BPickerCPA

You can still do another conversion for 1999, and if you need to, you can always recharacterize that conversion also. You can ALWAYS do a recharacterization. You will never be stuck in a conversion that is improper and causes penalties.

You really need to use a trust to legally insure that everyone's wishes will be followed. Even then there is no guarantee. If it's her IRA and he dies, she can always change the beneficiary and leave his kids out.

The income limitation is based upon the child's income, not the parents. As long as the child has earned income and the child's income is within the limits, the child can have a Roth IRA. Not all custodians will open an IRA for a minor. I know that Charles Schwab will.

Any person can disclaim any property. Nobody can force to take something you don't want. Many times disclaimers are an crucial part of estate planning. However one point to remember is that disclaimers have no effect on the payout schedule of the IRA, at least no GOOD effect. The disclaimer can never extend the payout period. However if the new beneficiary has a shorter life expectancy, it would then shorten it.

[[if the client elected not to recalculate as of the RBD, then the calculation is based on the joint life expectancy factor reduced by the number of intervening years. The life of the oldest beneficiary would not be used.]] The joint life expectancy is the joint life of the account holder and the OLDEST beneficiary. So while the life of the oldest beneficiary is not used, it is surely a factor!

[[Multiple beneficiaries of an IRA may use their own individual life expectancies in calculating their MRD, notwithstanding the fact that the IRA owner passed the IRA's RBD. See letter rulings: 1999-31048, 1999-26189, 1999-25572.]] Very interesting. Totally incorrect (or worse, bogus). PLR 199931048 specifically talks about a decedent who died BEFORE his RBD. The other 2 PLR's, 199926189 and 199925572, don't even exist. At this point in time, if the decedent was passed his RBD, multiple beneficiaries CANNOT use their own life expectancies to compute after death MRDs. You're stuck with the shortest life expectancy.

The issue is not whether he was taking distributions, but whether he was past Apr 1st of the year after he turned age 70½ (RBD). In other words, was he taking MANDATORY distributions. Assuming that he was, THERE IS NO FIVE YEAR RULE! That only applies to death before the required beginning date. Now you need to now if (A) the children were designated beneficiaries as of the RBD and (B) was the client recalculating his life expectancy. ASSUMING the children were the designated beneficiary and that the decedent was NOT recalculating, then the heirs can take the remaining balance of the IRA out based upon the life expectancy of the oldest beneficiary as of the required beginning date, reduced by the number of intervening years of distributions. So if, for example, at the RBD the oldest beneficiary's life expectancy was 40 years, and there have been 5 years of distributions since then, the beneficiaries have 35 years to remove the money. Remember that beneficiaries (non spouse) CANNOT do rollovers.

[[i would agree that a spouse beneficiary can roll the funds over into an IRA. However, the spouse beneficiary would need to roll the funds into her own IRA, the spouse could not roll the funds into a "beneficiary" IRA because she had constructive receipt of the funds from the decedent's IRA.]] According to Sec 408(d)(3), an inherited account, which is not eligible for rollover, excludes an account inherited by a spouse. It does not state that the spouse has to treat the account as her own. Therefore, a spouse can do a rollover and still be a beneficiary, at least according to my reading.

[[if there is only "one" 10% penalty, then which one is it? The one for taking the funds out before 5 years have passed? - or the one for being under 59 1/2 at the time of withdrawl? The lasst seminars I attended indicated that both penalties would apply. Which one do you think does not apply?]] There is a 10% penalty that applies to taking conversion dollars out of a roth within the first five years after the conversion. Any applicable exception applies to this penalty, including being over age 59½. There is also a 10% penalty for taking EARNINGS out of a roth prior to attaining age 59½. Again, any applicable exception applies. By definition, both penalties cannot apply to the same dollars, but since a withdrawal can consist in part of both types of dollars, both penalties can be applicable. For example, you convert $100K and then 3 years later when it is worth $115K, you empty the account. No exception applies. You will pay a 10% on the $100k of converted value withdrawn within 5 years, and you will pay income tax AND 10% penalty on the $15K of earnings, since you are under 59½. I am saddened, but not surprised, that wrong info is being given in seminars. I've heard too much of this.

