Page 185 - Essentials of Payroll: Management and Accounting

ESSENTIALS of Payr oll: Management and Accounting
• Group IRA. Though the intent of an IRA is for it to be the
sole possession of one person, it can also be set up and con-
tributed to by another entity. In the case of a group IRA, an
employer, union, or other entity can set up a cluster of IRAs
for its members or employees and make contributions into
each of the accounts.
• Individual retirement annuity. This is an IRA that is composed
of an annuity that is managed through and paid out by a life
insurance company.
• Inherited IRA. This is either a Roth or traditional IRA that

has been inherited from its deceased owner, with the recipient
not being the deceased owner’s spouse. After the owner’s
death, no more than five years can pass before the beneficiary
receives a distribution; or an annuity can be arranged that
empties the IRA no later than the beneficiary’s life expectancy.
This IRA is not intended to be a vehicle for ongoing contri-
butions from the new beneficiary, so tax deductions are not
allowed for any contributions made into it. Also, the funds in
this IRA cannot be shifted into a rollover IRA, since this
action would circumvent the preceding requirement to dis-
tribute the funds within five years.
• Rollover IRA. This is an IRA that an individual sets up for the

express purpose of receiving funds from a qualified retirement
plan.There are no annual contribution limits for this type of
IRA, since its purpose is to transfer a preexisting block of funds
that could be quite large. Funds deposited in this account, as
well as any earnings accumulating in the accounts, are exempt
from taxation until removed from it. Rollover funds can also be
transferred (tax-free) into another qualified retirement plan.A
common use of the rollover account is to “park” funds from the
qualified plan of a former employer until the individual qualifies
for participation in the plan of a new employer, at which point
the funds are transferred into the new employer’s plan.

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