BPickerCPA

As an aside, your wife's social security number should now be on the account, not the decedent's. ------------------ Barry Picker, CPA/PFS, CFP New York, NY

In previous cases, the IRS extended the deadline prior to the expiration of the then existing deadline. So my guess is that 20 days after the deadline, no further extension is forthcoming from the IRS. As for Congress, the less about those bozos the better. It looks like your client is up the creek, pure and simple. Assuming he's under 59½, he's looking at paying 100% of the tax in '98, a 10% early withdrawal penalty, a 12% excess contribution penalty (2 years at 6% each year), and he no longer has a retirement account. Only Congress can come up with a law written in such a way as to so penalize a taxpayer. ------------------ Barry Picker, CPA/PFS, CFP New York, NY

John, Wouldn't the date of death also play a big part in the ultimate result? I tell estate planning clients that I can give them the perfect estate plan if they give me one piece of information. Their date of death. My friend Ed tells people at seminars that if they want to know that piece of information, he can arrange it through his friends at Mutual Of Brooklyn. What a sick bunch we are! ------------------ Barry Picker, CPA/PFS, CFP New York, NY

Yes you can. ------------------ Barry Picker, CPA/PFS, CFP New York, NY

Still no luck. ------------------ Barry Picker, CPA/PFS, CFP New York, NY

You can use the same Roth IRA account. ------------------ Barry Picker, CPA/PFS, CFP New York, NY

As long as she was a participant at ANY time during the year, she is considered an active participant in order to determine IRA deductibility. ------------------ Barry Picker, CPA/PFS, CFP New York, NY

[[Many thanks for your advice. I would have replied sooner but was busy following your advice. The custodian did indeed have a cutoff date before year-end. Moreover, it converted the wrong amount, and I had to get it to correct the amount before year-end.]] You gotta love those custodians!

Q1: You cannot contribute anything but cash to any type of IRA (except for a qualified rollover), so the question is moot. Q2: The IRA cannot accept more than $2K, even if you're willing to pay the penalty.

You can either withdraw any excess, or recharacterize it so that it will be considered a contribution to a traditional IRA.

If you use form 4972 so that the income is NOT on the form 1040, then it does not count for AGI purposes and you can still do a conversion. Since it's too late to now do a 1999 conversion, hopefully it's already done.

There is NO estimated tax exception for roth conversions. You will have to meet one of the exceptions including the roth conversion income.

[[in this high wealth scenario, about 1/2 of the conversion tax cost is offset by reduced inheritance taxes. This a fundamental element of the scenario. For the Roth to be a bad idea, the IRA withdrawal tax rate in the no conversion case must be less than 1/2 the tax rate applicable for conversion taxes.]] I have to disagree with this statement because it appears to ignore the income tax deduction for the estate tax on the IRA. The advantage of a roth conversion to a high net worth client, is really limited to the state death tax paid. No small potatoes, but not the 50% you stated.

The answer is no. You can't even do an amended return for '98 to change the election.

As long as the beneficiary starts minimum distributions by 12/31 of the year after the year of the account holder's death, minimum distributions are based upon the beneficiary's life expectancy as of the first distribution year, then reduced by one each subsequent year. This will override the five year rule.

First of all, it is not enough that the taxpayer be married, the spouse must be the designated beneficiary as of the required beginning date. Even assuming that the spouse is, this is a gray area. The IRS has never dealt with this question directly, but in PLRs have hinted at an answer, in a case where a taxpayer has elected single life payout even though a joint life payout was available. Unfortunately, in cases where the answer has been hinted, it hasn't been consistent. One PLR made it sound like the taxpayer himself was stuck with single life, another made it sound like he wasn't. These are my interpretations, so take it for what (not much) it's worth. The suggestion from here is that you take the RMD from the second IRA as if it stood on its own. Your other alternative is to get your own ruling. While that could run into money, at least then I'LL have an answer for next time!

John's point about earned income and AGI is well taken, but I assumed that there was a loss on Schedule C and therefore no earned income. Also, the original post mentioned that the Roth was put in in early 1998, so it could not be designated as a 1999 contribution.

An excess contribution to an IRA has to be corrected by the due date of the return. Failure to do so results in a 6% penalty FOR EACH YEAR until the excess contribution is removed. So if you don't get it out by Friday, you'll have another 6% penalty to pay. You "make believe it never happened" at your own risk. Not recommended.

It sounds like you're confusing something. A beneficiary must take minimum distributions and there is no penalty even if the beneficiary is under 59½. As long as the minimum is taken out each year, you can do whatever you want (take it out or leave it in) with the rest.

If you close a Roth for less than your contributions, you CAN take the loss. According to the instructions, it's an itemized deduction subject to the 2% limitation.

The most that can go into all IRAs, total, for a year is $2K. If $1,500 is already deposited, then only another $500 can go into a Roth.

You need to act before the due date of your tax return. Your options are to either recharacterize the contribution into a traditional IRA, or to remove it from the Roth as an excess contribution.

You cannot do a conversion if your income is over $100K. However, you don't want to do a conversion, what you want to do is a RECHARACTERIZATION of your contribution so that it is as if you contributed it directly to a Roth IRA. You can do this if you are eligible to make a Roth conversion. If you file a joint return and have income under $150K, you are. Get your custodian to do the recharacterization. However don't be surprised if they are unfamiliar with this.

A couple of points to add to John G's message. One is that if the custodian cannot get the conversion done, and the account is fairly liquid, you can get a check from the custodian in '99, and you have 60 days to then put it into the Roth. It will count as a '99 conversion as long as the money is OUT of the traditional IRA in '99. However BE CAREFUL that the money then goes directly into a Roth. Last year, Schwab erroneously told customers that the money had to go back into a traditional IRA and then be converted. That would blow the whole deal. The second point is that if you are unsure whether or not to do the conversion, GO AHEAD AND DO IT. You then have until 10/15/2000 to change your mind. In effect, if you do the conversion now you have until 10/15/2000 to decide if you want it. If you don't do the conversion, you ability to make the decision ends on 12/31/99.

[[but from this exercise, I assume that there have been a few, some or many Roth conversions done that should not have been done and some may have been very expensive errors.]] Art, From my own experience reviewing people's conversions, I have to agree with you. But I have found far more people for whom a Roth conversion WAS advantageous, yet they were advised against it by advisors who were either too lazy or incompetent to weigh ALL the relevant factors, and due a proper analysis. For many people, it is now too late, and so they've lost a great opportunity.