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IRAs


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Using Your Income Tax Refund as an IRA Contribution
"[If] you're thinking about using that refund to help save for retirement, you're in luck. The IRS allows you to have that refund check directly deposited into an IRA if you follow certain procedures when you file your federal income taxes for 2013." (The Slott Report)
[Official Guidance] Text of IRS Notice 2014 28: Treatment of U.S. Persons Owning Stock of Passive Foreign Investment Companies Through Certain Tax-Exempt Organizations and Accounts (PDF)
"The Treasury Department and the IRS believe that the application of the [passive foreign investment company (PFIC)] rules to a U.S. person treated as owning stock of a PFIC through a tax exempt organization or account described in 1.129 8-1T(c)(1) would be inconsistent with the tax policies underlying the PFIC rules and the tax provisions applicable to tax exempt organizations and accounts. For example, applying the PFIC rules to a U.S. person that is treated as a shareholder of a PFIC through the U.S. person's ownership of an [IRA] ... that owns stock of a PFIC would be inconsistent with the principle of deferred taxation provided by IRAs. Accordingly, the Treasury Department and the IRS will amend the definition of shareholder in the section 1291 regulations to provide that a U.S. person that owns stock of a PFIC through a tax exempt organization or account (as described in 1.1298-1T(c)(1)) is not treated as a shareholder of the PFIC. This amendment will affect all regulations that cross-reference the 1.1291-1T(b)(7) and [8] definitions of shareholder and indirect shareholder, including 1.1298-1T(a)." (Internal Revenue Service [IRS])
[Guidance Overview] FINRA's 'Reminder' About Rollovers Is News to Many
"[R]egulators believe that industry practices encourage retirees to make rollovers without a full understanding of their options and the relative costs for each option.... Couched as a 'reminder,' FINRA's year-end Regulatory Notice 13-45 describes practices that many broker-dealers and their registered representatives will find difficult to implement.... The guidance lists ... factors that broker-dealers and their registered representatives must consider and evaluate to determine whether a recommendation to take a distribution and rollover is suitable. In practice, broker-dealer firms and their representatives will have a difficult time obtaining this information." (DrinkerBiddle)
[Opinion] ASPPA Head Brian Graff Blasts Retirement Suggestions from Capitol Hill (and Others)
"[E]veryone talks about tax reform and fiduciary regulations, but ... the bigger threat is a failure of policy makers in DC to understand that retirement policy needs to be looked at from a holistic perspective and not from a parochial view within their own committees. For example, a tax committee will look at retirement policy as a pure tax policy analysis and fail to reflect any thinking on what it means for retirement.... There's no committee with the singular responsibility to look at how to focus on pure retirement policy." (Fiduciary News)
What to Do With Your 401(k) When You Retire
"The ability to invest in nearly anything is a central attraction of an IRA ... as is the chance to get away from the extra administrative costs and pricey fund options that dog some 401(k) plans. Other respondents said they chose to roll over multiple 401(k) accounts from multiple employers to a single IRA for convenience and simplicity.... Several respondents said they had in fact chosen to stay put in their high-quality, low-cost plans, citing extra creditor protections and the ability to pick up a bit of extra yield in a stable-value offering." (Morningstar)
[Guidance Overview] IRS Ruling Streamlines Plans' Acceptance of Rollover Contributions
"This ruling should be welcomed by plan sponsors and TPAs for its streamlining of the rollover process. Prior examples of 'reasonably concludes' (in Treasury regulations) contemplated employees obtaining documentation from the distributing plan and submitting it to the receiving plan, leading to potential delay and frustration for employees and administrators -- and, as the IRS news release notes, to employees taking taxable distributions instead of continuing their tax-deferred savings." (Thomson Reuters / EBIA)
Would an Expanded Fiduciary Definition Lead to Billions in Retirement Cash-Outs?
