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Traditional IRA Custodial Statement

Federal Tax Law Information for Traditional IRAs

This Summary provides a simplified overview of federal tax law requirements concerning the Traditional Individual Retirement Account (IRA) offered by ("Custodian"). Terms defined in the Traditional IRA Custodial Agreement ("Agreement") hold the same meaning in this Summary.

Section I – Account Revocation Rights

You have the option to revoke this Account within seven (7) days from its establishment date. If you choose to do so, you're entitled to a refund of the contributed amount without adjustments for factors like sales commissions or market value changes. To revoke, send a written notice to: Alts Custodian Inc, Attn: Individual Account Services, 8 The Green, Ste. A, Dover, DE 19901. If mailed, the notice is considered sent on the postmark date (or certified/registered mail date) when deposited in the U.S. mail with proper postage.

Section II – IRA Contributions

You can make cash contributions to an IRA up to the lesser of the annual limit or 100% of your compensation, regardless of age. The 2023 limit is $6,500 and $7,000 for 2024, with annual adjustments for inflation. Additional catch-up contributions are available for individuals aged 50 or older. Spouses filing jointly can contribute to separate IRAs based on their compensation limits.

Section III – Contribution Deductibility

You're eligible to deduct your full IRA contribution up to the annual maximum limit if neither you nor your spouse actively participate in an employer-sponsored retirement plan during any part of the year. The determination of active participation involves special rules. If uncertain, you can verify your status with your employer or by reviewing your Form W-2 for the relevant tax year.

However, if you're considered an active participant, the deductibility of your IRA contribution hinges on your filing status and modified adjusted gross income (MAGI) for the tax year in question. If you're not covered by an employer retirement plan but your spouse is, and you didn't receive any social security benefits, your IRA deduction might be reduced or eliminated based on your filing status and modified AGI.

For 2023 and 2024, the phase-out ranges for active participants are specified for various filing statuses. These ranges, which are indexed annually, determine the extent to which your IRA deduction may be affected based on your income level.

If you're not an active participant in an employer-sponsored retirement plan, you're eligible to deduct IRA contributions as follows: if you're single, head of household, or a qualifying widow(er), you can take a full deduction up to the contribution limit. Similarly, if you're married filing jointly or separately with a spouse not covered by a work plan, you can deduct up to the contribution limit.

However, if you're married filing jointly with a spouse covered by a work plan, specific phase-out ranges apply. For married couples filing separately where one spouse is covered by a work plan, a separate phase-out range is applicable.

If you filed separately and didn't live with your spouse throughout the year, your IRA deduction is determined under the "Single" filing status. Consult IRS Publication 590-A for guidance on determining partial deductions.

Section IV – Nondeductible Contributions

Even if you exceed the threshold level and are ineligible for a deduction, you still have the option to contribute up to the lesser of 100% of your compensation or the annual limit ($6,500 for 2023 and $7,000 for 2024). Any nondeductible contribution for a specific tax year must be reported on Form 8606, which accompanies your federal income tax return. Rollover contributions, which involve the tax-free transfer of retirement funds between plans, are not eligible for a deduction.

If your employer offers a Simplified Employee Pension (SEP) plan, they can make contributions on your behalf to a SEP IRA. These contributions are limited to the lesser of 25% of your compensation ($330,000 maximum for 2023; $345,000 maximum for 2024) or $66,000 for 2023 and $69,000 for 2024. This limit applies per employer, allowing contributions to your SEP IRA even if you're covered by another employer's qualified plan.

You have the flexibility to withdraw an IRA contribution made for a given year at any time before your tax return filing deadline, including extensions. If you choose to do so, you must also withdraw the earnings attributable to that portion and report them as income for the corresponding year. Alternatively, you can leave the nondeductible amount in the IRA and designate it as a nondeductible contribution on your tax return for the previous year, adjusted for any outstanding rollovers.

Section V – Excess Contributions

If you exceed your allowable contribution limit in any given year, you typically face a 6% tax on the excess amount. This tax must be reported to the IRS using Form 5329.

However, if you withdraw the excess contribution along with any associated earnings before your tax return due date, including extensions, the excess won't be subject to the 6% tax. However, you must include the earnings on the excess contribution in your income.

If you withdraw the excess amount after the tax return due date, you'll generally need to include it in your gross income and pay the 6% tax on the excess amount. The earnings on the excess amount will remain in the IRA. Your tax advisor can provide guidance on special rules for cases where the withdrawn excess contribution wouldn't be included in your income.

Alternatively, you have the option to apply the excess amount to contributions for a later year, contributing less than the maximum allowed to your IRA in that later year. However, you'll still be required to pay the 6% tax on the excess contribution for the year it was made. If you spread the excess contribution over several years, you'll pay the 6% tax on the remaining excess contribution amount after each year.

Section VI – IRA Distributions

Distributions from your IRA are generally considered part of your gross income and are taxed as ordinary income. However, if there are after-tax amounts, like nondeductible contributions, specific rules come into play to determine the taxable portion versus the non-taxable portion.

Withdrawals from your IRA before reaching age 59½ typically incur a 10% additional tax, unless certain exceptions apply. This additional tax doesn't apply to the portion of your IRA distribution that isn't included in your gross income, such as amounts treated as a return of nondeductible contributions.

Exceptions to the 10% additional tax include situations like medical or educational expenses, first home purchases, qualified disaster distributions, coronavirus-related distributions, qualified birth or adoption distributions, distributions to terminally ill individuals, emergency personal expenses, and distributions to domestic abuse victims.

In some cases, you may have the option to recontribute these distributions within a three-year period, starting from the distribution date, subject to specific limitations.

