Funding an IRA
IRAs can be funded with most types of securities, and some non security financial instruments. There are a few things that cannot be funded into an IRA. They include collectibles including valuable coins or bullion and life insurance. IRAs cannot generally hold real estate unless it is held as a form of security such as a real estate investment trust (REIT), or if the IRA is held by a custodian who makes all transactions. There are certain special restrictions on real estate held in an IRA.
Status of IRAs in bankruptcy
In the case of Rousey v. Jacoway, the United States Supreme Court ruled unanimously on April 4, 2005 that under section 522(d)(10)(E) of the U.S. Bankruptcy Code (11 U.S.C. § 522(d)(10)(E)), a debtor in bankruptcy can exempt his or her IRA from the bankruptcy estate. The Court indicated that because rights to withdrawals are based on age, IRAs should receive the same protection as other retirement plans.
Thirty-four states already had laws effectively allowing an individual to exempt an IRA in bankruptcy, but the Supreme Court decision allows federal protection for IRAs.
IRAs and borrowing
Borrowing against IRAs is generally not allowed. However the rules regarding IRAs allow assets in them to be transferred from one account to another. This can be used to temporarily "borrow" money from the IRA, once per year. The money must be placed in another IRA account within 60 days to qualify as an "indirect rollover" and avoid taxes and penalties.
Subsection (a) of Code section 408 defines the term individual retirement account and subsection (b) defines the term individual retirement annuity. Individual retirement accounts and individual retirement annuities are collectively referred to as individual retirement plans (see Internal Revenue Code section 7701(a)(37)). Individual retirement accounts and individual retirement annuities are also collectively referred to as individual retirement "arrangements" under certain Treasury regulations (e.g., 26 C.F.R. sec. 1.408-4 and sec. 1.408-6) and in Publication 590 (2004) from the Internal Revenue Service.
The term "arrangement" also has more limited meanings. Under subsection (k) of section 408, a simplified employee pension (or SEP) is a particular kind of individual retirement account or individual retirement annuity. A SEP may contain a section 408(k)(6) “arrangement.” Simple retirement accounts with qualified salary reduction “arrangements” are allowed by subsection (p) of section 408.