"If the [DOL] moves ahead with its proposal to impose a fiduciary responsibility on financial professionals offering retirement advice, waves of broker-dealers and company call centers would exit that market and further jeopardize the already precarious retirement situation for millions of workers ... Without that advice, more workers would be likely to cash out their plans upon leaving a job, rather than rolling them over to an IRA or staying with the employer's plan.... [T]hose cash-outs [c]ould add up to between $20 billion to $32 billion each year, which could translate into a net annual decline in retirement savings by 20% to 40% for the affected workers." (Financial Planning)
Three Things You Didn't Know About IRA Prohibited Transactions
"[1] Buying collectibles with your IRA money is not a prohibited transaction.... [2] Transactions with parents or children aren't okay, but transactions with brothers or sisters are... sort of... but not really... [3] A prohibited transaction can cost you bankruptcy or creditor protection." (The Slott Report)
[Guidance Overview] IRS Rev. Rul. 2014-9 Offers Rollover Due Diligence Safe Harbor (PDF)
"Although the requirement to offer a rollover does not require transferring funds to defined benefit plans, such plans are not precluded from accepting rollovers, as IRS clarified in its regulations. Indeed, recent guidance from IRS and PBGC affirms the ability to make such rollovers and explains how various qualification and benefit guarantee rules operate for them." (Buck Consultants)
[Guidance Overview] IRS Expands In-Plan Roth Rollovers
"Plans may restrict the type of contributions eligible for an in-plan Roth rollover.... Amounts transferred to a Roth account are subject to the same withdrawal restrictions as before the transfer.... The 5-year Roth clock starts on the first day of the plan year in which the participant makes their first Roth contribution to the plan.... If the retirement plan provides and the employee is eligible, an employee may receive an in-service distribution to help pay for the taxes." (TRI-AD)
IRA Custodian Creates 60-Day Rollover Problems
"The end result of all of this was that IRS let Tony put some funds back into an IRA, but not the full amount of his original SEP IRA balance. Both of Tony's IRA custodians made mistakes here. The SEP custodian did not timely release Tony's IRA funds. The Roth custodian apparently did not tell Tony that his funds went into non-qualified accounts, despite his instructions to the contrary. But Tony made mistakes too. He did not follow the most basic of the IRA and Roth IRA rules. He was only spared the consequences of his actions by the mistakes of his custodians." [Private Letter Ruling 1412020, Dec. 23, 2013; published online Mar. 21, 2014.] (The Slott Report)
Supreme Court Justices on the Edge About Protections for Inherited IRAs in Bankruptcy
"Obviously well prepared [at the oral argument], the Justices gave neither side much breathing room, peppering both lawyers from beginning to end with probing questions about the weak points of their position. So only moments after Kannon Shanmugam (representing Clark) began to speak, Justice Kennedy pressed on the weakest point of Shanmugam's position, noting that 'it seems to me that you really rendered the words "retirement funds" superfluous.'" [Clark v. William J. Rameker, Trustee, et al., No. 13-299, on appeal from the 7th Circuit.] (SCOTUSblog)
Don't Rely on Your IRA Custodian to Take Responsibility for Your Required Minimum Distribution
"While the custodian is responsible for notifying you about your RMD, the custodian is not responsible for making sure you actually take it. You should have been notified about your 2013 RMD by January 31, 2013.... Beyond the RMD notification, there is no rule that forces custodians to make another attempt to contact you and make sure you took your RMD." (The Slott Report)
IRA Rollovers: 'One' Really Does Mean 'One' Now
"There may be some interesting lessons to learn from this about-face. First of all, appreciate that the same Treasury Department that proposed the regulation described above and developed the example described above from Publication 590 (its own publication provided to assist taxpayers with compliance) is the one that challenged the position taken by Mr. Bobrow in reliance on these items before the Tax Court. So much for reliance on a position of Treasury and/or the IRS as articulated in one of its own compliance publications. Second, the change in position is likely to catch some people by surprise, especially seniors trying to do proper planning and who do not read all of the Tax Court cases and IRS Announcements." (Benefits Bryan Cave)
[Guidance Overview] Many Retirees Face April 1 Deadline to Take Required Retirement Plan Distributions (PDF)
"The [IRS] reminded taxpayers who turned 70-1/2 during 2013 that in most cases they must start receiving required minimum distributions (RMDs) from Individual Retirement Accounts (IRAs) and workplace retirement plans by Tuesday, April 1, 2014. The April 1 deadline applies to owners of traditional IRAs but not Roth IRAs. Normally, it also applies to participants in various workplace retirement plans, including 401(k), 403(b) and 457 plans." (Internal Revenue Service [IRS])
IRS Guidance Gives In-Plan Roth Rollovers New Life (PDF)
5 pages. Excerpt: "This column briefly reviews the history of the Roth program, summarizes the new guidance in this area, reviews the comprehensive rules applicable to all in-plan Roth rollovers, and provides action steps for plan sponsors to take a fresh look at this optional plan design feature." (Groom Law Group, via Taxes -- The Tax Magazine)
[Guidance Overview] Updated IRS Information Page: IRA One-Rollover-Per-Year Rule
"The IRS intends to follow the Tax Court's interpretation of Internal Revenue Code Section 408(d)(3)(B). However, to give IRA owners and trustees time to adjust, the IRS will delay implementation until January 1, 2015, at the earliest. Proposed Treasury Regulation Section 1.408-4(b)(4)(ii) will be withdrawn and Publication 590 will be revised to reflect the new interpretation." (Internal Revenue Service [IRS])
Why Are So Many Different Regulators Voicing Concern Over Rollover Practices?
