BPickerCPA

Neither one of you has owned a home (primary residence) for the past 2 years.

Your terminology is incorrect in that you do not "recharacterize" your traditional IRA to a Roth. A "recharacterization" is an "undo". For that there is still time. However the deadline to "convert" an IRA to a Roth was 12/31/98. If you will meet the 1999 income limitation, you can do a 1999 conversion.

Thanks to IRS Announcement 99-57, you can still do a recharacterization of a 1998 conversion, even if you filed your return (timely) by 4/15/99. If you now do a 1999 conversion, it will ALL be taxable this year. Think about that.

jsree, The situation is NOT different elsewhere since the situation is defined by law.

Let's take it one step at a time. First of all, you CANNOT roll 401k money into a Roth IRA. The only money that can go into a Roth IRA is either the annual contribution (limit $2K per year) or an amount converted from a traditional IRA. So any money that is in a 401k MUST first go through a traditional IRA, before it can go into a Roth. Second, after tax 401k money CANNOT be rolled into a traditional IRA. The law is very clear and specific that 401k money that would not be subject to income tax (read: after tax money) cannot be rolled into an IRA. What you're left with, apparently, is a seminar presenter and someone at Fidelity who don't know what they're talking about. Sec 72(t) of the code talks about 10% penalty for withdrawals, and the exceptions thereto. Sec 72 has NOTHING to do with Roth IRAs. Those rules are all in sec 408A. Where do these people get this stuff???

Jsree, You can recharacterize into a traditional IRA. You must include the applicable income which is computed on a rather complex formula since this is a commingled Roth (more than just one year's contribution). If the entire account has a gain, some of it will be applied to this year's contribution. You can recharacterize it into an existing traditional IRA, and you need to file form 8606 (1) to reflect the recharacterization, and (2) to track basis from non deductible contributions.

Your marital status is based upon the last day of the year, and applies to the entire year. In other words, if you get married on 12/31 at 11PM, you're considered married for the ENTIRE year. In your case, if your combined income will be over $170K, you will NOT be able (nor will your spouse) to contribute any amount to a Roth in 1999. This will not affect your 1998 conversion, except that the conversion income will now be on your joint return.

I have not seen the WSJ article, but I did read the Announcement. The IRS is not really admitting that they made an error. What they did was find a loophole and determine that taxpayers could use it. Otherwise there are a bunch of taxpayers out there who missed the deadline who would be facing whopping penalties and taxes, as well as loss of IRA tax deferral. Look at the regs cited in the Announcement, Reg 301.9001. It doesn't only apply to this case. It may save your behind some day.

Alas, if you follow Sy Goldberg or Natalie Choate, then a beneficiary designation will be almost like a will. This is a not a bad thing. After all, it IS a substitute for a will as far as disposing of the retirement assets. Best I can suggest is to find (maybe we can list them here) the trustees that will accept such a beneficiary designation form. Then you can go to the others and state that they either take (and acknowledge receipt of) the beneficiary designation, or the account gets moved. The good old, "vote with your feet" method!

The answer is simple. Once the due date for the 1998 tax return has past, you CANNOT recharacterize. So you're stuck paying the tax for the next 3 years, with a roth IRA.

I believe, but am not sure, that either the IRS permits it, or a court permitted it, in one case. You still have to stay within the 60 days. No extension.

Blaster, Without getting into the specifics of this particular fact pattern, since the discussion had ended almost 2 months ago, but the IRS has agreed that IF there is a designated beneficiary (DB) on the RBD, that DB can use their own life expectancy as of RBD, reduced for each year of distribution, EVEN THOUGH the participant took distributions based upon single life, recalced.

The fact that there is a trust in the middle will not change the tax free status of the roth. However if the trust has any amount of TAXABLE income, then any distribution will constitute a portion of that income.

Two points: One, the deadline for withdrawing excess contributions is the same date as the deadline for recharacterizations. Otherwise, the contribution is subject to a 6% excise tax. Two, the traditional IRA would not necessarily be non-deductible. It's possible, if you are not a participant in a plan, to be eligible for a deductible IRA even though you cannot contribute to a Roth.

