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Retirement accounts

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Retirement accounts are tax advantaged brokerage accounts offered exclusively to US taxpayers each carrying their own limitations and taxing qualifications. Today, DriveWealth supports two types of tax advantaged accounts:

  1. Traditional IRAs — deposits are tax deductible
  2. Roth IRAs — deposits are not tax deductible, but assets can grow tax-free and are taxed on withdrawal

Before opening an account, you’ll need to ensure the customer has agreed to the relevant terms by acknowledging that they have read the agreement:

PATCH /back-office/users/{userID}

{
  "documents": [
    {
      "type": "DISCLOSURES",
      "data": {
        "iraAgreement": true,
    }
  ]
}

The customer also must be asked questions regarding backup tax withholding, which can be validated via the User API:

PATCH /back-office/users/{userID}
{
  "documents": [
    {
      "type": "PERSONAL_INFO",
      "data": {
        "irsBackupWithholdings" : true
      }
  ]
}

Once these steps are completed, opening an Account looks identical to any non-tax-advantaged Account, just with a new management type:

POST /back-office/accounts

{
  "id": "cc07f91b-7ee1-4868-b8fc-823c70a1b932.1550004959393",
  "accountNo": "DWZV000062",
  "accountMgmtType": {
    "name": "RETIREMENT_ROTH_RIA_MANAGED",
    "description": "ROTH RIA Managed Account"
  },
  ...
}

Contributions

While making deposits to a customer’s IRA, DriveWealth's APIs will need to track additional information about which tax year the deposit is for:

POST /back-office/funding/deposits

{
  "accountNo": "DSHC000004",
  "amount": 101,
  "currency": "USD",
  "type": "ACH_MANUAL",
  "details": {...},
  "iraContribution": "PRIOR_YEAR"
}

DriveWealth's APIs will not facilitate the following and a form must be submitted along with the contribution:

  • Direct Rollovers — Election Form (Direct Rollover Request) and last monthly statement
  • Inherited IRA Plans — Election form (Inherited IRA Account Application) is required to ensure the proper IRS code is applied to the transaction.
    • Spouse beneficiaries may rollover inherited retirement plan assets to their own IRAs or rollover the inherited retirement plan assets to inherited IRAs
  • Indirect Rollovers, Transfer, Recharacterization — The last monthly statement from the legacy broker must be physically submitted to DriveWealth as proof of a qualified rollover
    • An election form is required to ensure the proper IRS code is applied to the transaction

Disbursements

All retirement account disbursement requests are facilitated through the Withdrawal APIs. Like contributions, disbursements require additional information for DriveWealth to determine if a penalty must be incurred:

POST /back-office/funding/redemptions
{
    "accountNo": "DSHC000004",
    "amount": 101,
    "currency": "USD",
    "type": "ACH",
    "details": {...},
    "iraDistribution": "PREMATURE",
    "iraTaxWithholdings": {
      "stateTaxPercentage": 0.01,
      "federalTaxPercentage": 0.1
    }
}

Federal tax

Through the Withdrawal API, the customer provides a federal tax withholding election. The customer may elect either no withholding or to withhold an amount of 10% or greater. DriveWealth will withhold the elected amount (deducted from the distribution amount) and remit payment to the IRS.

The withholding amounts will be reported to the IRS and electronically to the customer through Forms 1099R and 5420. Typically, the Forms become available in late February for the relevant tax year. For non-qualified disbursements, it is the Customer's responsibility to file and pay the correct taxes and penalties to the IRS.

State tax

DriveWealth will not withhold state taxes or penalties. Zero state tax withholding will be reported. It is the Customer's responsibility to file and pay the correct state taxes to the IRS.

Required Minimum Distributions (RMDs)

Current IRS rules require Traditional IRA account owners to start withdrawing funds after age 72—specifically beginning by April 1st of the year following the Traditional IRA owner’s 72nd birthday.

All IRA account owners will be mailed an RMD Election Form regarding these requirements.

A customer may take a single, annual lump sum, RMD by using the Redemption API:

POST /back-office/accounts/redemptions
{
    "accountNo": "DSHC000004",
    "amount": 10000,
    "currency": "USD",
    "type": "ACH",
    "details": {...},
    "iraDistribution": "RMD",
    "iraTaxWithholdings": {
	    "stateTaxPercentage": 0.0,
	    "federalTaxPercentage": 0.0
    }
}

Alternatively, if the customer chooses a different frequency of payments (e.g. monthly), they must return a signed election form to DriveWealth via mail. DriveWealth will then manually process withdrawals according to the instructions given on the form.

If no election form is returned, and no lump sum withdrawal is created via API in a calendar year, a standard RMD disbursement will be calculated by DriveWealth based on IRS guidelines and the current value of the account, and funds will be withdrawn to a customer’s Linked Bank Account.

Updated 7 months ago