"Tamara Cross, assistant director of education, workforce and income security issues at the [GAO] ... points to a wide range of research showing rollovers into IRAs could top $2.1 trillion over the next five years ... With so much money flowing out of the employer-sponsored plan environment, it's no surprise multiple regulators want to head off potential conflicts of interest and make sure participant dollars are treated fairly, Cross says." (planadviser)
[Guidance Overview] New Once-Per-Year IRA Rollover Rule Emerges from Bobrow v. Commissioner Tax Court Case
"The net results of the Bobrow case is that any distribution from any IRA invalidates subsequent IRA rollovers within a 1-year period beginning on the date that the first distribution occurs from the first IRA! ... Going forward, not even the multiple-IRAs-handled-separately approach are a valid way to chain together multiple IRA rollovers, despite the fact that they were described as a valid example in Publication 590! If an IRA rollover occurs from one IRA, the taxpayer cannot do another rollover from that IRA or a different one either!" (Michael Kitces in Nerd's Eye View)
The 60-Day IRA Rollover: What Can Go Wrong
"This rollover started in 2008. It was finalized six years later. The IRS fee alone for this type of ruling is capped at $3,000. Generally you also have to pay a professional to prepare the [private letter ruling request]. Given the amount of times IRS requested more information from Nancy, the professional might have charged her another $10,000. The cost in time and money to complete this rollover -- not to mention the aggravation and stress on Gary and Nancy -- is something that we want you to avoid. DON'T DO 60-DAY ROLLOVERS." (The Slott Report)
[Guidance Overview] IRA Rollover Guidance Issued: IRS Will Follow the Tax Court
"The IRS also announced that it intends to withdraw the proposed regulation and issue new regulations that follow the Tax Court's interpretation of the law and apply the limitation on an aggregate basis. It will also revise Publication 590 to the extent needed to reflect that interpretation." (Journal of Accountancy)
[Official Guidance] Text of IRS Announcement 2014-15: Application of One-Per-Year Limit on IRA Rollovers (PDF)
"The IRS anticipates that it will follow the interpretation of 408(d)(3)(B) in [Bobrow v. Commissioner] and, accordingly, intends to withdraw the proposed regulation and revise Publication 590 to the extent needed to follow that interpretation. These actions by the IRS will not affect the ability of an IRA owner to transfer funds from one IRA trustee directly to another, because such a transfer is not a rollover and, therefore, is not subject to the one-rollover-per-year limitation.... The IRS understands that adoption of the Tax Court's interpretation of the statute will require IRA trustees to make changes in the processing of IRA rollovers and in IRA disclosure documents, which will take time to implement. Accordingly, the IRS will not apply the Bobrow interpretation of 408(d)(3)(B) to any rollover that involves an IRA distribution occurring before January 1, 2015." (Internal Revenue Service [IRS])
Supreme Court Argument Preview: Scope of Protections for Retirement Funds in Bankruptcy Squarely at Issue
"The specific question in this case is whether those provisions exempt the $450,000 IRA that petitioner Heidi Clark inherited upon the death of her mother.... [Clark] contends that the inherited IRA remains retirement funds because they were set aside for retirement into the identified account and remain in that account.... [The trustee in Clark's bankruptcy] ... argues that funds held in an inherited IRA are not 'retirement funds' because an inherited IRA does not have the attributes of other tax-exempt retirement funds.... [T]here is no tax penalty if Ms. Clark withdraws all of the funds from the IRA immediately; all of the other funds would be subject to penalties if they were immediately liquidated.... The Justices easily could write an opinion favoring either party. So this well might be one of those cases in which the [oral] argument could tip the balance either way." [In re Clark, 714 F.3d 559 (7th Cir. 2013; cert. granted Nov. 26, 2013).] (SCOTUSblog)
