Individual Retirement Accounts (IRAs) and Retirement Planning

Vocabulary flashcards covering Traditional IRAs, Roth IRAs, contribution limits, tax deductibility, divorce rules, and inherited IRA beneficiary categories.

Traditional IRA

A non-qualified retirement plan that allows individuals to save outside of workplace plans, where contributions are typically deductible against earned income and distributions are taxed as ordinary income.

Roth IRA

A retirement account created in the 1990s and named after Senator William Roth, where contributions are made after-tax (non-deductible), growth is tax-sheltered, and qualified distributions are tax-free.

2026 IRA Contribution Limit

The maximum annual contribution permitted across all IRAs combined, which is the lesser of $7,500 or $100\%$ of earned income during the year.

Catch-up Provision

An additional contribution allowance of $1,100 per year available to investors age 50 or older, bringing their total maximum IRA contribution limit to $8,600 in 2026.

Spousal IRA Contribution

A provision allowing an individual with reportable earned income to contribute to a separate IRA on behalf of their non-working or unemployed spouse.

Covered by a Qualified Workplace Plan

A status indicating an investor has access to an employer-sponsored retirement plan (such as a 401(k)), which affects whether their Traditional IRA contributions are tax-deductible based on income.

Prohibited IRA Trading Strategies

Trading practices strictly banned within IRA accounts, which include short sales, margin accounts, and selling uncovered (naked) options.

Five-Year Aging Period

A requirement for tax-free Roth IRA earnings withdrawals, starting on the first day of the tax year of the owner's first contribution and requiring the account to be open for at least 5 years.

Required Minimum Distributions (RMDs)

Mandatory withdrawals required from tax-deferred retirement plans once the account owner turns age 73; Roth IRAs and Roth 401(k)s are exempt from RMDs.

Roth 401(k)

A qualified workplace plan governed by ERISA that offers tax features similar to a Roth IRA, including after-tax contributions, tax-sheltered growth, no RMDs, and tax-free distributions.

Qualified Domestic Relations Order (QDRO)

A court order signed by a judge during divorce proceedings that dictates how qualified workplace retirement plans are divided in compliance with ERISA.

Transfer Incident to Divorce

The legal mechanism used to split non-qualified retirement accounts (such as Traditional and Roth IRAs) between former spouses without requiring ERISA compliance.

Eligible Designated Beneficiary

A specific category of non-spouse IRA beneficiary comprising a minor child of the decedent, a permanently disabled individual, a chronically ill individual, or a person not more than 10 years younger than the decedent.

Designated Beneficiary

A non-spouse IRA beneficiary who does not qualify as an eligible designated beneficiary and is generally required to distribute all inherited account assets within 10 years.

Basis (in a Traditional IRA)

The portion of Traditional IRA contributions that were non-deductible, which is returned to the investor tax-free upon withdrawal while gains are taxed.