1) What is ERISA?
The Employee Retirement Income Security Act (ERISA) passed the responsibility of retirement savings from the employer to the employee. IRAs were created in 1975 to provide individuals a chance to direct where their retirement funds were invested. Rather than distinguishing which investments are allowed, the IRS code instead identifies which investments are not permitted under these laws.

Only two types of investments are excluded under ERISA and IRS Codes:

• Life Insurance Contracts
• Collectibles such as works of art, rugs, jewelry, etc.

IRS Code Sec. 401 IRC 408(a)(3)

2) Eligibility
Any individual, whether or not he or she is covered by an employer-sponsored pension plan, including government pension plans, may establish his or her own individual retirement account (IRA). The amount of the maximum annual contribution to this plan is limited to the lesser of either 100 percent of the individual’s earned taxable compensation income, or $2,000. What portion of this contribution may be deductible varies, depending on whether the individual (and/or his or her spouse if married), is an active participant in an employer-sponsored pension plan, and on the amount of the individual’s Adjusted Gross Income (combined with his or her spouse’s, if married).

3) IRA’s (overview)
There are currently three types of IRAs that are not established by employers. These are: education IRAs, traditional IRAs, and Roth IRAs. In addition, employers may establish SIMPLE or SEP IRAs for themselves and their employees. All of these plans, except for the education IRAs are primarily focused on retirement savings. The education IRAs are more appropriately utilized as a way to partially provide for higher education costs.

4) Trustee-to-Trustee Transfers
A trustee-to-trustee transfer occurs when your current plan custodian sends the money or assets directly to another rollover plan, most commonly to an IRA. You should have a skilled professional assist you with the kind of transaction, to avoid unintentional taxation and or penalties.

5) What kind of retirement funds am I able to use?

It is possible to use funds from most types of retirement accounts:

• Traditional IRA
• Roth IRA
• SEP IRA
• Keogh
• 401(k)
• 403(b)
• And many more!

6) My CPA and Financial Advisers say this is illegal. Why?
It may be they are influenced by self-interest or they are simply uninformed. Often times an individual will ask their CPA, Attorney or Financial Planner for advice and in turn are told: “That’s illegal.” “You can’t do that.” “It is very risky.” Attorneys stick to their core competencies and rarely deviate from them; tax preparers are taught to do just that - prepare taxes. Your financial adviser’s company or agency may either be disinterested in this type of business or have not been educated regarding this type of retirement plan. A stock broker makes money when they sell stocks, bonds and mutual funds not real estate or other instruments.

7) What is a self-directed IRA custodian?
The Custodian is a bank or savings and loan association, as defined in IRC 408(n), or any other entity that has the approval of the IRS to act as Custodian. In order to have a self-directed IRA, it needs to be held with a Custodian who will allow funds to be directed into non-traditional vehicles. There are fewer of these types of custodians than one might expect.

8) What is the consequence of a prohibited transaction?
If an IRA holder is found to have engaged in a prohibited transaction with IRA funds, it will result in a distribution of the IRA. The taxes and penalties are severe and are applicable to all of the IRA’s assets on the first day of the year in which the prohibited transaction occurred.

9) How do I make sure that I am following the rules?
As mentioned previously, the IRS does not identify what investments or transactions you can make in your IRA. They instead state which investments are prohibited and what makes certain transactions prohibited. Identifying, interpreting and following these rules can be complicated, but not impossible. Utilizing specially trained professionals can help you follow Internal Revenue guidelines and steer clear of prohibited transactions.

10) Why are there not more of these custodians across the country?
There are very few non-traditional IRA custodians simply because this business is not as profitable as it is for the brokerage houses. It requires many more hours to complete a self-directed transaction than to purchase stocks over an electronic system. Traditional banks do not compete because it does not fit within their business objectives. They make money by leveraging the dollars you have sitting in their accounts.

11) Is my money safe?
A custodian must be a registered Trust Company. For one to register as a Trust Company the institution must meet stringent state requirements and have adequate reserves. Your money is kept in a separate account for your benefit and not subject to creditors of the custodian. Furthermore, the custodian never has control of your money - YOU DO! You are ALWAYS in control.