The Three Most Important Things to Know About Roth IRAs
"[1] Tax-free Distributions in Retirement Come With an Upfront Cost ... [2] There are no Required Minimum Distributions During Your Lifetime ... [3] You Can Always Access Your Contributions Tax and Penalty Free." (The Slott Report)
Protecting Private Wealth: Recent Bankruptcy Cases Involving Tuition Payments and Profit Sharing Plans
"Although the IRS had previously audited the debtor's tax returns and did not disqualify the profit sharing plan or assess additional taxes, the First Circuit rejected the debtor's argument that the IRS's favorable determination following the audit created a presumption that the debtor's interest in the profit sharing plan was exempt from his bankruptcy estate. The First Circuit also upheld the bankruptcy court's ruling that the debtor's individual retirement accounts were not exempt because the debtor intentionally concealed or failed to fully disclose those assets in a number of court filings." [In re Daniels, No. 12-2376 (1st Cir. 2013)] (BakerHostetler)
A Warning on Multiple IRA Rollovers
"Although possibly representing a significant departure from previous advice, in light of the court's decision in Bobrow, it would be prudent to instruct clients to avoid making any more than one 60-day IRA-to-IRA rollover per year. If clients want to move money more frequently, they can still use trustee-to-trustee transfers, which can be made at any time, without regard to the once-per-year rollover rule. Direct transfers (trustee-to-trustee transfers) are still the preferred method to steer clear of this kind of tax trouble." (InvestmentNews)
Plan Overpayment = Disaster!
"A plan overpayment followed by a repayment also raises many tax questions. The answer to each question is, 'you lose!' ... The Code section that decrees taxability of retirement plan distributions has no exception for mistaken payments.... To be an eligible rollover distribution, the distribution must comprise benefits the individual is entitled to under the plan. Any other plan distribution is not eligible for rollover.... Unlike with the penalty for failure to take a minimum distribution, there is no procedure for IRS waiver of the excess IRA contribution penalty." (Natalie Choate in Morningstar Advisor)
Would an IRA Withdrawal Count as Income for Exchange Subsidies?
"Withdrawals from traditional or rollover IRAs would be considered income for the purposes of calculating modified adjusted gross income, the figure on which eligibility for premium tax credits on the exchanges is based ... A withdrawal from a Roth IRA, however, would not count as income in this case because the individual would already have paid taxes on that income when he made the retirement contribution.... [W]ithdrawing enough money from a taxable IRA to bring [an individual] up to the poverty level could enable him to qualify for premium tax credits." (The Washington Post; subscription may be required)
Americans Spend Less Time Planning Their IRA Investment Than Choosing a Restaurant
"More Americans spent less time in the last year planning for an IRA investment for their retirement years than choosing a restaurant, flat screen TV or tablet ... [F]ewer than one in five (17 percent) of those surveyed currently contribute to an IRA, a decline from 22 percent in 2012.... [T]he number of Americans who would consider an IRA as part of their retirement strategy has fallen sharply since 2013. Fewer than half (47 percent) of those not contributing say they would consider an IRA, down from 57 percent in 2013." (TIAA-CREF)
Rollovers to IRAs from Employer-Sponsored Retirement Plans: Emerging Legal and Regulatory Standards (PDF)
"A number of recent developments suggest that federal regulators and policy makers may be engaged in a reassessment of the IRA rollover phenomenon....[S]everal announcements seem to signal a regulatory interest in either imposing new duties on financial intermediaries when interacting with distribution-eligible plan participants or in reinterpreting existing duties and standards of care in new ways as a means of influencing and reconfiguring the rollover discussion." (Groom Law Group via BNA Pension and Benefits Daily)
Is a Roth IRA Conversion Right for You?