Bruce, If the account holder died after the RBD, then the disclaimer should not make any difference. If the payments are based on term certain, it won't matter who dies when (real or imagined, via disclaimer). If the payments are recalced, then you'll lose all deferral when both are dead. They were not rulings, but rather based upon private conversations with IRS people (not my conversations) that were related to me. The argument simply is that the disclaimer rules, sec 2518, are gift tax rules and relate only to gift and estate taxes, and have no effect on income taxation. In other words, 2518 and 401(a)(9) don't mix.

NO!

Bruce, Two points- 1. I think you misunderstood the disclaimer suggestion (or I mistated it). The estate of the BENE should disclaim the INHERITED IRA, so that it will go to the next bene on the form. I agree you cannot disclaim your own IRA. Here, in a simultaneous death, the bene never took any benefits from the other spouse's IRA. 2. It is my understanding from the IRS (and I agree with their position) that if a designated bene DISCLAIMS, the next bene will NOT get their own life expectancy for stretch out, unless their own life is less than the disclaimant (sort of a heads they win, tails you lose). So if the IRA gets to the kids via a disclaimer by the spouse, the stretch out is limited to the spouses life expectancy. Similarly, if the kids are the designated bene (which is what SHOULD be, imo) and they disclaim, the grandchildren would be limited to the kids life.

It seems that the biggest issue is the loss of the stretch out of the IRA withdrawals if the IRA is payable to the estate. This could be a VALUABLE thing if the IRA is big enough. Based upon my experience with banks, the custodian could just be taking the easy way out. I would either insist that the estate attorney get off his *ss and do some research, or get an attorney to check into this for you. One possibility that will help for your estate income situation although it may not give you an extended payout, is for the executor of each estate to disclaim the other's IRA. Look into doing that if all else fails. Under no circumstances should you let the bank issue a check at this point. There is no reason for that.

While the previous posts are correct, they address the question of ROLLOVERS, not TRUSTEE-TO-TRUSTEE transfers. A minimum distribution cannot be rolled over but there is nothing that prohibits a trustee to trustee transfer. However as a practical matter, many custodians will not ACCEPT a trustee to trustee transfer if it means that they will have to make a distribution of that year's minimum distribution. But there is no basis for a custodian refusing to transfer the account to another institution until the that first custodian pays out the RMD. Keep in mind that there is NO requirement that EACH IRA make an annual required distribution. If the taxpayer has an IRA in bank C, he can elect to take the entire RMD from _that IRA, and never touch the bank A IRA. Bottom line is that if you speak to people at authority at the bank (not an easy task) you should be able to get your transfer done. I'm not sure that they can legally refuse it.

If you file separately, the phase out for roth contributions is from 0 to $10K, so that won't help. The limit is an annual limit. Your income for '99 determines whether you can make a '99 contribution. If you make a '99 contribution, your 2000 income is irrelevant. If you overcontribute, you can recharacterize the excess to a traditional IRA.

To restate the issue that the article discussed, IRS regs have ALWAYS permitted after death distributions to be made to the bene over his or her life expectancy. The question in the article was, what happens if the bene does not live that many years? The tax law permitted the successor in interest, usually the bene's estate and/or heirs, to continue the withdrawal schedule. But the custodians did not always permit this. What Fidelity (and others) are now saying, is that they will permit the withdrawal schedule to survive the bene's life, AND permit the bene to name their own bene, in order to avoid this asset going thru probate. From a tax law standpoint, there is NOTHING new here. What IS new is the loosening of custodian rules, to permit bene's to avail themselves of all IRS leniencies.

Kathy, Let me add my vote to the others, that you haven't missed a thing.

You compute how much is to be removed during the year, and you cannot deviate off that schedule. How you take it during the year is of no consequence.

You CAN most definitely move IRA assets from one custodian to another, but it MUST be via a trustee to trustee transfer. You CANNOT take personal control of the money; that would be a distribution, ineligible for a rollover.

It's true that a taxpayer who has already filed and whose income is over $100K must recharacterize the conversion and file an amended return, this must all be done prior to 4/15/99. If you've already filed you cannot get an extension.