Individual and Joint Accounts
Retirement Accounts
Business Accounts
Other Accounts
Individual
Individual accounts are owned by one person. If the account owner dies, the account is transferred to the owner's estate.
Revocable Trust
Revocable trusts are typically created for individuals, who are then referred to as grantors. The advisor manages the trust's assets for the grantors and designated trustees – on behalf of the trust's beneficiaries. The provisions of a revocable trusts can be changed at any time. In addition, the trust can be cancelled.
The grantors of the trust receive income from the assets held in the trust. When the grantors die, the property passes to the beneficiaries immediately without having to go through probate court. However, estate taxes will have to be paid on the value of the trust property. In short, a Revocable Trust offers a lot of flexibility without the tax advantages of a Business Trust.
Joint
Joint accounts are owned by more than one person for the benefit of all account owners. You can only add a FOLIO Advisor client as a joint account owner.
Joint – Rights of Survivorship
Each account owner owns the entire account. If an account owner dies, the person's share is equally distributed among the remaining account holders.
Joint – Tenants in Common
Each Account owner owns an equal percentage of the account. If an account owner dies, the person's share is transferred to his or her estate.
Joint – Tenants by Entirety
Account owners must be married. Each owns half the account. If an account owner dies, his or her portion is transferred to their spouse. The following states recognize Tenants by Entirety joint accounts:
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Joint – Community Property
Account owners must be married. Each owns half the account. If an account owner dies, his or her share is transferred to his or her estate. The property does not automatically transfer to the spouse. The following states recognize Community Property joint accounts:
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RETIREMENT ACCOUNTS
Individual Retirement Account (IRA)
IRAs are individually owned accounts with tax incentives that encourage saving for retirement. IRA accounts have strict rules for contributions and distributions. You can contribute $3,000 a year to a Traditional or Roth in 2003, $4,000 in 2005 and $5,000 in 2008. Typically, distributions or withdrawals from an IRA account before the owner reaches 59 ½ years of age are subject to a tax penalty.
Currently, you cannot open an IRA account at FOLIO Advisor if you are a non-resident alien.
In a traditional IRA, contributions and earnings are not taxed until the owner takes distributions out of the account. Contributions may be tax deductible. Distributions, usually taken during retirement when the owner's income may be lower, is in most cases taxed as income.
Account withdrawals made before the owner reaches 59 ½ years old are generally subject to a 10% early withdrawal penalty.
IRA Rollover
Individuals changing jobs can use this account to transfer assets from their previous employer's retirement plan to a new FOLIOfn IRA Rollover account. If proper procedures are followed, no tax penalty will occur.
Roth IRA
In a Roth IRA account, contributions to the account are not deductible. Withdrawals are not taxed as long as the owner meets the program's requirements.
Money cannot be distributed penalty-free from a Roth IRA until the account has been open for 5 years.
SEP-IRA (Simplified Employee Pension)
A SEP-IRA is an employer sponsored retirement plan mostly used by sole proprietorships, partnerships, and small corporations. Contributions to a SEP-IRA can only be made by an employer and are not considered compensation for the employee. Contributions and earnings are not taxed until the owner takes distributions out of the account. LIke a traditional IRA, withdrawals can be made anytime subject to ordinary income tax and a 10% penalty for early withdrawals (currently any withdrawal made before 59½ is considered early). Contact your employer to find out if you may be eligible for a SEP-IRA plan.
Custodial (UGMA/UTMA)
Custodial accounts are opened for the benefit of a minor. The account is opened in the minor's name and social security number, but a custodian manages the account for the minor's benefit. UGMA/UTMA accounts are held in trust until the minor reaches the age of majority.
If you want to open a custodial account, and the custodian is a non-resident alien, the minor must have a social security number. Otherwise, the custodial account cannot be opened at FOLIO Advisor.
Custodial accounts are created in compliance with the Uniform Gifts to Minors Act (UGMA) or Uniform Transfer to Minors Act (UTMA), depending on the legal state of residence.
BUSINESS ACCOUNTS
CorporationCorporate accounts are opened under the name and tax identification number of an incorporated business.
General Partnership
General Partnership accounts are opened under the name and tax identification of a general partnership. At least one partner can place trades on behalf of the partnership.
Investment Club
Investment Club accounts are opened under the name and tax identification of an investment club. At least one club member can place trades on behalf of the club.
Limited Liability Company (LLC)
Limited Liability Company accounts are opened under the name and tax identification of the LLC.
Limited Partnership
Limited Partnership accounts are opened under the name and tax identification of a limited partnership. At least one partner can place trades on behalf of the partnership.
Sole Proprietorship
Sole Proprietorship accounts are opened under the name of an unincorporated business that is wholly owned by one individual.
OTHER ACCOUNTS
Investment Club
Investment Club accounts can be opened on behalf of investment club clients. The members of the club own the account. The club must have its own tax identification number.
Business Trust
Business trusts are typically created by individuals, who are then referred to as grantors. The trust's assets are managed by designated trustees on behalf of the trust's beneficiaries. The provisions of the trust cannot be changed or terminated by the creators without the agreement of the beneficiaries. All property placed in the trust must stay there. Trustees cannot be replaced unless they die or resign.
Any taxes the trust accrues are paid by the trust. When a trustee dies, no estate taxes will be charged on the trust's assets. In short, a Business Trust offers tax advantages without the flexibility of a Revocable Trust.
Unincorporated Organization
Unincorporated Organization accounts are opened under the name and tax identification number of the unincorporated organization, such as a charity, foundation, labor union, government entity, educational institution, or religious group.
