IRA Accounts Overview

Account Opening

The existing account creation request will be used to create an IRA account but with the addition of a few new fields such as the account_type and account_sub_type fields. There will also be some additional onboarding questions that customers must answer to create their IRA account. Please reach out to your dedicated Customer Success Manager for the complete onboarding steps you'll need to guide your customers through.

Sample Request Body

{
    "account_type": "ira",
    "account_sub_type": "roth",
    "enabled_assets": ["us_equity"],
    "contact": {
        "email_address": "[email protected]",
        "phone_number": "555-666-7788",
        "street_address": ["20 N San Mateo Dr"],
        "unit": "6G",
        "city": "San Mateo",
        "state": "CA",
        "postal_code": "12345"
    },
    "identity": {
        "given_name": "John",
        "family_name": "Smith",
        "date_of_birth": "1940-01-01",
        "tax_id": "119119119",
        "tax_id_type": "USA_SSN",
        "country_of_citizenship": "USA",
        "country_of_tax_residence": "USA",
        "funding_source": ["employment_income"],
        "annual_income_min": "30000",
        "annual_income_max": "50000",
        "liquid_net_worth_min": "100000",
        "liquid_net_worth_max": "150000",
        "marital_status": "MARRIED"
    },
    "disclosures": {
        "is_control_person": false,
        "is_affiliated_exchange_or_finra": false,
        "is_politically_exposed": false,
        "immediate_family_exposed": false,
        "employment_status": "retired"
    },
    "agreements": [
        {
            "agreement": "customer_agreement",
            "signed_at": "2020-09-11T18:13:44Z",
            "ip_address": "185.13.21.99",
            "revision": "19.2022.02"
        }    
    ],
    "beneficiaries": [
        {
            "given_name": "Jane",
            "middle_name": "middle",
            "family_name": "Smith",
            "date_of_birth": "1940-01-01",
            "tax_id": "119119119",
            "tax_id_type": "USA_SSN",
            "relationship": "spouse",
            "type": "primary",
            "share_pct": "33.34"
        },
        {
            "given_name": "John",
            "family_name": "Smith",
            "date_of_birth": "2000-01-01",
            "tax_id": "119119119",
            "tax_id_type": "USA_SSN",
            "relationship": "other",
            "type": "primary",
            "share_pct": "33.33"
        },
        {
            "given_name": "Sally",
            "family_name": "Smith",
            "date_of_birth": "2000-01-01",
            "tax_id": "119119119",
            "tax_id_type": "USA_SSN",
            "relationship": "other",
            "type": "primary",
            "share_pct": "33.33"
        }
    ]
}

Same user opening a taxable brokerage account and an IRA account

If the accounts are opened within 60 days of each other and Alpaca is performing KYC on each customer then we will reuse the KYC results tied to the account opened first provided that the original account was already approved. This means that you will only be charged for one KYC run from an invoicing perspective if these conditions are met. Please note this functionality has to be explicitly enabled for you so please reach out to Alpaca support to enable this feature to begin testing.

Regardless of the time that has passed since the user opened their first account, the user does not have to go through the full onboarding flow again. You can pre-populate the onboarding questions with their original answers, prompt the user to confirm information is still correct and allow them to modify any fields that need to be corrected, and present the user with the relevant account agreement and disclosure language to finish opening their second account.

Modifying Beneficiaries After Account Creation

Beneficiaries are especially important for IRA accounts since they are meant to be used to generate savings over a long period of time. However, to ensure a smooth onboarding experience, specifying beneficiaries at the time of account opening is not required. Beneficiaries can be set or updated anytime after account creation. This function would be managed via the existing account update endpoint.

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Important note: updating beneficiaries via this endpoint will replace ALL existing beneficiaries associated with the IRA account.

Sample Request Body

{
    "beneficiaries": [
        {
            "given_name": "Jane",
            "middle_name": "middle",
            "family_name": "Smith",
            "date_of_birth": "1940-01-01",
            "tax_id": "119119119",
            "tax_id_type": "USA_SSN",
            "relationship": "spouse",
            "type": "primary",
            "share_pct": "50"
        },
        {
            "given_name": "Sally",
            "family_name": "Smith",
            "date_of_birth": "2000-01-01",
            "tax_id": "119119119",
            "tax_id_type": "USA_SSN",
            "relationship": "other",
            "type": "primary",
            "share_pct": "50"
        }
    ]
}

Spousal Consent in Community States

Please note that Alpaca is required to collect spousal consent in the event that a user has an IRA account, is married, does not list their spouse as a beneficiary, and resides in a community property state. The community property states as of October 2024 are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Alpaca will reach out to you with a list of accounts we are required to collect spousal consent on a manual basis as needed.

