Do You Know Your “Rights” as an IRA Account Holder?

By Heather Taylor0 Comments

IRAs have been around since the 1970s, and many Americans have taken advantage of their tax-deferred status to save for retirement. Still, confusion remains about just what you can and can’t do with your IRA accounts. Some account holders might be missing out on the tax-advantages because they’re not aware of how to use the IRA to its full potential.

The IRS recently released its Taxpayers Bill of Rights to help clarify and point out “fundamental rights” in the Internal Revenue Code. This gave IRA experts on The Slott Report’s website inspiration for an IRA Owner’s Bill of Rights as a way to help those saving for retirement realize all the capabilities and advantages they have with an IRA.

Here are a few of the key points from their Bill of Rights, beginning with the one that we work to educate investors on every day:
  • You can invest in just about anything with your IRA, except for life insurance, S-corp stock and collectibles.
  • You can convert any or all of your IRA into a Roth IRA, however some exceptions do apply (see IRS.gov).
  • If you want to switch (recharacterize) some of your Roth IRA funds back to a traditional IRA, you can do so before October 15 of the calendar year following the year you converted the funds to the Roth.
  • You may take distributions from your IRA at any time – just be aware that if you’re younger than age 59½, you will incur a tax penalty for doing so.
The Bill of Rights concluded with this point that’s especially worth remembering:

You have the right to make good decisions that will save you valuable tax dollars and make your retirement account worth much more over the course of your life and the lives of your beneficiaries. Similarly, you also have the right to make poor choices that will cost you and your loved ones valuable tax dollars. The choice of which of these rights to exercise is up to you, so always make sure you evaluate your decisions carefully, have a plan and stick to it. When in doubt, remember that you also have the right to seek advice from a qualified professional.

If you would like to review the information further, here are links to IRS publications that outline how the IRA works and how you can use it to its full potential.