Common use of Account Custodial Agreement Clause in Contracts

Account Custodial Agreement. 23 Questions and Answers about IRAs What's new in the world of IRAs? An Individual Retirement Account ("XXX") has always provided an attractive means to save money for the future on a tax-advantaged basis. Recent changes to Federal tax law have now made the XXX an even more flexible investment and savings vehicle. Among the new changes is the creation of the Xxxx Individual Retirement Account ("Xxxx XXX"), which is available for use after January 1, 1998. Under a Xxxx XXX, the earnings and interest on an individual's nondeductible contributions grow without being taxed, and distributions may be tax-free under certain circumstances. Most taxpayers (except for those with very high income levels) will be eligible to contribute to a Xxxx XXX. A Xxxx XXX can be used instead of a Regular XXX, to replace an existing Regular XXX, or complement a Regular XXX you wish to continue maintaining. Taxpayers with adjusted gross income of up to $100,000 are eligible to convert existing IRAs into Xxxx IRAs. The details on conversion are found in the description of Xxxx IRAs in this Kit. Congress has also made significant changes to Regular IRAs. First, Congress increased the income levels at which IRA holders who participate in employer-sponsored retirement plans can make deductible Regular XXX contributions. Also, the rules for deductible contributions by an XXX xxxxxx whose spouse is a participant in an employer-sponsored retirement plan have been liberalized. Second, the 10% penalty tax for premature withdrawals (before age 59 1/2) will no longer apply in the case of withdrawals to pay certain higher education expenses or certain first-time homebuyer expenses. What's in this Kit? In this Kit you will find detailed information about Xxxx IRAs and about the changes that have been made to Regular IRAs. You will also find all you need to establish and maintain a Regular, Xxxx XXX, SEP XXX, SAR-SEP XXX, or to convert all or part of an existing Regular XXX to a Xxxx XXX. The beginning of this Kit contains the instructions and forms you will need to open a new Regular or Xxxx XXX, to transfer from another XXX to an Investor Service Center XXX, or to convert a Regular XXX to a Xxxx XXX. The next section of this Kit contains our XXX Disclosure Statement. The Disclosure Statement is divided into three parts: o Part One describes the basic rules and benefits which are specifically applicable to your Regular XXX. o Part Two describes the basic rules and benefits which are specifically applicable to your Xxxx XXX. o Part Three describe rules and information applicable to all IRAs. The last section of this Kit contains the XXX Custodial Agreement. The Custodial Agreement is also divided into three parts: o Part One contains provisions specifically applicable to Regular IRAs. o Part Two contains provisions specifically applicable to Xxxx IRAs. o Part Three contains provisions applicable to all IRAs (Regular and Xxxx). What's the difference between a Regular XXX and a Xxxx XXX? With a Regular XXX, an individual can contribute up to $2,000 per year and may be able to deduct the contribution from taxable income, reducing income taxes. Taxes on investment growth and dividends are deferred until the money is withdrawn. Withdrawals are taxed as additional ordinary income when received. Nondeductible contributions, if any, are withdrawn tax-free. Withdrawals before age 59 1/2 are assessed a 10% penalty in addition to income tax, unless an exception applies. With a Xxxx XXX, the contribution limits are essentially the same as Regular IRAs, but there is no tax deduction for contributions. All dividends and investment growth in the account are tax-free. Most important with a Xxxx XXX: there is no income tax on qualified withdrawals from your Xxxx XXX. Additionally, unlike a Regular XXX, there is no prohibition on making contributions to Xxxx IRAs after turning age 70 1/2, and there's no requirement that you begin making minimum withdrawals at that age. The following chart highlights some of the major differences between a Regular XXX and a Xxxx XXX: Characteristics Regular XXX Xxxx XXX --------------- ---------------------------------- ----------------------------------- Eligibility o Individuals (and their spouses) o Individuals (and their spouses) who receive who receive compensation compensation o Individuals age 70 1/2 and over o Individuals age 70 1/2 and over may may contribute contribute Tax Treatment of Contributions o Subject to limitations, contributions o No deduction permitted for amounts are deductible contributed Contribution of Limits o Individuals may contribute up o Individuals may generally to $2000 annually (or 100% of contribute up to $2000 (or 100% of compensation, if less) compensation, if less) o Deductibility depends on income level o Ability to contribute phases out at income for individuals who are active participants levels of $95,000 to $110,000(individual in an employer-sponsored retirement plan taxpayer) and $150,000 to $160,000 (married taxpayers) o Overall limit for contributions to all IRAs (Regular and Xxxx combined) is $2,000 annually (or 100% of compensation, if less) Earnings o Capital appreciation and dividends are not o Capital appreciation and dividends are not taxed in your XXX taxed in your XXX Rollover/Conversions o Individual may rollover tax free to o Rollovers from other Xxxx IRA's or Regular Regular XXX amounts held in IRA's only employer-sponsored retirement arrangements (401(k), SEP XXX, etc.) o Amounts rolled over (or converted) from another Regular XXX are subject to income tax in the year rolled over or converted o Tax on amounts rolled over or converted in 1998 is spread over four year period (1998-2001) Withdrawals o Total (contributions + earnings) o Not taxable as long as a qualified distribution taxable as income in year withdrawn - generally, account open for 5 years, and age 59 1/2 (except for any prior non-deductible contributions) o Minimum withdrawals must begin after o Minimum withdrawals not required after age 70 1/2 age 70 1/2 Is a Xxxx or a Regular XXX right for me? We cannot act as your legal or tax advisor and so we cannot tell you which kind of XXX is right for you. The information contained in this Kit is intended to provide you with the basic information and material you will need if you decide whether a Regular or Xxxx XXX is better for you, or if you want to convert an existing Regular XXX to a Xxxx XXX. We suggest that you consult with your accountant, lawyer or other tax advisor, or with a qualified financial planner, to determine whether you should open a Regular or Xxxx XXX or convert any or all of an existing Regular XXX to a Xxxx XXX. Your tax advisor can also advise you as to the state tax consequences that may affect whether a Regular or Xxxx XXX is right for you. What about SEP IRAs and SAR-SEP IRAs? The Investor Service Center Regular XXX may be used in connection with a simplified employee pension (SEP) or SEP Employer Salary Reduction (SAR-SEP) plan maintained by your employer. To establish a Regular XXX as part of your Employer's SEP plan, complete the XXX Application for a Regular XXX, indicating in the proper box that the XXX is part of a SEP plan. A Xxxx XXX should not be used in connection with a SEP plan.