Pub. 11 2021-2022 Issue 1

O V E R A C E N T U R Y : B U I L D I N G B E T T E R B A N K S — H E L P I N G C O L O R A D A N S R E A L I Z E D R E A M S www.coloradobankers.org 14 BY LISA WALKER, CISP, CHSP – ASCENSUS IRAPlanAgreement:Model vs.Prototype W hen your organization first began offering IRAs, you decided to use either the IRS model document or a prototype document as your required IRA plan agreement. Now – with the IRS expected to release new IRA model documents soon – you may want to revisit that decision to make sure it is still the best one for your organization. Knowing the difference between the model and prototype, and the pros and cons of both, may help. A Plan Agreement Is Required Why must an IRA have a plan agreement in the first place? The “A” in “IRA” stands for “arrangement.” An IRA is a legal arrangement that allows individuals to take advantage of certain tax benefits while saving for retirement. The Internal Revenue Code requires a written agreement – the IRA plan agreement – between the IRA owner and the IRA trustee, custodian or issuer (the financial organization) holding the assets. Once both parties sign the plan agreement, the IRA is created. An IRA does not exist without a signed agreement. The IRA plan agreement also sets forth the terms and conditions specific to the type of IRA (i.e., Traditional, Roth or SIMPLE). It contains the responsibilities of both the IRA owner and the financial organization. Although IRA plan agreements may differ based on whether the financial organization acts as a trustee, custodian or issuer, they are quite similar because the IRS requires specific language in the documents. IRS Model Document The IRS provides IRA model forms that satisfy the basic statutory requirements for IRAs. Each IRS model form contains specific language based on the requirements for that type of IRA. The IRS currently offers the following model forms: • Form 5305, Traditional Individual Retirement Trust Account • Form 5305-A, Traditional Individual Retirement Custodial Account • Form 5305-R, Roth Individual Retirement Trust Account • Form 5305-RA, Roth Individual Retirement Custodial Account • Form 5305-RB, R oth Individual Retirement Annuity Endorsement • Form 5305-S, SIMPLE Individual Retirement Trust Account • Form 5305-SA, SIMPLE Individual Retirement Custodial Account (Note that there is both a trust and custodial account-model document for each type of IRA – and that an annuity version is available only for the Roth IRA.) The language in the IRS model documents generally cannot be altered: the text in Articles I–VII for a Traditional IRA and I–VIII for a Roth IRA must stay the same. Only the last article – where the IRS allows for unlimited additional language – can be customized. Your financial organization or document