BPickerCPA

The MDIB rules, which effectively assumes a non spouse beneficiary to be 10 years younger, do not apply after death. Therefore, a grandchild could use their own actual age to compute after death distributions. That's how you "stretch" the IRA. Barry

Bill, Thanks for the analysis. Barry

[[Another problem with a contribution that exceeds the $2,000 limit is that the excess is also subject to income tax when withdrawn after the tax return due date.]] I'm not sure that's true with Roth money. Why do you think it is? Barry

I hear this question often. Here are the issues. The first issue is that the plan is not permitted to take the $10K contribution. The plan document itself must limit contributions to $2K per year. The main issue is that the net income attributable to an excess contribution can NEVER be a qualified distribution, meaning it will NEVER be tax free. So you have accomplished nothing. As a side note, the IRS would have the right to declare the entire account invalid as a Roth, by virtue of the fact that it was not treated in accordance with the law. All in all, it's not worth it. Barry

You have to include ALL IRAs in the calculation. If you move the rollover IRA back to a 401k, it looks to me like you will save the tax. BArry

The fact that you checked the wrong box really is not a problem. Keep the paper work, and if the IRS questions it just show them that the second deposit occured in year 2000 and you wish to have that considered as a year 2000 Roth contribution. Don't sweat it. Barry

To add to Gary's reply, I strongly suggest you have all the documents reviewed by a competent pro who understands IRAs and PLR that Gary cited as well as other relevant PLRs. You may need to go get your own IRS ruling.

Assuming you are converting 100% of your IRA dollars, you will pay tax on the total value converted less any basis arising from non deductible contributions to the traditional IRA. If you are converting LESS THAN 100% of your IRA dollars, then the basis from non deductible contributions has to be allocated between the amount converted and the amount not converted. Form 8606 would handle the workings of the calculation. You can get Roth info at http://www.rothira.com. [Edited by BPickerCPA on 09-15-2000 at 09:26 AM]

David, As far as I am concerned, the answer is #2. I had a running battle with a software program that was computing the divisor based upon the first method, but I finally got them to admit that they are wrong and change the program. MDIB has nothing to do with the recalculation/term certain election. The rule in the regs is that you first determine your divisor using the actual age of the beneficiary and the method chosen at age 70½. You then compare that divisor with the divisor in the MDIB table for the attained age of the IRA holder, and use the smaller divisor. It is possible that an IRA holder will start off using the MDIB table, but in a later year the actual life expectancy divisor will be the smaller number, in which case the MDIB divisor would NOT be used. Barry

It sounds like you are talking about the NUA on company stock in a 401k. If you take the stock out as part of a lump sum distribution, you pay tax on the cost basis at the time of withdrawal and then pay cap gains on the appreciation when you sell it. You cannot roll this stock into an IRA. As for any other stock that is in the 401k, if you take it out you will pay tax on the value at the time of the withdrawal. Again, you cannot roll it into an IRA. You cannot roll anything directly from a 401k to a Roth IRA. You can do a trustee to trustee transfer of the stock in a 401k to a traditional IRA, and, if eligible, then convert the same stock into a Roth IRA. You will pay tax on the value at the time it leaves the traditional IRA for the Roth. Barry

There is no such thing as a special IRA living trust. The question of whether you have to take an inherited IRA over five years, one year, or the life expectancy of the oldest beneficiary is based upon a number of factors including when the decedent dies. If a trust is the beneficiary, then the trust has to be written in a way that it qualifies the oldest trust beneficiary to be a designated beneficiary. Things sound a little confused in your question. Barry

1) You can take your annual contributions out at any time without tax and without penalty, for any purpose. 2) If you withdraw income prior to age 59½ you will owe income tax except if the account is over 5 years old AND it's on account of death, disability or first time home purchase (lifetime limit of $10K). Other withdrawals will be subject to income tax but not 10% early withdrawal tax IF it meets an exception to that tax. Otherwise it's subject to that tax also.

When an individual in required pay status dies during the year prior to taking that year's required distribution, the beneficiary should take the decedent's required distribution. This should be done prior to doing any rollover. Note that the distribution is the amount that the decedent should have taken, but it belongs to the named beneficiary, not the decedent's estate. Barry

The other modifications have nothing to do with passive losses that are suspended. The area where the passive rules would come into play involve active real estate where the taxpayer could use the loss if there was no roth conversion, but loses the ability to deduct the loss currently once the roth income is added. In that case the AGI FOR CONVERSION PURPOSES ONLY includes the real estate loss that would have been allowed if the conversion had not been made. Barry

In your case you would look to see what your AGI would be on the tax return, if you did not do a conversion. If that is $100K or less, you can convert. In your example, you don't state whether the passive loss is deductible for some reason, or suspended. If suspended, you cannot convert to a Roth. Barry

The after tax money can never be rolled into an IRA. Any type, any time. Only the taxable portion of a distribution is eligible for rollover. IN addition, you can never go directly from a 401k into a Roth. You have to put it into a traditional IRA first and then convert it. Barry

The after tax money can never be rolled into an IRA. So even if you can take the distribution (which is questionable), you can't roll it over.

Nope!

You can only start a Roth if your individual income is under $10,000. Your income would need to be zero to fully fund a Roth. For MFS filers, the phase out range for Roth contributions is $0 to $10K.

Since the decedent died, all of the tax should be paid on the conversion. If any converted amount is withdrawn, there is no tax, and no penalty. If earnings are withdrawn, they will be taxed.

You may want to do it just to see how you're doing, but there is no tax reason to do so. ------------------ Barry Picker, CPA/PFS, CFP New York, NY www.BPickerCPA.com

I truly hope that no one would invest based upon an internet solicitation. ------------------ Barry Picker, CPA/PFS, CFP New York, NY www.BPickerCPA.com

As long as the beneficiaries are named as of the required beginning date, then IRA distributions can continue over a period that will approximate the actuarial life expectancy of the oldest beneficiary. You should look into life insurance to make sure that the IRA does not have to be liquidated to pay the estate tax. ------------------ Barry Picker, CPA/PFS, CFP New York, NY www.BPickerCPA.com

Estates are tax inclusive. That means you are paying estate taxes on the money used to pay estate taxes. With an estate that large, and in IRAs, you should be seeking out a competent IRA planner/estate planner. The fee will be small compared to the savings a competent planner can effect. ------------------ Barry Picker, CPA/PFS, CFP New York, NY www.BPickerCPA.com

Depending on the beneficiary designations, the estate may have no right to this income. If for some reason of poor planning it does, the estate can always make a distribution. Don't forget the IRD deduction. ------------------ Barry Picker, CPA/PFS, CFP New York, NY www.BPickerCPA.com