Form 5305-R, "Roth Individual Retirement Trust Account," and Form 5305-RA, "Roth Individual Retirement Custodial Account."
The IRS has released Form 5305-R, "Roth Individual Retirement Trust Account," and Form 5305-RA, "Roth Individual Retirement Custodial Account." Financial institutions may use these forms to offer Roth IRAs to their customers. Trustees would use Form 5305-R and custodians would use Form 5305-RA. The forms are available at the IRS Web Site. Both forms may be downloaded at the IRS list of forms. Interim Guidance on these forms and their use is in IRS Announcement 97-122, 1997-50 IRB 1.
[1] The Service is issuing two model Roth IRA Forms, 5305-R and 5305-RA, for use by trustees and custodians, respectively, beginning in 1998. In addition, the following interim guidance is provided for prototype sponsors and individual contributors to Roth IRAs established under section 408A of the Internal Revenue Code in response to questions from the public.
Background
[2] Individuals are permitted to make deductible and nondeductible contributions to individual retirement accounts and annuities described in section 408(a) or (b), respectively (Traditional IRAs).
[3] The Taxpayer Relief Act of 1997, Pub. L. 105-34, added section 408A creating Roth IRAs beginning in 1998. The rules that apply to Roth IRAs and Traditional IRAs are generally the same, except as modified by section 408A. A Roth IRA must be designated at the time of establishment as a Roth IRA. Contributions to a Roth IRA are not deductible and qualified distributions are not includible in gross income.
Interim Guidance
o Model forms. -- New Form 5305-R, Roth Individual Retirement Trust Account, and Form 5305-RA, Roth Individual Retirement Custodial Account, will serve as Service-approved model forms for use by financial institutions to offer Roth IRAs to their customers. These forms can be downloaded from the IRS homepage at www.irs.ustreas.gov.
o Separate trusts. -- Contributions to a Roth IRA must be maintained as a separate trust, custodial account or annuity from contributions to a Traditional IRA. Separate accounting within a single trust, custodial account or annuity is not permitted.
o Opinion letters. -- The Service is not presently accepting submissions for opinion letters on prototype Roth IRAs, but will issue procedures in the future for requesting such opinion letters.
o Combined documents. -- The Service will permit a prototype sponsor to combine a Roth IRA and a Traditional IRA in the same document provided that (1) the separate trust requirement, above, is satisfied and (2) the document, as completed by the owner, clearly indicates whether it is to be used as a Traditional IRA or as a Roth IRA. This must be done in a way that makes clear that designation as one type of IRA precludes its designation as the other type of IRA.
Transitional Relief
[4] The Service will provide transitional relief for sponsors of Roth IRAs and their customers that is similar to the transition relief provided for users of documents establishing SIMPLE IRAs that had not been pre-approved by the Service. See section 7.01 of Rev. Proc. 97-29, 1997-24, I.R.B. 9. The Simple IRA transition relief was conditioned on the prototype sponsors who furnished the documents having them subsequently approved by the Service and meeting certain other conditions. Transition relief will also be conditioned on the document, or associated written material, clearly designating the trust, custodial account or annuity as a Roth IRA at the time of establishment.
Technical Corrections
[5] The House of Representatives has passed technical corrections legislation (H.R. 2645) affecting, among other things, the taxability of distributions from Roth IRAs. The legislation, if enacted, would be effective January 1, 1998. In light of this pending legislation, prototype sponsors may wish to consider maintaining, or encouraging individuals to maintain, qualified rollover contributions (described in section 408A(e)) in separate Roth IRAs from Roth IRAs containing regular Roth IRA contributions (described in section 408A(c)(2)).
Paperwork Reduction Act
[6] The collection of information contained in this announcement has been reviewed and approved by the Office of Management and Budget (OMB) in accordance with the Paperwork Reduction Act (44 U.S.C. 3507) under control number 1545-1568.
[7] An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless the collection of information displays a valid OMB control number.
[8] The collection of information in this announcement is in the section headed "Interim Guidance." This information is required to comply with section 302 of the Taxpayer Relief Act of 1997 in order to meet the statutory requirements for establishing a Roth IRA. The collection of information is required to obtain a benefit. The likely respondents are businesses or other for-profit institutions, and not-for-profit institutions.
