BPickerCPA

Taxwoman, This is a tough question. My understanding is that if the trust document itself mandates the split into separate trusts, one for each bene, then each trust uses that bene's life expectancy. Otherwise, it's considered one trust and you go with the oldest bene's LE.

The penalty is 6% of the excess, if not removed by 10/15 of the following year.

Earl, If the IRS told you that you have to pay the 10% on a withdrawal of your contribution (not a converted amount), they are flat out wrong. There is nothing in Pub 590 that states otherwise. The rep simply did not know what he was talking about. Barry

You would not have any guidance from the IRS on this, because this is not a tax law matter. The truth is, the IRS does not care who gets it as long as the recipient pays tax on it. The issue of who it belongs to is a matter of property law which is a state issue. It's just a matter that upon death, the asset goes to the named beneficiary, if there is one.

Once the decedent dies, the IRA belongs to the named beneficiary of the account. If a distribution has to be taken because the decedent was past age 70½ and had not taken the distribution prior to death, that distribution is still part of the account and is therefore still the property of the named beneficiary. It does NOT belong to the estate. The spouse can roll over the balance of the IRA to her own IRA account, but cannot roll over the required distribution. Barry

Sure, as long as you meet the income limitations for conversions.

You can only put the $4,000 back within 60 days of the withdrawal. After that you would be limited to only contributing the annual $2,000. You can withdraw money and put it back within 60 days only once within any 12 month period.

You will be able to roll the combined IRA into a new company's 401k, if that 401k permits it. They don't have to. As of 2002, you can roll ANY IRA into a 401k, again, if that 401k permits it.

1. You can combine the two rollover IRAs. 2. You can combine the two Roth IRA accounts. Starting in 2002, there would be no reason why one could not combine rollover IRAs with regular IRAs.

If you terminate your Roth at this time, you can remove $2,000 without penalty since that represents your annual contribution. Anything above that will be subject to the 10% penalty. You may be entitled to an itemized deduction for the decline in value. This assumes that what you mentioned is the sum total of all roth contributions and conversions, and you completely terminate your roth account.

Without seeing the form, I have no idea what it says. My question for you is whether you are talking about a tax penalty, or a penalty on the investment from the broker? There is no tax penalty for withdrawing your own contributions from a Roth. Nothing on the form will change this, so don't worry about the form. You should be able to ask someone at the broker for guidance. Barry

The problem was not that the IRA proceeds were not rolled over within the applicable time period. In fact they were. The problem was that the spouse died before completing the rollover, and the Service ruled that the executrix could not complete the rollover.

Re: #3. You can only use that method when the death occurs after the age 70½ required beginning date. You said the decedent died at age 61, so you're stuck with the 5 year rule.

1. The IRA will go through probate. 2. The IRA will be paid to the estate and then paid by the estate in accordance with the will. 3. You're stuck with the 5 year rule since there is no designated beneficiary.

Fred, You can find the info in Pub 590. Taxwoman, You can't deduct losses in your IRA, but if you terminate an IRA in which you have basis (non deductible contributions in a traditional; conversions and contributions in a Roth), and receive less than the basis, you may take the loss as a miscellaneous itemized deduction subject to the 2% threshhold.

Richard, When the check was written to the son, that constituted a complete withdrawal of the account. His deposit into a new IRA is completely ILLEGAL, since rollovers are not allowed. The titling of the new account is IRRELEVANT, because the son did not do a trustee to trustee transfer, which is the only way a beneficiary can move an account from one custodian to another. The son has to (a) pay tax on the entire amount of the withdrawal check, and (B) remove all the money from the rollover account, paying tax on any balance above and beyond the amount deposited into the account. Failure to take the money out will result in a 6% penalty. The income on the withdrawal is reported in any event.

The client's attorney should be able to research this and come to the right answer. If he/she cannot do this, I'd question what else is being done incorrectly. Just my opinion.

Bruce, I have to believe that the Roth income counts towards the $200,000, but keep in mind it's the income from the most recent year that you use for the purpose of the PLR fee, not the income from the year in question. In this case, the previous year is 2000 and the conversion was done in 1999. The other wrinkle is that if the PLR is successful, then there is no conversion income (or actually distribution income, since the conversion does not exist in any event).

The fee to the IRS for this type of PLR is $600 if income for the last year is not over $200,000. IF the income is higher, the IRS fee is $2,250. There is, of course, the professional fee if one chooses to use for to prepare the PLR request. Since the requests are very technical, I think one should use the services of a pro who has done these. But then again, one of the PLRs issued on late recharacterizations was one that I obtained for a client, so my thinking may be biased. The ruling requests under Reg Sec 301.9100 are solely within the discretion of the IRS. It is different than, for example, a ruling on a substantially equal payment program from an IRA. Such a payment program must meet legal requirements of Sec 72(t), but you can always argue later than it did. So if you don't want the comfort of getting an IRS blessing ahead of time, that's up to you. With 301.9100, it's not OK until the IRS says it's OK. In fact, it is my understanding that most custodians won't do a late recharacterization unless you can show them the IRS ruling giving the taxpayer specific permission. My advise is that if the IRA is big enough, go for the ruling. If the IRA is relatively small, take the tax hit on the improper conversion and go forward from there. In any event, I wouldn't wait for the IRS to come after you.

I can't cite you chapter and verse, but whose ID # does the entity challenging you think it should go under? It can't be the decedent's SS#, because the decedent never received it, and his tax year ceases upon his death. It can't be the decedent's estate's ID#, since that entity is not the recipient of the distribution. The basic tax law is that the recipient of the income is the one who must pay tax on it, and that's that spouse. It therefore follows that it's the spouse's ID# under which it should be reported. If it's the IRA custodian who is giving you the problem, speak to a supervisor.

Assuming this is your only Roth account, not only can you pull out the balance with no tax or penalty, but you can take a miscellaneous itemized deduction for the account loss.

If you are talking about withdrawing the $2,000 per year contributions, those can be withdrawn at any time, for any purpose, without tax or penalty.

Bruce, I have not seen a transcript of the hearing. I recall that for the Roth regs hearing, my on-line service had a transcript, but I don't recall the time frame. However, from what I've seen, most of those testifying came from the custodian side of the ledger, and they appear to object to additional burden that the reporting requirements would place on them. There are some legitimate questions, such as dealing with outstanding rollovers. I think most of the other issues, such as gap-year death of beneficiary, were raised in comment letters.

Franky is correct. Penalties only apply to withdrawal of earnings, once five years has passed since the conversion.

The IRS decides. The law says that (1) all of your IRAs are deemed to be one account (even if you have, for example, physically segregated this account from an IRA rolled over from an employer), and (2) every withdrawal is considered a portion of the non deductible contribution and a portion of the taxable portion of the IRA. Example: You've contributed $22,000, non-deductible and that account is worth $32,000. You also have a rollover IRA of $188,000. Since the total of the IRAs is $220,000, your basis of $22,000 represents 10% of the balance, so 10% of each withdrawal is not taxable, and 90% is taxable. See form 8606.