[Guidance Overview] A Bridge Too Far: Early Retirement Exception from 10% Tax Was Available from Participant's 401(k), But Not After IRA Rollover
"The court held that the taxpayer would not have been subject to the 10% tax if he had taken the distribution directly from the 401(k) plan upon termination because of the exception in section 72(t)(2)(A)(v) of the Internal Revenue Code for post-separation distributions to an employee who has attained age 55, but because he chose to roll over his balance, the exception no longer applied to a distribution from an IRA." (Haynes and Boone)
Think Twice About Rolling Your 401(k) into an IRA -- Consider Investment Management Fees When You Receive New Disclosure Report
"Before you make a move, compare the fees of your 401(k) plan's funds with any retail funds you're considering at the IRA rollover institution. The new 401(k) fee-disclosure rules that become fully effective in August will make this comparison easier. [The author's] recent post showed average and median fees for various types of mutual funds. You'll want to invest in funds with expenses well below these averages, and there's a good chance your 401(k) plan will accomplish this." (CBS MoneyWatch)
[Guidance Overview] Roth IRA Was Not Eligible Shareholder of S Corporation
"An individual incorporated his business and elected subchapter S status. The corporation's sole shareholder in 2003 was a custodial Roth IRA for the benefit of the individual. The IRS issued a notice of deficiency, determining that the corporation was taxable as a C corporation for 2003.... [The] Tax Court sided with the IRS, finding that the Roth IRA did not qualify as an eligible shareholder of the S corporation." (Wolters Kluwer Law & Business / CCH)
[Guidance Overview] Another Question is Answered in the Who's the Employer Q&A Column
My wife (age 70, born September 1, 1931) and I both work for a small company (C corp) that had an SEP IRA but has recently switched to a calendar year 401(k) plan. My wife would like to roll over funds from the SEP IRA into the 401(k) plan. She would also like to roll other 'regular' IRA funds into the plan, as well as some 403(b) funds saved while working for a former employer. The goal is to avoid required minimum distributions. Can we? She is the President of the C corp and owns 4.96%. I am the CEO and own 4.5%. (BenefitsLink.com)
[Opinion] American Benefits Council Comment Letter to IRS on Priority Guidance Plan (PDF)
"The Council is writing to recommend items relating to employee benefit matters that should be included on the [IRS] 2012-2013 Guidance Priority List. The Council is submitting a letter separately recommending a project to modify the current nondiscrimination and minimum participation regulations to protect older, long-service participants. This letter focuses on other recommendations for the Guidance Priority List." (American Benefits Council)
Reality Check on IRA Investments in Real Estate
"The IRS applies a term -- prohibited transaction or 'PT' -- to any use of IRA assets for personal gain other than preservation of a retirement income stream. The prohibited transaction rules disallow a number of specific transactions, such as selling real estate to or buying it from your IRA, or personal or immediate family member use of real estate owned by an IRA, but they also generally prohibit 'self-dealing' which is defined to include any act of a fiduciary (i.e., you) by which IRA income or assets are used for the fiduciary's own interest." (E Is for ERISA)
New Suits over Do-It-Yourself IRAs: Custodial Accounts vs. Trust Accounts
"Custodian firms administer the accounts, sending investment statements and transferring money from investors to investment managers. It isn't clear how successful the suits will be, since even regulators note that custodians don't choose the investments or take fees based on the investments' success." (The Wall Street Journal)
[Guidance Overview] Waiver of 60-Day Rollover Requirement Granted to Taxpayer Who Mistakenly Requested Duplicate IRA Distribution
"The taxpayer's failure to accomplish a timely rollover was due to the error by the financial institution which caused her to request the duplicate distribution. Therefore, the IRS waived the 60-day rollover requirement and the taxpayer was given 60 days to roll over the duplicate distribution." (Wolters Kluwer Law & Business / CCH)
