An IRA is any one of three vehicles with the same basic tax treatment:

1. an individual retirement account;

2. an individual retirement annuity; or

3. a group individual retirement account sponsored by an employer or labor union.

Individual Retirement Account

This is a trust or custodial account established by an individual with a bank or other qualified institution.  The institution acts as a trustee or custodian of investments contributed by the individual or purchased with funds contributed by the individual. With the enactment of the Roth IRA in 1997, the term “Traditional IRAs” has been established.  Contributions to Traditional IRAs may be deductible, non-deductible or a combination thereof.  To be deductible there must be “earned income”, that is, salaries, wages or self-employment income. For years before 2002, the maximum annual contribution to all IRAs (e.g. Traditional and Roth) for an individual is $2,000.   In addition, deductibility is limited if the IRA owner is an “active participant” in an employer-sponsored retirement plan and income exceeds certain amounts.  Distributions from Traditional IRAs are generally fully taxable, however if non-deductible contributions were made, these contributions are recovered tax-free.

Spousal IRA

This is an IRA where the contribution is made from the compensation of the other spouse.  The term "spousal IRA" is merely used to highlight the fact that the spouses are using the IRA to take advantage of special contribution rules that apply when the IRA owner has little or no compensation for the taxable year.  This IRA contains no special provisions in its trust document.

Roth IRA

This is sometimes called a "backloaded IRA".  A Roth IRA can take the form of an individual retirement account or an individual retirement annuity. An IRA cannot be a Roth IRA unless it is so designated at its establishment. As with the Traditional IRA, there must be earned income in order to make a contribution.  Roth IRA contributions are never deductible.  Generally, distributions from Roth IRAs are completely tax-free, including principal and earnings thereon.  A Traditional IRA may be “converted” to a Roth IRA.  The amount converted is treated as a taxable distribution from the Traditional IRA and may be fully or partially taxable.  The converted amount is not subject to the 10% premature distribution penalty.  See more information below.

Individual retirement annuity

This is an annuity contract issued by an insurance company into which an individual pays premiums instead of contributions.

Group individual retirement account

This is an individual retirement account established with a bank or custodian by an employer or employee association (e.g., a labor union). The account is invested collectively on behalf of employees or members of the employee association, but with separate accounting and valuation for each employee's interest in the account. (Federal securities laws and the availability of SEP arrangements since 1978 have greatly reduced the popularity of such group IRAs.)

Education IRA

This is an account that is not designed for retirement savings, but is treated much like an individual retirement account.  A parent or grandparent usually establishes the Education IRA.  The maximum annual to contribution per beneficiary is $500.  The contribution is never deductible.  The earnings grow tax-deferred until the beneficiary withdraws the funds at which time they are taxable to the beneficiary.

Retirement bonds

These are arrangements that were once used to save for retirement. These U.S. government bonds had the same tax advantages as IRAs.  They have not been issued since 1982.  They continue to be legally effective on the terms under which they were issued until they are redeemed.

For mort information, review the complete version of IRS Publication 590 on line. 

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