"Given each high net worth individual's unique circumstances, there is no single right answer regarding whether converting a Traditional IRA to a Roth IRA will maximize the individual's net worth. That said, [a table in this article] describes general factors that may or may not support a Roth IRA conversion." (Manning & Napier)
The IRA Investor Profile: Traditional IRA Investors' Activity, 2007-2012 (PDF)
76 pages. Excerpt: "Although account balances fell considerably following the stock market decline in 2008, the average traditional IRA balance for traditional IRA investors aged 25 to 69 with account balances in all years between 2007 and 2012 was higher at year-end 2012 than at year-end 2007. The change in traditional IRA balances reflects contributions, rollovers, withdrawals, and investment returns." (Investment Company Institute [ICI])
The IRA Type That No One Really Needs
"[T]he nondeductible Traditional IRA has never been a particularly useful vehicle, even for high-income savers. Instead, its main utility is as a conduit, for those who can't make a direct Roth contribution and intend to convert their Traditional IRAs to Roth. If such a conversion doesn't make sense, investors are almost always better off skipping the IRA wrapper altogether and investing in a taxable account instead." (Morningstar)
Implementing and Administering Roth 401(k) Plans (PDF)
"This Note gives a general overview of the designated Roth option and explains:[1] The benefits of using a Roth 401(k). [2] The IRC requirements governing designated Roth plans. [3] The treatment of contributions to and distributions from Roth 401(k) plans. [4] In-plan rollovers of distributions from non-Roth accounts to Roth options within an employer's plan. [5] Issues for employers to consider before implementing Roth 401(k) programs." (Groom Law Group, for Practical Law)
[Opinion] Some Good, Much Questionable in Camp's Tax Reform Proposal
"Despite advance warning of what Camp's tax reform might look like, it was still a jolt to actually see in print the proposed dismantling of key elements of the retirement saving infrastructure as we know it.... Understandably omitted from this committee's summary is the fact that guiding so many contributions into Roth IRAs and Roth accounts in employer plans will result in less tax revenue in the future.... Perhaps the most indefensible of Rep. Camp's tax reform elements would lock down IRA and employer plan contribution and testing limits, without cost-of-living adjustments, for a full decade." (Todd Berghuis, for Ascensus)
Are Some People Rolling Into IRAs in Order to Make Tax-Advantaged Withdrawals? (PDF)
"[A]mong traditional IRAs that received a rollover, 21.9 percent also had a withdrawal, and of those traditional IRAs that experienced a withdrawal, 9.4 percent also received a rollover. Moreover, the percentage of those with a rollover that also had a withdrawal increased with the owner's age ... from 16.1 percent for those owned by younger-than-50-year-olds to 29 percent for those age 60-69.... [T]here may be tax reasons to first rollover from a 401(k)-type plan to a traditional IRA, and then to take a withdrawal from the IRA. As an example, a withdrawal from a traditional IRA taken before age 59-1/2 for a first-time home purchase ($10,000 maximum) is not subject to the 10 percent early withdrawal penalty that an identical withdrawal for this purpose from a 401(k)-type plan would be." (Employee Benefit Research Institute [EBRI])
[Guidance Overview] Self-Directed IRAs: IRS and DOL Rules
"Self-direction of IRAs is not new but it has become more common as a portfolio diversification strategy because account owners can purchase a wide variety of assets in their IRAs. The advantages to a self-directed IRA include the following: [1] Access to a wide range of alternative investments, [2] Opportunity to invest in what you know and understand, and [3] The ability to diversify your portfolio to protect against market volatility and inflation. However, the account owner of a self-directed IRA must be careful not to run afoul of the self-dealing rules or the prohibited transaction rules[.]" (EisnerAmper)
Section-by-Section Summary of Republican-Proposed Tax Reform Act of 2014 (PDF)
Internal Revenue Code changes related to retirement plans include elimination of the ability to establish new SEPs or new SIMPLE 401(k)s; elimination of deductible contributions to IRAs; modification of the required distribution rules; elimination of ability to undo a Roth IRA recharacterization; reduction in minimum age for allowable in-service distributions; modification of rules governing hardship distributions; and inflation adjustments for qualified plan benefit and contribution limitations. Changes related to welfare benefits include repeal of education assistance plans, termination of deductions and income exclusions for contributions to Archer Medical Savings Accounts, and a new limitation on the exclusion of employer-provided housing from an employee's income. (Committee on Ways and Means, U.S. House of Representatives)
U.S. Tax Court Changes the Game on IRA Rollovers
"It does not appear that the taxpayer cited the IRS's proposed regulation as authority for its position. It remains unclear why the IRS chose this time and this taxpayer to assert a position that runs contrary to more than 30 years of its own issued guidance. However, unless the taxpayer chooses to appeal this decision and is successful in having the decision overturned, IRA owners are now on notice that the IRA rollover game has changed." [Bobrow v. Commissioner, T.C. Memo. 2014-21 (Jan. 28, 2014)] (McGladrey)
IRA, 401(k), 529: What's the Best Tax-Sheltered Account Type for You?