Inherited IRAs Dodge a Bullet; Tax Deferral Opportunity Continues
"Inherited individual retirement accounts made news earlier this year when the Senate Finance Committee proposed to make heirs empty them within five years of the benefactor's death. The measure, which was abandoned shortly thereafter, would have upended a system that is highly advantageous to families. Under current rules, heirs get to stretch withdrawals from an inherited IRA across their own life expectancies, meaning the assets could potentially increase in value, tax-deferred, for decades." (The Wall Street Journal)
One Tax Deferral Per Customer, Please: How IRA Deduction Is Denied Due to Retirement Plan 'Active Participant' Status
"The law in this area is clear. If, for any part of a taxable year, a taxpayer or the taxpayer's spouse is an 'active participant' in a qualified plan under section 401(a), IRA deductibility is subject to income limits. For 2012, the in-come phaseout range for deducting a contribution to a traditional IRA is $92,000 to $112,000 for those married and filing jointly, and $58,000 to $68,000 for those who are single." (Investment News)
Inherited IRA Problems Problems After Death of IRA Owner
Natalie Choate answers questions about combining inherited IRAs, and about correcting missing or mistaken beneficiary designations. (Morningstar)
Stunning Academic Study May Cause DOL to Retain Original Proposal for Fiduciary Definition
"[A study by two professors entitled] 'The Impact of the Broker-Dealer Fiduciary Standard on Financial Advice' ... has revealed a stunning conclusion: IRA investors and the brokerage industry are both statistically unlikely to suffer --and some may actually benefit -- should the DOL adopt its new Fiduciary Rule as originally proposed." (Fiduciary News)
Oliver Wyman Releases Data to DOL on IRA Fiduciary Costs
"Long-awaited data showed a new standard could limit retirement investing services ... Brokers ... are 'not opposed to being held accountable' under a fiduciary standard, but the concern they have, and the reason they want EBSA to revise its rule proposal, is 'that under ERISA, unlike under securities laws, if the broker-dealer is a fiduciary then they would be prohibited from giving the investment services they give today' to IRA investors." (AdvisorOne)
Retirement Assets Total $17.9 Trillion in Fourth Quarter 2011
"Total U.S. retirement assets were ... up 4.9 percent in the fourth quarter of 2011 and about unchanged for the year. Retirement savings accounted for 36 percent of all household financial assets in the United States at the end of 2011." (Investment Company Institute)
[Opinion] New JOBS Act Will Revolutionize Retirement
"The recently passed JOBS Act may go down as one of history's most revolutionary pieces of legislation, relative to the future of planning and investing for retirement. The bill is designed to make it easier for small business to access investment capital and, by doing so, will create a new, Crowd-funding asset class as well as bring self-directed IRA's out of the shadows and into the spotlight." (Forbes)
Before Making that 2011 IRA Contribution, Make Sure Your Pension Plan Assets Are Safe
"If you do put money in a pension plan, whether self-directed through a custodial agent or via an employer-sponsored plan, make sure you know exactly where your money is going - and who's really managing it once it gets there." (Money Morning)
Majority of Americans Miss Opportunity to Contribute to IRAs for Retirement Savings
"[T]he research ... found that only about four in 10 (38 percent) Americans who own an IRA are contributing up to the annual limit, and 55 percent are investing less than the maximum allowed amount each year[.]" (TIAA-CREF)
Federal Thrift Savings Plan to Launch Roth Option Soon
"If ... tests are successful, the Roth option could come sometime in May or -- if testing proceeds faster than anticipated -- late April. The board has never given a firmer launch date than sometime during the second quarter of 2012." (Air Force Times)
[Guidance Overview] Roth IRAs Cannot Be S Corporation Shareholders, Court Holds
