Untitled Document

The Tax Resource Group: Professional Tax Research Material, Resources, and Consulting

Category: Miscellaneous
Subject: Investment Club
Title: Qualified IRA Prerequisites
IRC Sections: 408
Filename: 1170.html
Date Produced: 8/96

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.