"[G]iving due care to the wrapper you choose for your investment accounts and maximizing your investments in tax-sheltered vehicles can greatly enhance your take-home return.... Here's an overview of the various types of savings vehicles available for your long-term investing assets -- especially retirement -- including a summary of the types of individuals who will tend to benefit most from each investment vehicle. Note that there's not a single best investment wrapper for any one individual; most savers will hold a combination of these account types during their lifetimes." (Morningstar)
[Guidance Overview] IRS Guidance Answers Key Questions About In-Plan Roth Conversions
"Perhaps the most significant question answered in [IRS Notice 2013-74] is that, following the conversion of amounts that are not otherwise distributable, the resulting Roth amounts remain subject to the same distribution restrictions that applied to those amounts before the conversion.... The upshot of this requirement is that any amount converted under the new ATRA rules (i.e., any amount that is not otherwise distributable) must be accounted for separately from other Roth amounts (converted or otherwise) that are distributable." (Spencer Fane)
[Guidance Overview] IRS Retirement News for Employers, February 24, 2014 (PDF)
Topics include: [1] You can still set up a SEP by the due date (including extensions) of your 2013 business income tax return; [2] Tips for the sole proprietor; [3] Saver's Credit for contributing to an IRA or company retirement plan by April 15, 2014; [4] How to correct missing or late distribution of safe-harbor 401(k) notice; [5] Retirement plan deadlines; [6] Consider your Roth options; and [7] My RA program information Fact Sheet, FAQs and video in English and Spanish. (Internal Revenue Service)
Text of Amicus Brief Addressing Treatment of Inherited Retirement Accounts in Bankruptcy (PDF)
"[C]ertain types of accounts, such as IRAs, are taxed in a manner to encourage individuals to save funds in those accounts for retirement ... [I]nherited IRAs are taxed in precisely the opposite manner from IRAs.... [I]nherited IRAs are better characterized as anti-retirement funds: they are structured so as to require immediate consumption of the funds rather than to promote future savings. Accordingly, they are not 'retirement funds' under the Bankruptcy Code." [Clark v. William J. Rameker, Trustee, et al., No. 13-299, on appeal from the 7th Circuit.] (Prof. Seymour Goldberg; brief prepared by Jenner & Block)
IRS Issues Guidance on Roth Rollovers of Nondistributable Balances
"The guidance focuses primarily on rollovers of balances that are not otherwise available for immediate distribution, such as where the account holder is not yet age 59-1/2. A 401(k) plan sponsor that has implemented an in-plan Roth rollover of otherwise nondistributable amounts, or that wants to do so, now has a limited extension for adding enabling provisions." (Towers Watson)
IRA Rollovers: A Checklist for Documenting the Discussion
"Regulators are clear: Advisors recommending rollover of employer retirement plan assets must provide clients with advice that is fair, balanced, and not misleading regarding their options for these funds.. .. Because the decision to transfer funds out of an employer's plan is irrevocable, advisors must adopt practices and procedures to ensure that clients are receiving the most appropriate advice for their situation." (Morningstar Advisor)
[Opinion] Tax Court Ruling and IRS Rollover Guidance Don't Add Up
"The ability to execute IRA rollovers on a one-per-IRA basis has been described in detail in IRS Publication 590, Individual Retirement Arrangements (IRAs), for at least 20 years, that evidence readily available even now at the IRS's own web site. It is not conveyed in a mere statement, but in detailed examples provided to explain the sometimes-misunderstood rollover limitations.... [H]ow can this agency have spent uncounted taxpayer dollars over the life of this publication -- a publication that now runs to 114 pages -- for us to be told that its contents cannot be relied on by taxpayers? Are we not to take seriously the description on the cover that flatly says 'For use in preparing 2013 returns?'" [Bobrow v. Commissioner, T.C. Memo. 2014-21 (Jan. 28, 2014)] (Todd Berghuis for Ascensus)
Roll Over, Bobrow: Surprising Tax Court Decision on IRA Rollover Rules