"In rejecting the taxpayer's argument that the IRA should be treated as a permitted trust under the S corporation eligibility rules, the Ninth Circuit noted that unlike grantor trusts and QSSTs, which are both taxed currently on their income, IRAs and Roth IRAs are subject to deferred taxation on current income and thus are incompatible with the S corporation taxation rules." (Journal of Accountancy)
Research Helps Before Opening First IRA
"What started as a simple product 38 years ago now has six versions: There are traditional (deductible and nondeductible), Roth, SEP, Simple and self-directed IRAs. Each has different eligibility requirements, contribution limits and tax benefits." (San Francisco Chronicle)
Modifying the Federal Tax Treatment of 401(k) Plan Contributions: Projected Impact on Participant Account Balances (PDF)
"A recent proposal to change the tax preferences for employment-based 401(k) retirement plans could result in an average reduction in 401(k) account balances of between 6-22 percent at Social Security normal retirement age for workers currently ages 26-35, according to new research by EBRI. Reductions could be even greater for participants in small 401(k) plans." (Employee Benefit Research Institute)
401(k) Or IRA? Workers Who Contribute To Both Save More
"A new report by Fidelity Investments indicates that as companies cut down on pension plans, more workers are contributing to both Individual Retirement Accounts (IRA) and 401(k) plans. Those who contribute to both end up saving much more overall, the study showed. In addition, workers are more likely to save for retirement if they seek financial advice." (The Huffington Post)
First-to-Market Fidelity ? Analysis of Investors Saving in Both 401(k)s and IRAs
"The findings show a combined average balance of $212,600. Investors on the verge of or in retirement - between 65 and 69 - have a combined average balance of $359,000. The analysis also highlights the sharp increase in the number of Americans seeking guidance as they work to achieve their saving and investing goals." (Fidelity Investments)
Three Simple Steps to the Perfect IRA
"Choosing the most efficient tax-favored retirement savings strategy can be challenging. Here's how to get it right in 3 simple steps.... This simple question and answer process should make your tax-favored savings strategy clear. You may find it helpful to view this process in chart form." (Time)
Should You Convert Your Traditional 401(k) to a Roth 401(k)?
"[I]n contrast with IRA conversions, which are now available for all investors, converting assets in a company retirement plan to Roth status is only an option for a subset of retirement-plan investors. Depending on their status, they might only be able to convert a portion of their balances, and even if an employee is able to convert from a traditional to a Roth retirement plan, doing so might not always be the best route to take." (Morningstar)
Should You Convert Your Traditional 401(k) to a Roth 401(k)?
"[I]n contrast with IRA conversions, which are now available for all investors, converting assets in a company retirement plan to Roth status is only an option for a subset of retirement-plan investors. Depending on their status, they might only be able to convert a portion of their balances, and even if an employee is able to convert from a traditional to a Roth retirement plan, doing so might not always be the best route to take." (Morningstar)
Americans Contributing Record Low Amounts to IRAs
"The study is the first comprehensive survey of it's kind to be completed since 2008. It shows an alarming and continued drop in adoption of Individual Retirement Accounts as an investment vehicle. It show[s that the] number of middle-class Americans who contributed to any form of retirement account for the 2010 tax year dropped to [an] astonishing low of 15% ? a number never before seen since IRAs were first introduced." (Greene IRA Success)
Smart Strategies for Taking Required Minimum Distributions
"After years of delaying income tax on your 401(k) and IRA contributions, Uncle Sam comes to collect in retirement. Distributions from 401(k)s and IRAs become required after age 70 1/2, and you must pay income tax on each withdrawal. Here are some strategies for taking required minimum distributions that will help you preserve as much spending power as possible." (Chicago Tribune)
Longevity Insurance for IRAs?
