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Kinds of traditional IRAs. Your traditional IRA can be an individual retirement account or annuity. It can be part of either a SEP or an employer or employee association trust account. Individual Retirement Account An individual retirement account is a trust or custodial ac- count set up in the United States for the exclusive benefit of you or your beneficiaries. The account is created by a written document. The document must show that the ac- count meets all of the following requirements. • The trustee or custodian must be a bank, a federally insured credit union, a savings and loan association, or an entity approved by the IRS to act as trustee or custodian. • The trustee or custodian generally can’t accept contri- butions of more than the deductible amount for the year. However, rollover contributions and employer contributions to a SEP can be more than this amount. • Contributions, except for rollover contributions, must be in cash. See Rollovers, later. • You must have a nonforfeitable right to the amount at all times. • Money in your account can’t be used to buy a life in- surance policy. • Assets in your account can’t be combined with other property, except in a common trust fund or common investment fund. • You must start receiving distributions by April 1 of the year following the year in which you reach age 701/2. See Pub. 590-B for more information about Required Minimum Distributions (RMDs) and other distribution rules. Individual Retirement Annuity You can open an individual retirement annuity by purchas- ing an annuity contract or an endowment contract from a life insurance company. An individual retirement annuity must be issued in your name as the owner, and either you or your beneficiaries who survive you are the only ones who can receive the benefits or payments. An individual retirement annuity must meet all the fol- lowing requirements. • Your entire interest in the contract must be nonforfeit- able. • The contract must provide that you can’t transfer any portion of it to any person other than the issuer. • There must be flexible premiums so that if your com- pensation changes, your payment can also change. This provision applies to contracts issued after No- vember 6, 1978. • The contract must provide that contributions can’t be more than the deductible amount for an IRA for the year, and that you must use any refunded premiums to pay for future premiums or to buy more benefits be- fore the end of the calendar year after the year in which you receive the refund. • Distributions must begin by April 1 of the year follow- ing the year in which you reach age 701/2. See Pub. 590-B for more information about Required Minimum Distributions (RMDs) and other distribution rules. Individual Retirement Bonds The sale of individual retirement bonds issued by the fed- eral government was suspended after April 30, 1982. The bonds have the following features. • They stop earning interest when you reach age 701/2. If you die, interest will stop 5 years after your death, or on the date you would have reached age 701/2, which- ever is earlier. • You can’t transfer the bonds. If you cash (redeem) the bonds before the year in which you reach age 591/2, you may be subject to a 10% addi- tional tax. See Pub. 590-B for more information about Age 591/2 Rule for Early Distributions and other distribution rules. You can roll over redemption proceeds into IRAs. SIMPLE IRAs A SIMPLE IRA plan is a tax-favored retirement plan that certain small employers (including self-employed employ- ees) can set up for the benefit of their employees. Your participation in your employer's SIMPLE IRA plan doesn’t prevent you from making contributions to a traditional or Roth IRA. See Pub. 560 for more information about SIM- PLE IRAs. Simplified Employee Pension (SEP) A SEP is a written arrangement that allows your employer to make deductible contributions to a traditional IRA (a SEP IRA) set up for you to receive such contributions. Generally, distributions from SEP IRAs are subject to the withdrawal and tax rules that apply to traditional IRAs. See Pub. 560 for more information about SEPs. Employer and Employee Association Trust Accounts Your employer or your labor union or other employee as- sociation can set up a trust to provide individual retirement accounts for employees or members. The requirements for individual retirement accounts apply to these tradi- tional IRAs. Required Disclosures The trustee or issuer (sometimes called the sponsor) of your traditional IRA generally must give you a disclosure statement at least 7 days before you open your IRA. Chapter 1 Traditional IRAs Page 7