It's important to note that distributions from your IRA do not qualify for capital gains treatment or for the five-year or ten-year averaging available for certain lump sum distributions from other retirement plans. For comprehensive guidance on the tax treatment of IRA distributions, it's advisable to consult with your tax advisor.

Section VII – Required Minimum Distributions

Traditional IRAs are governed by required minimum distribution (RMD) rules, mandating withdrawals starting from the "applicable age," usually by April 1 after the year of reaching that age. The applicable age varies based on your birth year:

  • Born before July 1, 1949: 70½

  • Born between July 1, 1949, and June 30, 1951: 72

  • Born between July 1, 1951, and December 31, 1959: 73

  • Born in 1960 or after: 75

Subsequent RMDs must be withdrawn by December 31 of each year. For instance, if you turn 73 in 2024, you must withdraw the RMD for 2024 by April 1, 2025, and for 2025 by December 31, 2025, and so forth.

If you have multiple traditional IRAs, you need to calculate the RMD separately for each. However, you can withdraw the RMD from any of your IRAs. The Custodian can assist in calculating the RMD upon request.

Failure to withdraw the RMD results in a penalty tax of 25% of the difference between the RMD and actual withdrawals, reduced to 10% if the shortfall is distributed within two years before the IRS imposes the excise tax.

Additionally, separate rules mandate minimum distributions from the Account after your death. Non-spouse individual beneficiaries must withdraw the full inherited IRA balance within ten years of your death. However, certain beneficiaries, like spouses, may spread the distribution over their life expectancy if initiated by the end of the year following your death. Special rules apply to minors and non-individual beneficiaries.

If your spouse is your sole beneficiary, they can treat the IRA as their own. Starting after 2023, a surviving spouse who opts not to treat the IRA as their own may elect RMDs based on the Uniform Lifetime Table rather than the Single Life Table.

Section VIII – Rollovers and Transfers

A rollover refers to the transfer of cash or assets from a retirement plan or IRA to another retirement plan or IRA. The transferred amount maintains its tax-deferred status if specific requirements are met until distributed. Rollover contributions to an IRA aren't bound by annual contribution limits and aren't deductible on tax returns. While the Custodian isn't tasked with verifying the legitimacy of rollover contributions, they may request certification to ensure accurate records.

You can also transfer funds directly from one IRA to another in a trustee-to-trustee transfer, exempt from the time constraints described below.

  1. Traditional IRA to another Traditional IRA: You can withdraw from one traditional IRA and roll over all or part of it to another traditional IRA. If completed within 60 days, the rolled-over amount isn't subject to federal income tax or the 10% additional tax. Only one rollover between IRAs is allowed within a 12-month period.

  2. Traditional IRA to Roth IRA: Converting amounts from a traditional IRA to a Roth IRA involves withdrawing from the traditional IRA and rolling it over into a Roth IRA within 60 days. Taxes are owed in the conversion year on the portion representing untaxed earnings and contributions. Roth IRA conversions cannot be reversed. The 10% additional tax generally doesn't apply unless a distribution is taken within five years of the conversion.

  3. Rollovers to and from Employer-Sponsored Plans: Distributions from an IRA, excluding after-tax amounts, can be rolled over tax-free to an employer's qualified plan, and vice versa, subject to restrictions. Rollovers to an IRA must occur within 60 days of distribution receipt. Consult a tax advisor for guidance on rollovers to or from employer-sponsored plans.

Section IX – Prohibited Transactions and Loans

If you or your beneficiary partake in a prohibited transaction with the Account, as defined in Internal Revenue Code section 4975, the Account's tax-exempt status will be forfeited. Consequently, you must include the fair market value of the amount involved in the prohibited transaction in your gross income for the year it occurred, along with any regular income tax due. Should you use any part of the Account as collateral for a loan, that portion is treated as distributed to you, and you must include it in your gross income for the taxable year in which the Account was used as collateral. It's your responsibility to determine if a transaction qualifies as a prohibited transaction.

Section X – IRA Statutory Requirements

The IRA trustee or custodian must be an entity like a bank, trust company, or another individual approved by the Secretary of the Treasury. The assets of the Account will remain separate from other property, except when pooled in a common trust fund or investment fund. None of the Account's funds will be invested in life insurance contracts. The Account Owner's interest in the Account balance is nonforfeitable.

Section XI – Financial Disclosure

The fees applicable to the Account are outlined in the IRA Fee Schedule. By establishing the Account, you agree to adhere to the fees outlined in the IRA Fee Schedule. The growth or decline in the Account's value is not assured or forecasted and is contingent

upon the performance of your chosen investment strategy. Profits or losses incurred by each individual account are attributed to that specific account.

Section XII – Approved Form

The Account conforms to IRS standards in terms of its format, utilizing the precise language of Form 5305-A, as currently provided by the IRS, along with additional permissible language. However, it's important to note that IRS approval pertains solely to the form of the Account and does not imply an assessment of its merits. The SECURE 2.0 Act, enacted on December 29, 2022, builds upon the adjustments introduced in the SECURE Act of 2019, affecting IRA regulations. Although these new regulations are in effect, the custodial agreements governing accounts at Inspira have not yet been updated to reflect the changes outlined in the SECURE Act and SECURE 2.0. We will inform you once the custodial agreements have been revised to incorporate the updated rules.

Section XIII – Further Information

This Summary offers general information and isn't exhaustive or tailored to specific circumstances. Consult qualified professionals for personalized advice or additional questions regarding IRAs.

For more information, refer to IRS Publications 590-A and 590-B, available from local IRS offices or online at www.IRS.gov (http://www.irs.gov/), or by calling 1-800-TAX-FORMS.