"Longevity insurance, however, is not treated like the typical deferred variable annuity contract. With longevity insurance, the company is promising to pay a stream of annuity payments beginning at a fixed time (typically age 85) and lasting for life. Thus, these contracts are governed by the defined benefit minimum distribution rules, and that's the problem: The defined benefit rules allow the IRA owner to purchase many types of annuity contracts inside the IRA, provided that the annuity payments start no later than the participant's required beginning date, i.e., April 1 of the year after the year the participant reaches age 70 1/2." (Morningstar Advisor)
Companies' Pension Plea
"Business groups are urging Congress to let employers put less money into their pension funds, saying that exceptionally low interest rates are forcing them to set aside too much cash.... the measure holds appeal in Congress because it would increase the government's near-term revenues[.]" (The Wall Street Journal; free registration required)
What's So Wrong with Roth 401(k) Plans?
"The number of companies offering Roth 401(k) plans has grown rapidly since the retirement plan became a permanent part of tax law in 2006. Employees, however, aren't quite as enamored." (The Wall Street Journal; free registration required)
The Ins and Outs of Roth 401(k) Plans
"Although fund companies say they have aggressively marketed Roth 401(k)s, the adoption rate has been slow. Fidelity Investments, which administers retirement plans for 12 million workers, found that only 6% of plan participants with the option of enrolling in a Roth choose to do so. At Charles Schwab Corp., that figure is 15%, and at Vanguard Group it is 9%." (The Wall Street Journal)
IRA Owners Turning to Alternative Investments
"Although IRAs have been allowed to hold a variety of assets since Congress first authorized them in 1974, most investors opted for conventional stocks and bonds during the bull markets of the 1980s and '90s. They still do: The Retirement Industry Trust Association, a group of alternative-asset IRA providers, estimates that such accounts make up just 2% to 5% of the $4.6 trillion held in IRAs overall." (The Wall Street Journal)
Economic Effects of Automatic Enrollment in Individual Retirement Accounts (PDF)
"Auto IRAs have the potential to influence the saving behavior of millions of households.... The 10-year revenue loss resulting from the Auto IRA ... is estimated to range from $3.8 billion ... to $65.8 billion ... With the expansion of the Saver's Credit in place, the revenue cost would rise substantially." ( AARP Public Policy Institute )
The Population of Workers Covered by the Auto Ira: Trends and Characteristics (PDF)
"[B]etween 24 million and 43 million workers -- approximately one-quarter of the workforce -- would be eligible for automatic enrollment in the proposals under consideration in Congress.... [T]he eligible population is heavily skewed toward workers with low and moderate wage levels and that exempting very low-wage workers from the automatic enrollment mandate would have only a modest impact on the number of eligible workers." (AARP?s Public Policy Institute )
The Case for the Automatic IRA
"[AARP says t]he Auto IRA could improve retirement security for millions of workers while boosting America's saving rate, leading to improved living standards for future generations. [The target page provides links to three articles on Auto IRAs.]" (AARP)
Considering the Roth TSP Option and Taxes in Retirement Planning
"[The Thrift Savings Plan board's] publications and presentations all contain the following advice: 'You may want to consult a qualified tax or financial adviser to help you decide if Roth is for you.' I decided to heed that advice and consult with two experts[.] [Questions and answers follow.]" (Government Executive)
White House Budget Request Would Establish Auto IRAs, Increase Tax Credit for Small Employer Plan Start-Up Costs
"The budget proposal would ... double the Code Sec. 45E tax credit for small employer plan startup costs from the current maximum of $500 per year for three years to a maximum of $1,000 per year for three years. This expanded startup costs credit for small employers, like the current startup costs credit, would not apply to automatic or other payroll deduction IRAs." (Wolters Kluwer Law & Business / CCH)
[Opinion] Investment Company Institute Submits Supplemental Response to DOL on Request for IRA Data (PDF)
"This letter supplements our January 13, 2012 response to your 30-day information request of December 15, 2011 and our meeting of January 24, 2012." (Investment Company Institute)
[Opinion] Response to DOL Definition of Fiduciary IRA Data Request (PDF)
