Roth IRA Rules – Roth IRA Retirement Planning

In this section, we look at the general rules that apply to both the traditional IRAs and the Roth IRA.

1) Restricted Transactions

You are not allowed to perform all of these following transactions under both the traditional and the Roth IRA.

  • Borrowing funds from your IRA to pay off debt or loans.
  • Buying personal property with funds from your IRA
  • Selling your personal property to an IRA

2) Cash Only IRA

Any payments or contributions you make towards an IRA must be in cash. You are not permitted to contribute to an IRA in the form of stock holdings or bonds. This applies only to IRA contributions and NOT IRA Rollovers or Conversions.

3) Custodial or Trust IRA Accounts

Your IRA (Individual Retirement Account) must be held as a trust or custodial account at any of the following holdings:

  • Your local bank
  • Credit Union (must be Federally Insured)
  • Mutual fund brokers
  • Stock brokers
  • Insurance companies
  • Loan or savings brokers

4) Timing Differences

Contributions or payments towards an IRA must be made from the first day of the calendar year till the day you file your income tax return – there are no extensions. For example, if you file your income tax return on April 30th, then you can make IRA contributions from January 1st to April 30th of the year ONLY (if April 30th is a holiday, then the deadline is the first business day after April 30th).

Here are a few reminders about IRA contribution timings and rules:

  • If you make an IRA contribution on April 30th, it is important to say for which year it is, is it for the previous year or the next taxation year?
  • If you treat the contribution as previous year’s contribution, it will be taken as if you made the contribution before December 31st, of the previous year.
  • You can file your income tax return before making IRA contributions. Just include these expected IRA contributions to your income tax return beforehand. Incase you do NOT end up making the IRA contributions, submit a modified Income Tax Return to the IRS and cancel out the IRA contributions.

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