By the way, if the withdrawal if for a qualified first time home purchase, and properly limited, then the 10% penalty is avoided even if withdrawn from the Roth. However, if the 4 year spread of income was elected, then the withdrawal will cause an acceleration.

[[secondly, the purpose of recharacterizing is to either back out of a conversion that was not allowed (income was too high or married people end up filing separately). Some people are using it if they find they can't afford the taxes on the conversion. However, if the conversion was proper and they can afford the taxes, there is no need to recharacterize.]] People are permitted to recharacterize for ANY reason. They MUST recharacterize if the original conversion is improper, but for a reason as simple as "I changed my mind", you can recharacterize. On other issues, I agree that there is only 1 10% penalty.

A spouse is the only beneficiary that can do a rollover, so it looks like you're ok.

Your assertion is correct.

You can use the 4 year income spread. The only issue for you is whether 1998 or 1999 counts as the first year for computing when the account is more than 5 years old.

It's not the youngest, it's that each beneficiary can use their OWN life expectancy, rather the life expectancy of the oldest. The ruling ONLY applies to where the IRA holder dies BEFORE the required beginning date. Not a recommended form of tax planning.

You cannot only convert the non deductible portion of a traditional IRA. Just like any other distribution, you need form 8606 to compute the taxable portion. All IRAs, even if you segregated the non deductible contributions are deemed to be one. So if you contributed $20K over 10 years, non deductible, and you $100K in all of your IRAs, then 1/5 of each withdrawal or Roth conversion, will be NON taxable, and the rest will be taxable. You can do partial conversions in any manner you want to spread the tax burden out, as long as you qualify each year that you make a conversion.

While John is essentially correct that the spousal rollover only applies if the spouse was a DESIGNATED BENEFICIARY, the IRS in private letter rulings has permitted the spouse to do a spousal rollover when (1) the estate was the beneficiary, (2) the spouse was the executrix, AND (3) the spouse is the only heir of the estate. Now while this may sound like "no harm, no foul" (the spouse got the rollover anyway), consider the cost of getting the PLR and how it could have simply been avoided by taking the time to write "MY SPOUSE" in the stupid beneficiary area of the IRA application. Makes you wonder where some people's heads are at. (GREAT English!!)

Mike, If I understand you, it sounds like you're doing things backwards. If you have a substantial gain in a Roth IRA, the LAST thing you want to do is recharacterize. Then the gain becomes taxable.

You can do a partial recharacterization. You need not recharacterize the entire account, but the computation can be difficult. I don't know what you mean by a unqualified distribution.

Re: Power of Appointment If the beneficiary can assign the benefits to another person while he is alive, that's a no no. But SOMEONE is going to get the benefits if the beneficiary dies. The only issue is whether that benefit is passed via will (where I haven't heard there being a problem) or via some other method of testamentary disposition (e.g. beneficiary's beneficiary designation; power of appointment, etc).

There is no minimum age to contribute to a Roth or traditional IRA. The only requirement is that there be earned income.

Stan, I am not a lawyer, but the way I read the provision is that if you terminate the custodian, i.e. close the IRA account, they will give you all the money, unless you've designated a successor to take the account (effected a trustee to trustee transfer). Either you're reading too much into it, or I'm not reading enough into it.

M must take a minimum distribution from EACH plan, based upon each plans' 12/31/98 value. After M takes the RMD, the balance can be rolled into an IRA. That rollover will then be reflected in the 2000 distribution, based upon the 12/31/99 balance.

Jsree, I guess the math is your problem. If the entire account is being recharaacterized, then the only math problem is reporting it on the 8606, which is fairly simple if you know the theory. It's partial recharacterizations that have difficult math.

The best (and probably only successful thing you can do) is to file form 2210 using the exception based upon your taxable income at various points in the year. You should read the instructions before you prepare and file the form. If this does not work, you should then write to the local problem resolution office.