jevd

Year two's distribution is due by 12/31/2009 and all successive years by 12/31 of the year in question.

Maybe I can explain my point in a different way. If the IRA did not receive the warrants by either an arms length purchase or a rollover from another plan then how is there not value transferred when the warrants are exercised by the IRA at a price below current market value. The IRA has gained the benefit of the discount afforded by the warrants. The IRA is a separate entity from the IRA owner. As K2 stated above how does the IRA get the benefit of the use of the warrants without value being transferred to the IRA. GO back and Read Ancira HERE; ANCIRA There is no mention of Warrants, The IRA owner instructed that a check be drawn payable directly to the company under a subscription agreement, not a warrant (discount). The funds were paid directly to the company and transmitted by the account holder to the company and the stock issued in the name of the IRA. The courts ruled that the account owner was the conduit on behalf of the IRA and no distribution took place. I agree with that. There was no value transferred as there was no discount involved.

If there is no transfer of value, what is the point of the transfer? I find it hard to believe that the individual would go to the trouble unless there was some value -- which is exactly what would make it a prohibited transaction. That is my point exactly. Most of the time the warrant is allowing a purchase of the stock at a fixed price that is below the current market value. The difference in price is the value being transferred from the individual to the IRA. The individual is not transferring any value to the IRA because the IRA is purchasing the stock directly from the company as is permitted under the terms of the stock purchase agreement. If the purchase price is below market price then Value is transferred. Under what provision of 4975 is the individual transferring value to the IRA if the IRA is purchasing directly from the issuer? It is the implied value as stated above. The IRA account owner and the IRA account are separate entities. If the IRA account purchases the stock using the warrants owned by the account owner then there has been a defacto transfer of the ownership of the warrants between the account owner & the IRA account. The Account Owner has transferred (contributed) the warrants to the IRA account. A contribution (non-cash) or the IRA has purchased the warrants for zero value. Either way a transaction has taken place bewtween the entities. At the very least, there is an over contribution of the inkind contribution of the warrants. Before I would allow this type of transaction, I would require a PLR with a positive response from the IRS to be received by the client. Would anyone else out there just let this transaction go through without question?

If there is no transfer of value, what is the point of the transfer? I find it hard to believe that the individual would go to the trouble unless there was some value -- which is exactly what would make it a prohibited transaction. That is my point exactly. Most of the time the warrant is allowing a purchase of the stock at a fixed price that is below the current market value. The difference in price is the value being transferred from the individual to the IRA. The individual is not transferring any value to the IRA because the IRA is purchasing the stock directly from the company as is permitted under the terms of the stock purchase agreement. If the purchase price is below market price then Value is transferred.

If there is no transfer of value, what is the point of the transfer? I find it hard to believe that the individual would go to the trouble unless there was some value -- which is exactly what would make it a prohibited transaction. That is my point exactly. Most of the time the warrant is allowing a purchase of the stock at a fixed price that is below the current market value. The difference in price is the value being transferred from the individual to the IRA.

Just a note to Appleby's response with which I agree. The OP suggested a sale between the IRAs. If we are talking about a movement from the Traditional to the Roth as a conversion transaction, there is no sale as Appleby stated. It is merely the transfer of the assets in question from the Traditional IRA to the Roth with appropriate taxes being paid. No $ from the Roth are transferred to the Traditional.

As i stated in a previous post RMD MRD IT DRM ( Doesn't Really Matter)

MJB, I just ran across this post while doing some research on another subject. It may be too old for the original poster's benefit but we run across this situation on occaision. An IRA cannot exercise warrants it does not own. If the IRA owner owns warrants outside the IRA then he cannot contribute them to the IRA as cash contributions are required unless there is a rollover of qualified assets. The IRA owner cannot sell the warrants to his/her own IRA as that would be a PT and disqualify the IRA. That is not true in all cases. I have reviewed several subscription agreements which under SEC rules allowed an employee who has been issued warrants or options to purchase employer stock to transfer the rights to another family member or a trust that the employee controls. The employee assigns/transfers the warrants to the IRA which can then purchase the options at the strike price from cash in the IRA. You need to check the purchase agreement to see if the employee's stock purchase rights are transferrable to the IRA. Wouldn't that be a prohibited transaction under IRC 4975? Value is being transferred to the IRA by the Individual. It would be considered a non-cash contribution that is not a rollover in the amount of the value of the warrants at the time of the transaction. It may be allowed under the subscription agreement and the SEC but I think 4975 comes into play and at the very least a non-cash contribution.

MJB, I just ran across this post while doing some research on another subject. It may be too old for the original poster's benefit but we run across this situation on occaision. An IRA cannot exercise warrants it does not own. If the IRA owner owns warrants outside the IRA then he cannot contribute them to the IRA as cash contributions are required unless there is a rollover of qualified assets. The IRA owner cannot sell the warrants to his/her own IRA as that would be a PT and disqualify the IRA.

Larry, I agree. For those situations involving large numbers the individual should seek professional advice or possibly a PLR. In other situations where there is little tax impact, the conservative approach may cause less brain damage.

My only reply is that this is the "General Rule" and the regulations go on to explain requirements for distribution when death occurs before RBD. Thus the general rule would apply to all other situations except Death before RBD. ALso my response was addressing the OP and IRAs although it is my opinion that the same applies to qualified plans. That being said, unless there is a compelling reason not to take the distribution for the year of death before RBD, then I would err on the conservative side and have the beneficiary take it and avoid any question of underdistributions. Opinion only. Consult with your paid professional or if it makes sense request a PLR.