"The court's holding ... conflicts with the commonly held view that the 12-month limit only applies to rollovers from the same IRA -- a position that is specifically endorsed in Publication 590. While IRS publications are not binding on and are generally not given meaningful weight by courts, the IRS does not usually take litigation positions in conflict with its published materials. It is not clear at this time whether the IRS will revise the publication or otherwise issue guidance articulating its position regarding the 12-month rule." [Bobrow v. Commissioner, T.C. Memo. 2014-21 (Jan. 28, 2014)] (Sutherland)
Trusteed IRAs Have Significant Advantages Over a 'Custodial' IRA, But They Come at a Cost
"The most obvious advantage of the trusteed IRA is the ability to control beneficiaries' access to the account after the IRA owner's death without the worries of trying to name a 'see-through trust' as beneficiary of the IRA. A trusteed IRA is itself a trust; therefore it can restrict beneficiaries' access to the funds even after the owner's death, provided the beneficiary receives the minimum distribution each year." (Natalie Choate in Morningstar Advisor)
Even a Tax Lawyer Can Get the IRA Rollover Rules Wrong
"The tax lawyer claimed that the 12 month rule should apply separately to each IRA. The IRS countered that all IRAs should be treated as a single IRA for this purpose and the tax court agreed. Therefore, the lawyer had to include in income the amount of the second rollover distribution since it was not a proper rollover.... Because the amount of the failed rollover exceeded 10% of the lawyer's gross income for the year, the lawyer was also subject to a substantial underpayment penalty of 20% of the amount involved.... Although not mentioned in the court's opinion, in its Publication 590, Individual Retirement Arrangements for use in preparing 2013 tax returns, the IRS embraces the tax lawyer's position[.]" (Stinson Leonard Street)
Tax Court Takes Restrictive View of One Year Limitation on Indirect IRA Rollovers (PDF)
"The Tax Court simply held that the first distribution ... was a tax-free indirect rollover, but as the second distribution was made within a year of the first, it was a taxable distribution ... The court did not consider any [prior IRS] 'guidance' -- nor did it review the private letter rulings in this area that similarly support a per-IRA interpretation. Instead, it focused on the plain language of the statute and the broad legislative history intended to limit repeated shifting of nontaxable income in and out of retirement accounts." [Bobrow v. Comm'r, T.C. Memo. 2014-21 (Jan. 28, 2014)] (Groom Law Group)
Overall IRA Withdrawal Rates Follow RMD Rule Rates
"Just over 16 percent of traditional and Roth IRA accounts had a withdrawal in 2011, including 20.5 percent of traditional accounts. This percentage was largely driven by activity among traditional IRAs owned by individuals ages 70-1/2 or older where the individuals were required to make withdrawals from their tax-qualified accounts. Looking at accounts that have both a withdrawal and a rollover ... nearly a third (29.5 percent) of those having both a rollover and a withdrawal took a withdrawal at least equal to that of the rollover." (Employee Benefit Research Institute [EBRI])
Single Payment Immediate Annuity with Fixed Benefit Payments Funded by IRA Rollover Was Exempt in Bankruptcy
"The annuity here had a single, fixed premium. The trustee contended that, since the annuity does not require yearly contributions by the debtor, who was of retirement age when the annuity was purchased, the rollover made the entire amount of the funds nonqualified. The bankruptcy appellate panel disagreed, finding that 'commentators, legal forms based on the statute, and the IRA Agreement here all interpret the statute contrary to the Trustee's position.'" [Running v. Miller, No. 13-6026 (B.A.P. 8th Cir. Nov. 2013)] (Wolters Kluwer Law & Business)
[Opinion] MyRA: The Administration Uses Disintermediation to Answer FSI's and SIFMA's Whining
"Investors in these accounts will see years when the stock market soars, yet their returns are very low.... And, when investors accumulate $15,000 in the accounts and are forced, by current regulations, to roll the account over into a Roth IRA, they will likely scream. Why abandon an account which apparently has no annual fee and an extremely low annual expense ratio? It won't be long before the MyRA account limit is raised substantially, or limits are removed completely. In essence, financial services disintermediation takes place. And it will continue to take place, now that the door has been opened. This may be the beginning of the end of defined contribution plan and IRA accounts managed by private financial services firms." (Ron Rhoades)