12) How can I move my IRA assets from one financial institution to another?
There are two basic ways you can move your IRA assets from one financial institution to another: an IRA transfer or an IRA rollover. In an IRA transfer, your IRA proceeds are sent directly from your current IRA trustee or custodian to your new IRA trustee or custodian (i.e., the IRA funds are not distributed to you). In an IRA rollover, on the other hand, your IRA assets are distributed to you and you must subsequently redeposit them into an IRA within 60 days to avoid taxation. (Note: There are restrictions regarding how frequently you may roll over your IRA assets, so be sure to familiarize yourself with the restrictions before taking a distribution of your IRA assets.)

13) Can I name more than one beneficiary for my IRA?
Under most circumstances, you may name multiple beneficiaries for your IRA. Under most circumstance, if you name multiple primary beneficiaries on your IRA, each primary beneficiary who is alive at the time of your death will receive a portion of your IRA.

14) Can I name a charitable institution as my IRA beneficiary?
Yes. Under most IRA plans, you are permitted to name any individual or entity you desire as the beneficiary of your IRA.

15) Must I name a beneficiary specifically for my IRA?
Technically, you are not required by law to name individual beneficiaries specific to your IRA. However, if you do not explicitly name one or more beneficiaries for your IRA (on documents provided by your IRA provider), you run the potential risk of having your IRA assets paid to individuals other than those whom you intended. You should refer to the terms of your IRA document to see how your IRA assets will be distributed upon your death in a situation where there is not a proper IRA beneficiary designation on file.

16) What is a contingent beneficiary, and why should I consider naming a contingent beneficiary for my IRA?
Although the specific terms governing contingent beneficiaries can vary, the term contingent beneficiary generally refers to a beneficiary who will only be eligible to receive the assets of your IRA upon your death if your primary beneficiary (ies) has predeceased you. Most IRA providers will allow you to name one or more contingent beneficiaries in addition to your primary beneficiaries. Naming one or more contingent beneficiaries on your IRA can be a good ‘backup plan’ in the event you should forget to update your beneficiary designation upon the death of one of your primary beneficiaries. Before naming contingent beneficiaries, however, be sure you read the terms of the beneficiary designation form carefully to make sure you understand the circumstances under which the contingent beneficiary will be eligible to receive IRA proceeds.

17) What is the primary difference between an IRA transfer and an IRA rollover?
In the case of an IRA transfer, an individual’s IRA assets are generally transferred directly from one IRA trustee or custodian to another. Because IRA assets are not distributed to the IRA holder in an IRA transfer. IRA transfers are not reported to the IRS. With an IRA rollover, on the other hand, IRA assets are generally distributed to the IRA holder who must then redeposit the assets into an IRA within 60 days to avoid taxation. Because assets are distributed to the IRA holder in the case of an IRA rollover transaction, IRA rollovers are reported to the IRS by the IRA trustees/custodians involved, and must also be reported to the IRS on the IRA holder’s federal tax return (notwithstanding the fact that a qualifying IRA rollover is a nontaxable event).

18) Can I transfer or rollover assets from my Traditional IRA to a Roth IRA?
Qualifying individuals can convert all or part of their Traditional IRA to a Roth IRA by rolling or transferring their Traditional IRA assets to a Roth IRA. To qualify for a conversion, you (or you and your spouse, if married) must have modified adjusted gross income for the year of $100,000 or less. If you are married, filing separately, you generally cannot qualify for a conversion regardless of your level of modified adjusted gross income (unless you did not live with your spouse at any time during the year). When converting from a Traditional IRA to a Roth IRA, you must generally include the amount distributed from your Traditional IRA in your taxable income for the year of distribution (less any amount which represents the return of nondeductible basis).

The material provided is for informational purposes only and TSP Trust is not responsible for any errors or omissions. Contribution and income limits are subject to change without notice. Please consult your tax or legal adviser(s) for questions concerning your personal tax or financial situation.