Glossary of Commonly Used IRA Terms

Mountain West IRA – Glossary of Commonly Used IRA Terms

401(k) Plan A Defined Contribution Qualified Plan which permits employees to defer income form their pay and contribute that amount to a separate account for their retirement benefit.
Anti-alienation Provision This provision protects Qualified Plan assets from creditors provided there is at least one common law employee
Beneficiary An individual who is designated to receive plan funds/benefits. This individual is designated by the Plan owner
Beneficiary Designation Form A form filled out upon opening an IRA or Plan which allows a beneficiary to be designated
Buy Direction Letter A letter provided to the Plan Administrator/Custodian which initiates the purchase of assets
Collectible Any tangible personal property as specified by the IRS (including antiques, rugs, art, coins, jewelry, etc.) that is disallowed for investment purposes with an IRA or Plan
Contribution Funds given to an IRA or Plan. These are limited annually and must be in made accordance with the appropriate rules.
Coverdell Educational Savings Account An IRA account set up for the purpose of paying the qualified educational costs of the beneficiary.
Custodian A designated individual or company who handles IRA or Plan assets and transactions. This entity must be approved by the IRS
Debt Financing: Using a loan to pay for plan assets. This is subject to special rules regarding recourse and guarantees.
Deemed IRA The amount of an IRA that is placed into a Qualified Plan
Defined Benefit Plan Any Qualified Plan that is not a Defined Contribution Plan. Contributions are based on actuarial computations of what is needed to provide determinable assets to each plan participant.
Defined Contribution Plan A Qualified Plan whose benefits are largely based on amount contributed or deferred.
Disqualified Person A person defined by the IRS who is disqualified from performing a transaction within an IRA or Plan. Common Disqualified Persons are spouses, lineal descendants and spouses thereof, fiduciaries and corporations, trusts, etc. owned by the Plan participant.
Distribution: Withdrawals from an IRA or Qualified Plan. These are subject to IRS guidelines.
ERISA: Employee Retirement Income Security Act of 1974, as amended
Escrow Agent An agent who assists with the administrative and some financial tasks of a real estate settlement
Excess Contribution A contribution made to an IRA or Qualified Plan that exceeds IRS limitations. These are subject to taxes.
Fair Market Value The value of an asset. A common formula for obtaining fair market value is determined by a willing buyer and seller with all of the facts about the asset.
Fee Disclosure A form provided at application for an IRA or Qualified Plan. This lists all appropriate fees associated with the account
Health Savings Account A tax-exempt trust account set up for the purpose of paying qualified medical expenses
Highly Compensated Employee An employee whose salary is greater than or equal to 10% of the employer’s yearly wages.
In Kind Contribution An asset contributed to an Individual (k) account. The contribution must be at fair market value and stay within contribution limits.
Indirect Rule: An IRS guideline that, paraphrased, states that no transaction that cannot be done directly can be done indirectly.
Individual (k) Plan A Qualified Plan set up for business owners who have no employees
Interested Party Designation Form A form provided at application for an Ira or Plan that allows the plan participant to designate a third party who may receive information about the plan
IRA or Individual Retirement Account A personal savings plan with a trustee or custodian that offers tax advantages to set aside money for retirement.
IRA Application: An application that allows the participant to open an IRA account. The name of the Trustee/Custodian/Administrator is included in the application
IRA Distribution/Withholding Form A form that needs to be completed in order to take a distribution from an IRA.
IRA Transfer or Direct Rollover Form A form used to transfer assets from one IRA to another.
Lender A third party who provides financing for a transaction. This may include a bank, mortgage broker, private lender or other party
Leveraged Transactions Also known as Debt Financed Transactions, or using borrowed funds for part of a purchase.
Limited Power of Attorney: A form required if a plan participant wishes to allow another party to direct purchases and sales of assets within a plan
Loan to Value Ratio: The amount of equity in a purchase. This is a large factor for obtaining debt financing
Modified AGI: This is used for the purposes of contributing to a Roth IRA. The steps for determining an adjusted contribution using the Modified Adjusted Gross Income can be found in the workbook.
Money Purchase Plan: A Defined Contribution Qualified Plan which has contributions based on an employee’s compensation. Once a contribution level is established, it can not be changed without IRS approval. This plan is not often used as of 2003.
Permitted Investments: Investments acceptable to a plan custodian as per IRS Disclosure Form 5305.
Plan Administrator A party who performs administrative functions for an IRA or Qualified Plan.
Plan Adoption Agreement: An agreement which specifies the terms of an Individual (k).
Plan Participant: The owner of a plan (or the person who open the plan).
Prohibited Transaction: Any improper use of an IRA or Plan by the Plan participant or any disqualified person.
Prohibited Transaction Exemption A request sent to the DOL to allow for a prohibited transaction in an extreme circumstance
Qualified Plan A plan approved by the IRS which allows for tax-free or tax-deferred funds to be used for the purposes of retirement income. Contributions are made by an employee and an employer as applicable.
Rollover Moving assets from one IRA plan to another
Roth IRA: A post-tax (but not tax deductible) IRA with tax-free earnings. These may be opened by an eligible party whose income falls into the acceptable limits as defined by the IRS.
Self-Direction The act of directing how the assets of an IRA or Plan are invested
Sell Direction Letter A letter provided to the Plan Administrator/ Custodian which initiates the sale of assets.
SEP IRA A Simplified Employee Pension IRA. This Plan allows an employer to make contributions to the employee’s Retirement Plan without becoming involved in more complex arrangements. The contributions are made to a Traditional IRA of each Plan participant.
Servicer: A third party who handles the administrative tasks of repaying Debt Financing
SIMPLE IRA: A Savings Incentive Match Plan for Employees. This plan is designed for companies with 100 or fewer employees. The plan includes a salary reduction arrangement.
Sole Proprietorship A business owner who generally has no common law employees. Also, an eligible party for an Individual (k) plan
Spousal IRA An IRA for the benefit of a non-working spouse. The same contribution limits apply as those of Traditional IRAs even, if the spouse has little or no earned income.
Statutorily Disallowed Investments Transactions not allowed within an IRA or plan as per the IRS. These include transactions involving collectibles.
Tax Lien Certificate This certificate documents the purchase of a tax obligation from a taxing authority. The tax obligation was previously unpaid by the property owner of record and is then sold to a private investor so the taking authority can receive immediate income.
Third Party Administrator An entity hired to perform functions required on behalf of a Trustee or Custodian.
Title Report A report issued prior to a real estate settlement which gives a property description and informs the buyer and seller of any liens, lot adjustments, etc. that may affect the property in question.
Traditional IRA Any IRA that is not a Roth IRA, SIMPLE IRA, Coverdell ESA, etc.
Trustee The party which has control over the assets of the IRA or Plan.
Unrelated Debt Financed Income Tax (UDFI) A tax imposed by the IRS which applies to any profit made on a debt financed transaction in excess of $1,000.
Vesting: A portion of ownership of assets in a Plan.