[Opinion] Hopefully MyRA's Ends Will Justify Its Unprecedented Means
"[It] remains to be seen whether this pilot program really IS different enough -- and sufficiently needed -- to serve a genuine purpose as a missing link in the retirement saving chain.... An executive order ... will be lacking in scrutiny and debate, [have] little opportunity for refinement, and [have] no history to help in its interpretation and execution. The extensive body of U.S. retirement plan law and regulations did not have origins as a state-of-the-union surprise. As imperfect as this body of law might be, it can never be characterized as arbitrary, unilateral, or as legislating by decree." (Todd Berghuis for Ascensus)
Retirees' Untapped Tax-Deferred Savings Face Big Hit
"At 59 1/2 years, account owners can start taking out money with no tax penalty. At 70 1/2, they must withdraw a minimum amount each year. But in the years between these milestones, many are in a low tax bracket that allows them to take money from a tax-deferred account relatively painlessly. The goal of creative planning is to keep the account from getting so big that it becomes a tax burden later on, and to build wealth outside of it." (The Wall Street Journal; subscription may be required)
[Guidance Overview] FINRA and SEC to Focus on IRA Rollover Practices in 2014
"The issuance of Notice 13-45 and the inclusion of IRA rollovers as examination priorities, along with the recent GAO report ... are consistent with the trend toward increasing regulatory scrutiny of the IRA market. IRA rollovers are also receiving attention from the DOL, which indicated in its comments to the GAO report that its pending project to revise its regulation on the definition of a 'fiduciary' may address many of the GAO's concerns. Because IRA rollovers will likely increase as more Americans reach retirement age, we can expect further regulatory activity in this area-including possibly from the IRS." (Morgan Lewis)
Should a 401(k)-to-Roth Conversion Be in Your Future?
"[M]ost investors will want to consider converting their Traditional IRAs before mulling an in-plan 401(k) conversion.... Roth 401(k) assets, unlike Roth IRA assets, are subject to required minimum distributions ... [U]nless 401(k) investors are otherwise eligible to take a distribution from the account ... they cannot raid their 401(k)s to pay the taxes due; they must have external assets on hand to pay the taxes.... If an IRA conversion turns out to have been a bad idea -- for example, the converter doesn't have the money to pay the taxes due or paid more taxes than he needed to because the account subsequently dropped in value -- the IRA can be recharacterized, or converted back to Traditional.... [T]he recharacterization option is unavailable for a 401(k)." (Morningstar)
Low-Minimum Funds Well-Suited as myRA Alternatives
"[F]or those who lack an employer-sponsored retirement plan but who have a bit more to save right off the bat, opening a Roth IRA may, in fact, be a better choice. That's because a Roth IRA can hold a much wider variety of securities and other investment types, with the potential for much greater returns over time.... As opposed to the 2% or 3% annual growth one might see with the myRA, with a Roth IRA invested heavily in equities one might reasonably expect to see annual gains in the high single digits or higher during long periods of time." (Morningstar)
Text of 'Sample Article' Provided by IRS for Organizations and Employers: 'Roth Account in Your Retirement Plan' (PDF)
A one-page overview of Roth accounts in 401(k), 403(b) and 457(b) plans, including links to relevant IRS publications and web pages. (Internal Revenue Service)
Tax Court Takes Restrictive View of One-IRA-Rollover-Per-Year Rule
"[T]he Tax Court ruled that each taxpayer is limited to one IRA distribution eligible for rollover per 12-month period, regardless of the number of IRAs the taxpayer may have.... [IRS] Publication 590 clearly states that each IRA owned by a taxpayer (not including beneficiary IRAs) is entitled to one rollover-eligible distribution per 12-month period. The Tax Court's ruling also conflicts with previous oral guidance from the IRS, and with language in many document provider's ... model-based and prototype IRA document disclosure statements." [Bobrow v. Commissioner, T.C. Memo. 2014-21 (Jan. 28, 2014)] (Ascensus)

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