Subject: Investment Club
Title: Qualified IRA Prerequisites
IRC Sections: 408
Date Produced: 8/96
Copyright 1998, The Tax Resource Group. All rights reserved. Telephone
800-578-3498. Internet: www.taxresourcegroup.com
An investment club wishes to accept IRA contributions. What must they
do to qualify?
Internal Revenue Code Section 408 and the regulations thereunder establish
the prerequisites for a qualified IRA. There are quite a few requirements,
but one in particular seems potentially problematic for your client.
The trustee or custodian of an IRA must be a bank or other such financial
institution; otherwise, the nonbank trustee/custodian must seek prior IRS
approval and demonstrate to the satisfaction of the IRS the following.
-fiduciary ability (including a demonstration of continuity, established
location, experience and responsibility);
-experience and competence with respect to accounting for the interests
of a large number of individuals; and
-experience and competence with respect to other activities normally associated
with the handling of retirement funds.
In addition, the nonbank trustee/custodian must demonstrate a net worth
of at least $250,000 for the tax year preceding the application for approval.
It seems to me that your client may have difficulty with some or all
of these requirements, particularly the minimum net worth rule. If you feel
it is possible to qualify, please let me know and we can pursue the remainder
of the requirements.