Because of an agreement they signed with their brokers, some IRA owners may unknowingly be vulnerable to having their whole account taxed. A recent IRS announcement provides a temporary reprieve for investors who've signed a cross- collateralization agreement that extends credit between their personal assets and their IRA assets. Whether this relief will be permanent, however, is uncertain, and advisors should pay close attention to IRA agreements.

In order to enjoy the tax-deferred growth offered by an IRA, owners must avoid engaging in what are known as prohibited transactions. There are a number of prohibited transactions, but they all carry the same tax consequences: The entire IRA in which the prohibited transaction occurred is deemed to have been distributed on Jan. 1 of the year in which the prohibited transaction first took place. That means the loss of all future tax deferral, immediate taxation of the whole account and, if the owner was younger than 59 1/2 at the time, assessment of the 10% penalty for early distributions.

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