See reg 1.401(a)(9)-2 Q/A-2(a) and -3 Q/A-1(a). Also: The 1.401(a)(9) regs are written for Qualified Plans. The following is from 1.408-8 Applying the 1.401(a)(9) Regs to IRAs unless otherwise stated. The following questions and answers relate to the distribution rules for IRAs provided in sections 408(a)(6) and 408(b)(3). 10.1 Q-1. Is an IRA subject to the distribution rules provided in section 401(a)(9) for qualified plans? A-1. (a) Yes, an IRA is subject to the required minimum distribution rules provided in section 401(a)(9). In order to satisfy section 401(a)(9) for purposes of determining required minimum distributions for calendar years beginning on or after January 1, 2003, the rules of §§1.401(a)(9)-1 through 1.401(a)(9)-9 and 1.401(a)(9)-6T for defined contribution plans must be applied, except as otherwise provided in this section. For example, whether the 5-year rule or the life expectancy rule applies to distributions after death occurring before the IRA owner's required beginning date is determined in accordance with §1.401(a)(9)-3 and the rules of §1.401(a)(9)-4 apply for purposes of determining an IRA owner's designated beneficiary. Similarly, the amount of the minimum distribution required for each calendar year from an individual account is determined in accordance with §1.401(a)(9)-5. For purposes of this section, the term IRA means an individual retirement account or annuity described in section 408(a) or (b). The IRA owner is the individual for whom an IRA is originally established by contributions for the benefit of that individual and that individual's beneficiaries.[191] (b) For purposes of applying the required minimum distribution rules in §§1.401(a)(9)-1 through 1.401(a)(9)-9 and 1.401(a)(9)-6T for qualified plans, the IRA trustee, custodian, or issuer is treated as the plan administrator, and the IRA owner is substituted for the employee.[192] © See A-14 and A-15 of §1.408A-6 for rules under section 401(a)(9) that apply to a Roth IRA.

Here is that complete section: (b) Distribution calendar year. A calendar year for which a minimum distribution is required is a distribution calendar year. If an employee's required beginning date is April 1 of the calendar year following the calendar year in which the employee attains age 70½ , the employee's first distribution calendar year is the year the employee attains age 70½. If an employee's required beginning date is April 1 of the calendar year following the calendar year in which the employee retires, the employee's first distribution calendar year is the calendar year in which the employee retires. In the case of distributions to be made in accordance with the life expectancy rule in §1.401(a)(9)-3 and in section 401(a)(9)(B)(iii) and (iv), the first distribution calendar year is the calendar year containing the date described in A-3(a) or A-3(b) of §1.401(a)(9)-3, whichever is applicable. Emphasis added. This section shifts the Required distribution to the Beneficiary to the year following death.

Their is no cola for the IRA catch up contribution. It is set at $ 1000 now. Carol's website states IRA Contributions at 5,500/6,500 a 5.8% increase on $5,000 is only $290. Not enough for an increase in the contribution limit this year. See 219(b)(5)(A), (B) & (D) Carol has corrected her site.

Their is no cola for the IRA catch up contribution. It is set at $ 1000 now. Carol's website states IRA Contributions at 5,500/6,500 a 5.8% increase on $5,000 is only $290. Not enough for an increase in the contribution limit this year. See 219(b)(5)(A), (B) & (D)

Check Carol Calhoun's Website. See Link in Todays benefits link. Her chart shows an increase in IRA contribution limits but I don't see any increase in the IRS notice

Try changing your view to a smaller size. I have that problem on some sites when I increase the size of the text.

Once distributed to a non-spouse beneficiary no reversal (Rollover) is allowed. If it is a genuine mistake by the broker, there may be some tax liability but it seems that the executor of the estate leaped before looking and is now stuck with the income to the estate. Generally speaking estates need to be closed within a year unless special circumstances exist so I don't know if the estate could stretch out the payment over the life expectancy of the account owner (death after RBD) or 5 years (death before RBD). I'm not an expert in estate law but this is my general understanding.

The Bill passed within the last hour. Time to Amend IRA distribution forms again.

Oh Yes, and who was it that said "Don't store your treasures on earth."? Oh yes. It was the Lord. Enjoy the day and count your blessings.

I'm glad to see someone else is reading the fine print. I'm retiring in 10 years. I just hope the dust settles by then or I'll be standing in the breead lines with everyone else and my grand kids will be cursing us all for letting this happen.

With over a 100 Billion oops 100 Million in pork there'll be one heck of a BBQ if passed. what's 900 million when your talking these numbers. Its only a rounding error!!!

Section 205 of Title II of the bailout bill extends Qualified Charitable Distributions from IRAs at age 70 1/2 to 12/31/2009. That is, if it passes. Moved to correct forum

Deleted and moved to correct forum

Thanks for that chuckle, John. And just to emphasize a point... EGTRRA effectively eliminated the concept of "conduit" IRAs. The term "conduit IRA" can generally be left out of all contemporary discussions of rollovers aside from the words being part of the name of some IRA accounts established prior to EGTRRA. Although becoming a rare transaction these days, I believe a "Conduit IRA" is still used to preserve 10 year forward averaging for those individuals born 1/1/36 and prior to segregate assets rolled over from Qualified Plans from other IRA funds to roll back to a subsequent Qualified Plan and take a Lump Sum Distribution.. This ability still exists as far as I know but as I said above, a rare circumstance.