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You track the two separate five year periods. You need to understand the ordering rules for withdrawals. If you withdraw the conversion within the five year conversion penalty period, then you have to deal with that.

You can do it, there are no drawbacks.

Schwab doesn't know what the heck they're talking about. Go up the chain and talk to higher people. Tell them that if they refuse the deposit you will hold them responsible for the consequences. You have every right to correct the error of withholding be replacing the funds within 60 days with outside money. Shheeesh!

No such thing as a hardship withdrawal. You can withdraw at any time. Your withdrawal of contributions has no tax consequence. Withdrawal of earnings is subject to tax and 10% penalty. Exceptions may apply to the penalty.

Withholding is NOT manditory on IRA distributions, unless you are subject to backup withholding. The withholding rules apply to qualified plans only.

If the IRA specialist told you this, she isn't much of a specialist. The rule is that if you recharacterize a conversion, you cannot reconvert those same funds until the LATER of the year after the YEAAR OF THE CONVERSION, or the 31st day after the recharacterization. Since the conversion occurred in 2000, you are already in the year after the year of the conversion. So now you only have to meet the 31st day after the recharacterization rule. If you recharacterize in January, you can reconvert as early as February. Barry

According to the people I spoke to in Washington, the old rules for estates and trusts and spousal rollovers still apply. Which still means plenty of work for us to get PLRs for people who for reasons that boggle the mind leave IRAs to trusts and estates instead of directly to the spouse.

There was a PLR a few weeks ago that permitted each bene to use their own LE when the accounts were split after death. So that logic means that you don't have to go to the "new rule" to get that result. There are a few open areas of question, and we may have to wait for the final regs to get the answers.

While you cannot legally cite the PLR, you can always cite the argument IN the PLR that the IRS used in granting the PLR. The regs won't be applied retroactively, so that shouldn't be a concern. Barry

NO!

PLR's have no precedential value, so a regulation can be issued that will contradict previous PLR's. There are two possibilities here. I'm not sure which one applies, and we may have to wait for the final regs to find out. One is that the IRS was tired of the letter ruling requests and they just set a hard and fast rule, i.e. if you want a spousal rollover, name your spouse, and don't bother us with your trusts and estate beneficiaries. The second is that the period between death and the following year end is the time to correct anything. If you can get the IRA money to the spouse in that time, she/he can do a rollover into their own IRA, and that's it. But if you miss the deadline, forget it. Of course, there could be a third possibility that I've missed altogether. Barry

The above is NOT correct. If you take EARNINGS prior to age 59½, you WILL pay income tax on the earnings, and you WILL pay the 10% penalty, unless an exception applies. The only way not to pay income tax prior to age 59½ is a withdrawal on account of death, disability or for a first time home purchase. Barry

In a recent PLR, the IRS permitted the beneficiary of an IRA, duly named as of the RBD, to take distributions over their own life expectancy even though the IRA holder elected single life recalculation. In this particular ruling, the custodian's internal policy was to pay out such an IRA in the year after death. In other words, the custodian's policy was more restrictive than the law. What was interesting in this ruling was that the IRS said it was OK for the bene to do a trustee to trustee transfer to another custodian, who had more liberal rules. Barry

The last I heard on the 1998 recharacterizations is the middle of January. This keeps getting pushed back. I have a few requests outstanding so when I hear I will post the results. They should be favorable, or so I've been told.

The custodial agreement trumps the law. If the custodian insists that the IRA be terminated after the beneficiary's death, then the IRA has to be terminated. The IRS rules have ALWAYS permitted the IRA to be stretched over the beneficiary's life, even if the bene dies sooner. The "new" PLR (already over a year old) only states that the bene can name a new bene directly, rather than having the IRA go through the bene's estate. As for "Stretchout" IRA, it's nothing new, but it's getting more play now and someone gave it a nice name. Bottom line, no new ground has been broken.

You cannot gift an IRA. IF they withdraw their Roth IRA earnings and gift the proceeds they will be taxed and subject to the 10% early withdrawal tax on the Roth IRA earning.

Not really. Distributions have to start in the year after the rollover, and the rollover should be to a brand new IRA, not an existing one.

I have an article on my web site on Notice 2000-39 that may be helpful. Barry

John, That's exactly what I'm stating. Let's say that $20,000 was converted in 1998, and now the entire account is worth $2,000, in December, 2000. If taxpayer pulls out the $2,000 in 2000 and terminates the account (all Roths are aggregated so you can't just terminate one account if you have another), the taxpayer still has to report the $5,000 of 25% of the conversion income PLUS the acceleration of having withdrawn $2,000. Next year, the taxpayer still has to report the remaining $3,000 of conversion income ($5,000 less $2,000 acceleration). In addition, the taxpayer owes the 10% penalty on $2,000. But the taxpayer has an itemized deduction for $18,000, subject to 2% AGI limitation, and subject to AMT. Barry

From Publication 590: "Recognizing Losses on IRA Investments If you have a loss on your traditional IRA investment, you can recognize the loss on your income tax return, but only when all the amounts in all your traditional IRA accounts have been distributed to you and the total distributions are less than your unrecovered basis, if any. Your basis is the total amount of the nondeductible contributions in your traditional IRAs. You claim the loss as a miscellaneous itemized deduction, subject to the 2% limit, on Schedule A, Form 1040." Roth rules are the same as traditional IRAs except if specifically stated to be different in the law. I know of no specific part of the law stating that losses in Roths would be treated differently.

Upon termination of a Roth IRA where the total withdrawal is less than the tax basis, there is a loss which is taken on schedule as a 2% itemized deduction. In the case of a 1998 conversion you still have to report the income for years 2000 and 2001.

The wife should have made sure that the MRD was taken from the 401(k) before it was rolled over into her own IRA. Otherwise she has an excess contribution to an IRA since a required distribution is not eligible for a rollover. Having rolled it over and then died prior to the new required beginning date for the rollover IRA (which I'm assuming was rolled into a brand new IRA, not her existing one), the daughter takes distributions based upon death prior to the RBD, which means five year rule unless she takes a distribution in 2001 and thus elects into the lifetime payout. Barry

The "at least as rapidly rule" does not apply because that only applies to beneficiaries. If you look at sec 401(a)(9) you will see that the spouse is not defined as a "beneficiary". In addition, it is now HER IRA so that whatever happened when it was the husband's IRA is totally irrelevant. She can and SHOULD name new beneficiaries and should start her distributions based upon the joint life subject to MDIB. The preceding is based upon her rolling his IRA into a brand new IRA, not her existing one. If she rolled it into her existing one, all bets are off. However, even in that case there was a PLR that permitted the spouse who made this mistake to correct it.

It generally is based upon the date of death. All the cites you need are in the prop regs under section 401(a)(9), as well as that code section. Good luck.

Ultimately it's your responsibility. That does not mean that the custodian won't do it, or that you can't ask your CPA for assistance. I strongly suggest you get the assistance of a pro with extensive knowledge in this area, to make sure that it is done correctly.