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Contributing to an IRA? Avoid Pitfalls

Pay Close Attention to Contributions or Pay the Pricecontribution limits & IRA penalties

  • All contributions must be made in cash

We get calls all the time from people asking if they can assign a piece of property or a note to their IRA account. No, you cannot assign an asset that you already own to your Individual Retirement Account. You cannot make any in-kind contribution to your qualified plan.

  • There is a contribution limit that you may not exceed for any given year

The contribution limit for 2011 is $5,000.00. You may contribute an additional $1,000.00 to your account each year, if you are over the age of 50.

These amounts are changed every couple of years to keep up with the rate of inflation, but currently $5,000.00 ($6,000.00 if you are over age 50) is the maximum that you can contribute.

  • You MUST have a custodian for your IRA account

There are some companies that act as plan administrator for IRA accounts, but they are not the actual custodian for the retirement plan. A custodian must be a bank or trust company that is regulated by the state or federal government. Plan administrators usually have banks that act as custodian for their accounts, but you want to be VERY careful when using a company that is a plan administrator and not a custodian. Plan Administrators are not regulated by anyone and therefore are far less secure than using an actual custodian.

  • You may NOT invest your IRA in life insurance or collectibles

Unfortunately, that Mickey Mantle baseball card that you’ve had your eye on is not considered an acceptable investment according to the IRS.

  • You cannot use your IRA as collateral to purchase something personally

This would also apply to using your IRA as collateral to receive a line of credit from a bank.

  • All transactions must be at arm’s length

You may not commingle any of your IRA assets with any of your own personal assets.  You also may not do any transactions with disqualified parties. Disqualified parties include, but are not limited to any of your ascendants, descendants and any of their spouses. Sunwest Trust does not provide tax or legal advice. If you have a question about whether or not something is a prohibited transaction, contact a CPA or tax professional.

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