1. OVERVIEW

    This chapter contains a brief overview of the rules that apply to
    IRAs. You will find the detailed coverage of the rules in the
    chapters that follow.

    An individual retirement arrangement (IRA)  is a personal savings
    plan that offers you tax advantages to set aside money for your
    retirement. That means that you may be able to deduct your
    contributions to your IRA in whole or in part, depending on your
    circumstances, and that, generally, amounts in your IRA, including
    earnings and gains, are not taxed until distributed to you.

    You can set up an IRA with several types of organizations. Most
    banks and similar savings institutions, mutual funds, stock
    brokerage firms, and insurance companies offer IRAs that meet
    Internal Revenue Code (IRC) requirements. Not later than the date
    one of them sets up an IRA for you, it must give you an IRA
    disclosure statement.  However, if the statement is given to you
    less than 7 days before you set up (or purchase, if earlier) your
    IRA, you can revoke your IRA during a period ending not less than 7
    days after the day you set it up (or purchase it, if earlier).

    Who Can Set Up an IRA?

    You can set up an IRA if you have taxable compensation during the
    year and have not reached age 70 1/2 by the end of the year.
    Compensation includes wages, salaries, tips, commissions, fees,
    bonuses, and taxable alimony and separate maintenance payments.

    You may also be able to set up an IRA for your spouse.

    How Can an IRA Be Set Up?

    You can use the following types of IRAs:

    Individual Retirement Account. You set this up with any financial
    institution that satisfies the requirements of the Internal Revenue
    Code.

    Individual Retirement Annuity. You set this up by purchasing a
    special annuity contract from a life insurance company.

    Employer and Employee Association Trust Account. Your employer,
    labor union, or other employee association can set up an individual
    retirement account for you.

    Simplified Employee Pension (SEP). Under a SEP plan, your employer
    can set up an individual retirement account (called a SEP-IRA) for
    you that generally lets your employer contribute to it each year and
    deduct up to 15% of your compensation or $30,000, whichever is less.
    A self-employed person is treated as an employee for this purpose.

    How Much Can I Contribute to an IRA?

    You can contribute up to $2000 or 100% of your taxable compensation,
    whichever is less, to your IRA each year. Your contributions may or
    may not be fully deductible. Whether your contributions are
    deductible or nondeductible, you must have received taxable
    compensation to make contributions to an IRA.

    How Much Can I Deduct?

    The amount of your deduction depends on whether or not you or your
    spouse are covered by a retirement plan at work. If you are covered
    (or considered covered), your deduction amount also depends on your
    filing status, and how much income you have. The Can You Take an IRA
    Deduction? chart, in Chapter 4 of this publication, shows whether
    you can take a full deduction, a partial deduction, or no deduction.
    To figure a partial deduction, see the worksheets provided in
    Chapter 4.

    Nondeductible IRA contributions. Even if you cannot take a full
    deduction, you can still contribute up to $2,000 or 100% of
    compensation, whichever is less.  The contributions that are not
    deductible are called "nondeductible contributions." When you make
    these, you must attach Form 8606 to your tax return.

    Can I Transfer (Roll Over) Retirement Plan Assets?

    If you want to move your IRA assets into another IRA, you can. If
    you receive a distribution from an employer's qualified retirement
    plan that you want to roll over (transfer) into your IRA, you can do
    that too. You can also roll over IRA assets into another employer's
    qualified plan, if all the assets transferred to the IRA came from
    an employer's qualified plan. However, there are special rules that
    you must follow to avoid paying tax on such transfers.

    When Can I Withdraw or Use the Assets in My IRA?

    Generally, you can withdraw money or property from your IRA, without
    additional tax, only after you reach age 59 1/2. You must start
    withdrawing your IRA assets by April 1 of the year after the year in
    which you reach age 70 1/2, regardless of whether you have retired.

    What Acts Result in Penalties?

    You may have to pay additional taxes or penalties if you:

    o    Contribute too much to your IRA (excess contribution),

    o    Get money or property from your IRA before you reach age 59 1/2
         (early withdrawal),

    o    Get too much money or property from your IRA (excess
         distribution),

    o    Do not receive distributions from your IRA soon enough and in
         the amounts required (excess accumulation),

    o    Use your IRA in a way that is not allowed (prohibited
         transaction), or

    o    Fail to file Form 8606 or overstate nondeductible contributions
         on it.