"The data request suggests that the Department could draw conclusions ? sufficiently reliable to base an enormously consequential regulation like the ERISA fiduciary definition ? about the 'impact, if any, of conflicts of interests faced by brokers or other[s] who advise IRAs ? on IRA investors' from investment returns or trading histories in IRA accounts, analyzed against a (unavoidably, select and less than comprehensive) range of variables. [FSI] respectfully disagree[s][.]" (Financial Services Institute)
[Opinion] Response tol DOL Definition of Fiduciary IRA Data Request (PDF)
"The data request suggests that the Department could draw conclusions ? sufficiently reliable to base an enormously consequential regulation like the ERISA fiduciary definition ? about the 'impact, if any, of conflicts of interests faced by brokers or other[s] who advise IRAs ? on IRA investors' from investment returns or trading histories in IRA accounts, analyzed against a (unavoidably, select and less than comprehensive) range of variables. [FSI] respectfully disagree[s][.]" (Financial Services Institute)
Eight Points to Consider before Rolling Over a 401(k) to an IRA
"[S]ometimes it does make the most sense to leave your money in the old plan. Listed [in this article] are eight possible reasons that you might want to do just that." (Forbes)
Ensure your Plan Participants are Prepared for a Secure Retirement
Defined Contribution Conference, March 11-13, in Miami. Learn from your peers through presentations and discussions on plan design, communications, investment options and more. FREE registration for qualified plan sponsors. (Pensions & Investments)
Avoid the Common Mistakes Affecting Plan Loans Webcast
Earn CE credit while ERISA expert, Charles Lockwood, JD, LLM, explains the administrative issues that affect plan loans. Have questions? Charles will address them either during or after the webcast. March 22nd at 2pm EST. (ASC)
[Guidance Overview] 'Series of Substantially Equal Periodic Payments' Exception to 10% Premature IRA Distribution Penalty Is Tricky
"The series of payments are sometimes called '72(t)' payments, but that's a misnomer. ? 72(t) of the Internal Revenue Code is the section that imposes the 10% penalty. The SOSEPP exception is actually found in ? 72(t)(2)(A)(iv)." (Morningstar)
[Guidance Overview] Protection from Creditors Sometimes Not So Clear for IRAs of Michiganders (PDF)
"What would appear to be a clear reading of the statute is anything but. Courts will reach a result that does not appear to be in compliance with the statute but may, in the end, be equitable." (Miller Canfield)
Do Tax Rates Go Up or Down in Retirement?
"The decision about whether to opt for Roth tax treatment of your retirement assets--where you pay taxes upfront in exchange for tax-free withdrawals later on--requires you to make a judgment about whether your taxes will be higher in retirement than they were while you were working.That's a lot harder than it sounds ..." (Morningstar)
DOL Sets February 24 Deadline on Fiduciary IRA Request
"The Department of Labor's Employee Benefits Security Administration (EBSA) has given industry trade groups until Feb. 24 to fulfill the department's request regarding what impact the conflicts of interest faced by brokers who advise IRAs have on IRA investors." (AdvisorOne)
Budget Proposal to Eliminate Minimum Required Distribution Rules for IRA or Annuity Plan Balances of $75,000 or Less (PDF)
"The proposal would be effective for taxpayers attaining age 70 on or after December 31, 2012." (The White House via BenefitsLink.com)
[Guidance Overview] IRS Proposed Regulations on Purchase of Longevity Annuity Contracts by Plans
"The proposed regulations are designed to open up the 401(k) and IRA market to longevity annuities by providing special relief from the minimum distribution requirements." (Wolters Kluwer Law & Business / CCH)
[Opinion] The President's 2013 Budget Would Enable Almost All Americans to Save for Retirement
"Nearly half of American workers - an estimated 78 million- currently have no employer-sponsored retirement savings plan. The Automatic IRA is a simple, easy to administer and understand system that is designed to meet the needs of small businesses and their employees." (Brookings)
Text of White House'S Budget Proposal Cutting Back on Income Tax Benefit of Retirement Plan Contributions for High-Earners (PDF)
"The proposal would limit the tax value of specified deductions or exclusions from [Adjusted Gross Income] and all itemized deductions. This limitation would reduce the value to 28 percent of the specified exclusions and deductions that would otherwise reduce taxable income in the 36-percent or 39.6-percent tax brackets.... The income exclusions and deductions limited by this provision would include any ... employee contributions to defined contribution retirement plans and individual retirement arrangements[.]" (White House)
IRAPerk Buried in Obama's Budget.