[9] The estimated total annual reporting burden is 8,000 hours.
[10] The estimated annual burden per respondent varies from 0.5 hours to 4 hours, depending on individual circumstances, with an estimated average of 2 hours. The estimated number of respondents is 4,000.
[11] The estimated annual frequency of responses is one per respondent.
[12] Books or records relating to a collection of information must be retained as long as their contents may become material in the administration of any internal revenue law. Generally, tax returns and tax return information are confidential, as required by 26 U.S.C. 6103.
[End of Announcement 97-122]
Article I
1. If this Roth IRA is not designated as a Roth
Conversion IRA, then, except in the case of a rollover contribution described in section
408A(e), the trustee will accept only cash contributions and only up to a maximum amount
of $2,000 for any tax year of the grantor.
2. If this Roth IRA is designated as a Roth Conversion IRA, no
contributions other than IRA Conversion Contributions made during the same tax year will
be accepted.
Article II
The $2,000 limit described in Article I is gradually reduced to $0 between certain levels of adjusted gross income (AGI). For a single grantor, the $2,000 annual contribution is phased out between AGI of $95,000 and $110,000; for a married grantor who files jointly, between AGI of $150,000 and $160,000; and for a married grantor who files separately, between $0 and $10,000. In the case of a conversion, the trustee will not accept IRA Conversion Contributions in a tax year if the grantor’s AGI for that tax year exceeds $100,000 or if the grantor is married and files a separate return. Adjusted gross income is defined in section 408A(c)(3) and does not include IRA Conversion Contributions.
Article III
The grantor’s interest in the balance in the trust account is nonforfeitable.
Article IV
1. No part of the trust funds may be invested in
life insurance contracts, nor may the assets of the trust account be commingled with other
property except in a common trust fund or common investment fund (within the meaning of
section 408(a)(5)).
2. No part of the trust funds may be invested in collectibles (within the
meaning of section 408(m)) except as otherwise permitted by section 408(m)(3), which
provides an exception for certain gold, silver, and platinum coins, coins issued under the
laws of any state, and certain bullion.
1. If the grantor dies before his or her entire
interest is distributed to him or her and the grantor’s surviving spouse is not the
sole beneficiary, the entire remaining interest will, at the election of the grantor or,
if the grantor has not so elected, at the election of the beneficiary or beneficiaries,
either:
(a) Be distributed by December 31 of the year containing the fifth
anniversary of the grantor’s death, or
(b) Be distributed over the life expectancy of the designated beneficiary
starting no later than December 31 of the year following the year of the grantor’s
death.
If distributions do not begin by the date described in (b), distribution
method (a) will apply.
2. In the case of distribution method 1.(b) above, to
determine the minimum annual payment for each year, divide the grantor’s entire
interest in the trust as of the close of business on December 31 of the preceding year by
the life expectancy of the designated beneficiary using the attained age of the designated
beneficiary as of the beneficiary’s birthday in the year distributions are required
to commence and subtract 1 for each subsequent year.
3. If the grantor’s spouse is the sole beneficiary on the
grantor’s date of death, such spouse will then be treated as the grantor.
Article VI
1. The grantor agrees to provide the trustee with
information necessary for the trustee to prepare any reports required under sections
408(i) and 408A(d)(3)(E), and Regulations section 1.408-5 and 1.408-6, and under guidance
published by the Internal Revenue Service.
2. The trustee agrees to submit reports to the Internal Revenue Service
and the grantor as prescribed by the Internal Revenue Service.
Article VII
Notwithstanding any other articles which may be added or incorporated, the provisions of Articles I through IV and this sentence will be controlling. Any additional articles that are not consistent with section 408A, the related regulations, and other published guidance will be invalid.
Article VIII
This agreement will be amended from time to time to comply with the provisions of the Code, related regulations, and other published guidance. Other amendments may be made with the consent of the persons whose signatures appear below.
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Note: The following space (Article IX) may be used for any other
provisions you want to add. If you do not want to add any other provisions, draw a line
through this space. If you do add provisions, they must comply with applicable
requirements of state law and the Internal Revenue Code.
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Article IX
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