How to Process a Contribution (IRA Deposits)

Deposits to IRA accounts are considered contributions from the IRS’ perspective and Alpaca needs to collect additional data that isn't required for typical taxable brokerage accounts. The IRS sets specific contribution limits for how much a customer can deposit into their IRA account per tax year and allows contributions to the previous tax year up until the official deadline of April 15th.

Given this, Alpaca will require "tax_year" as an input parameter when depositing via ACH using our existing request transfer endpoint. If a deposit is made via a push transaction, (i.e. a wire deposit or an ACH push transaction), the system will automatically default to classify the contribution for the current tax year.

Sample Request Body

{
    "transfer_type": "ach",
    "relationship_id": "99eeed85-dcca-4d4b-b3ed-42d597a2f96d",
    "amount": "7000",
    "direction": "INCOMING",
    "ira": {
      "tax_year": "2024"
    }
}

Handling Excess Contributions

As mentioned above, the IRS imposes specific limits on how much a customer can contribute to their IRA in a given tax year. If a customer exceeds this limit, they may incur penalties during tax season. It’s advisable to monitor whether your customers are adhering to these IRS limits and, if not, send them a courtesy notice, guiding them to withdraw the excess funds to avoid penalties.

Alpaca simplifies this process by providing a new endpoint that allows you to pull the list of accounts that have over contributed on demand. It’s important to note that the exact limit the IRS enforces for each individual will change depending on their income bracket, tax filing status, and age – Alpaca only monitors against the maximum allowed limit by age. Since the contribution limit applies to all IRAs, including those held at other brokerages, customers are ultimately responsible for monitoring their own limits. Providing a notification to your customers as a courtesy is recommended but not required.

How to Process a Distribution (IRA Withdrawals)

Withdrawals from IRA accounts are considered distributions from the IRS’ perspective. Since these are designed for long term savings and retirement, there are several IRS rules that disincentivize individuals from withdrawing from an IRA account before they reach retirement age but there are limited exceptions that allow users to withdraw penalty free.

Because of this, the IRS requires we provide a reason for each distribution which must be collected from your end customer. There are also federal and state tax withholding elections that the customer must specify when requesting a distribution. As a guideline, the IRS requires 10% federal tax withholding unless the customer explicitly opts out. US state withholding requirements vary, so state-specific guidelines should be followed. Alpaca will withhold the elected amount (by deducting from the requested withdrawal amount) and remit payment to the IRS. Distributions will be processed via the existing withdrawal request endpoint.

Sample Request Body

{
  "transfer_type": "ach",
  "relationship_id": "1b6bb433-3ce3-40fa-8e08-15164a408c6b",
  "amount": "143",
  "direction": "OUTGOING",
  "ira": {
    "distribution_reason": "normal_roth",
    "tax_withholding": {
        "fed_pct": "10",
        "state_pct": "5.5"
    }
  }
}

DistributionReason ENUMs

We highly recommend researching when each tax code would be used for a given scenario and designing your frontend flow in a way that helps the user easily identify the correct reason to use. A brief description of each distribution reason Alpaca will support is provided below but the IRS guidelines should be considered the source of truth on this. Please also note that Alpaca will not support all IRA distribution types. If there is another distribution reason the user is eligible for (i.e. a disability distribution) the user would have to take an early distribution from Alpaca and work directly with the IRS to be reimbursed for any penalties that they may have incurred during tax season.

Other Important Considerations

1. Tax Documents & Required Minimum Distribution (RMD) Notices
   1. For IRA accounts, the primary documents provided will be tax statements and RMD notices for customers who are of RMD age. These documents will be attached to the account as an account document and available for download via the existing Broker API endpoint.
2. Updating Contributions and Distributions
   1. There may be instances where a customer needs to make a correction on a contribution or distribution from time to time. For example, if a customer made a wire deposit and could not specify the tax year for the contribution – as a result, they might want to apply it to the prior tax year vs current. For these types of cases, it’s recommended that you reach out to [email protected] to handle each correction on a case by case basis.
3. Pricing
   1. Please reach out to your sales representative to inquire about IRA pricing for your use case. You will need to sign a pricing amendment if the pricing is not outlined in your initial contract with Alpaca before the product can be enabled for you in production.

Notable Product Limitations

• RMD amount calculations will not be offered by Alpaca
• There is currently a limitation of 1 unique email address per user
• IRA accounts are by default setup with limited margin (1x margin)
• Crypto is not be supported for IRAs at this time
• Options (up to level 2) is supported for IRAs
• IRA transfers and rollovers and not yet supported at Alpaca

Resources

• IRA Blog Post
• IRA FAQs
• IRA Learn Article