"President Barack Obama's budget proposal for fiscal year 2013 may be calling for new taxes on the wealthy, but it includes a perk for older people with relatively small IRAs. Deep in the budget is a provision that would eliminate required minimum distributions for people who are at least 70? years old whose tax-deferred retirement-plan balances do not exceed $75,000." (The Wall Street Journal)
[Official Guidance] IRS Retirement News for Employers, Winter 2012 Edition, February 13, 2012 (PDF)
The Winter edition includes: Plan Issues: 401(k) Questionnaire Interim Report ? comments and highlights; Use an employee's entire calendar-year compensation for determining employer contributions to SIMPLE IRA plans; April 30 deadline for employers to adopt and submit determination letter applications for pre-approved defined benefit plans; Plan Loans: What's a reasonable interest rate for participant loans? Before you take a loan from your retirement plan, there are a few rules you need to know; and, Forms: Tips for Form 5558 requests for extension to file Form 5500-series returns; Using old forms may cause errors and could result in processing delays. (U.S. Internal Revenue Service)
Cerulli Predicts IRA Marketplace Will Grow Steadily
"According to Cerulli's report titled 'The State of The Rollover and Retirement Income Markets: Sizing, Segmentation, and Addressability 2011,' IRAs are becoming the destination for defined contribution (DC) assets." (PLANADVISER.COM)
Looking to 70 1/2, a Magic Number in Retirement Plans
"If you have more than one retirement account other than Roth I.R.A.'s, which don't have required minimum distributions, you need to calculate the distribution separately for each but are then permitted to withdraw the total from any single source or a combination. So if you have four I.R.A.'s, you can withdraw your total R.M.D. from one of them." (The New York Times; free registration required)
Congress Eyes New Rules for Inherited IRAs
"A Senate Finance Committee proposal floated this past week as part of a highway-funding bill would give heirs five years to empty inherited individual retirement accounts or 401(k)s, which would typically trigger income-tax payments. The rule change could raise some $4.6 billion in income taxes over the next decade, according to a statement by Sen. Max Baucus (D., Mont.), chairman of the Senate Finance Committee." (The Wall Street Journal)
How to Prioritize Saving in a 401(k) and Roth IRA
"It's almost always a good idea to take advantage of employer matching funds using your 401(k) plan. After that, you need to decide whether it's better to do additional saving in your 401(k) or switch to a traditional or Roth IRA. Here's how to prioritize saving in a 401(k) and IRA." (U.S. News & World Report)
Mitt Romney's IRA
"Can I invest my IRA funds like Mitt Romney? In theory, yes. In practice, no. There are mutual funds which invest in private equity deals of the sort Mitt Romney holds in his IRA. However, under the best of circumstances, these funds need to be scrutinized carefully as to their management fees and whether they really obtain the kinds of investment opportunities available to a Bain Capital partner. I'm skeptical." (OUPblog)
Report of Council of Economic Advisers: 'Supporting Retirement for American Families' (PDF)
Feb. 2, 2012. 'While economic studies have established the benefits of annuitization for retirees -- including both immediate and longevity annuities -- many workers have only limited access to these products. The administrative guidance issued by the Treasury today, easing and simplifying certain regulatory requirements for retirement plans and IRAs, takes an important first step towards a more complete private market offering more attractive lifetime income options." (Council of Economic Advisers, Executive Office of the President)
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