses the education IRA, which can be set up to finance higher education expenses. Chapter 4 discusses simplified employee pensions (SEPs) under which IRAs can be set up to receive contributions from employers under SEP plans. Chapter 5 discusses SIMPLE IRAs, which are IRAs set up to receive employer contributions under a savings incentive match plan for employees (SIMPLE).

This publication explains the rules for setting up an IRA, contributing to it, transferring money or property to and from it, making withdrawals from it, and receiving distributions from it. Penalties for breaking the rules are also explained. Worksheets, sample forms, and tables, listed under Appendices in the contents, are included to help you comply with the rules. These appendices are at the back of this publication.

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