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Contributing to an IRA? Avoid Pitfalls

Pay Close Attention to IRA Contributions or Pay the Price

  • 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 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 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 leveraging 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.

Terry White

About Terry White

I started my business career after getting my degree in Accounting from the University of New Mexico in 1983. My first job was as a controller for a local title company, and in 1987 I started First Financial Escrow, Inc. Over the years I played a part in several startup companies including First Financial Equities, Inc., First Financial Trust, Inc., First Financial Marketing, Inc. and Asset Ventures, Inc. In 1997 First Financial Escrow, Inc. was able to purchase the escrow accounts from Sunwest Bank and changed its name to Sunwest Escrow. As the market changes, Sunwest has grown and changed along with it. Besides my wife, Sheila, we have three boys, two daughters-in-law, one grandson, another grandson on the way and a future daughter-in-law. Sunwest is my passion, and I enjoy coming to work every day to see what will happen next. I enjoy fly fishing, spending time in Colorado, biking and watching my boys play soccer.