BPickerCPA

I have to disagree with mbozek's response. If, for some reason, an IRA inherited by a non spouse is split in a divorce, the ex-spouse would still have to take distributions on the same schedule as the original beneficiary. It would definitely not become the spouse's IRA.

You will pay income tax AND 10% penalty on any EARNINGS withdrawn, but not on any contributions, or on any conversions made before 2000.

William, You have it correct. Glad it's all straightened out.

Pure and simple, NO. A non spouse beneficiary CANNOT roll the distribution into their own IRA. Any financial planner who tells you otherwise doesn't know what he/she is talking about (and I'd be suspicious of any other advice they're giving out).

Neither one will be able to contribute if you are married and your combined income is over $160K.

As I see it, you basically have two choices. The first is to go to the IRS and ask for a ruling to permit the account to be split on the basis of the error made when the first transfer was done. I don't you will have any problem getting the ruling, but the process will cost a few thousand dollars if you have a professional handle the ruling request for you (which you should, unless you can read and understand some lengthy IRS rules and procedures)> The second is to insist that the account be split (making sure that including the gains/losses/income in the computation), and let them mark it as a new conversion, don't report the income a second time, and deal with the IRS if they question the omission. Your call.

Was the original money going into the Roth from annual contributions, or from a CONVERSION? If from a conversion, the auditor may well be correct.

And, Appleby, you and I have to just sit back and sigh when a client comes in and tells us that he wants us to "convert" his IRA into "one of those 'stretch' IRAs".

Appleby, There is no LEGAL requirement that an IRA must be paid out after the death of the initial beneficiary, even if that IRA now belongs to that beneficiary's estate. It's true that there are custodians that require this, but to have a stretch IRA, all you need is a custodian that permits the IRA to be paid out over the maximum time allowed by law.

He needs to take the first distribution by 4/1/2004. He has to take the second distribution no later than 12/31/2004, but he cannot do a rollover until he takes both the 2003 and the 2004 distributions.

BKH, When did he actually retire?

The pros and cons can differ from situation to situation. You need to discuss this with a competent pro.

I just want to point out that one should not assume that the IRS always responds positively to these requests (extension of 60 day rollover period). The taxpayer who is told that the IRS will not respond positively has the right to withdraw the request, rather than have the IRS go on record as responding negatively. So (and I don't have any first hand knowledge that this has ever happened) it is posible that the IRS has turned down some or many requests.

You must return the asset that was removed. If cash is taken, cash must be returned.

A trust does not become a "QTiP" trust until and unless an election is made on a Form 706. So your question is somewhat confusing. Basically, if the IRA beneficiary form designated a trust as the beneficiary, lets call it Trust X, then Trust X is the beneficiary, whether or not a QTiP election is made for Trust X. If another trust also exists, say Trust Y, you cannot transfer the IRA into the name of Trust Y, unless (1) Trust Y is a successor in interest to Trust X, or (2) a Court reformation of the Trust documents. From your question, it sounds like QTiP trust and Marital trust have different beneficiary interests, which means a transfer of the IRA from one to the other would constitute a prohibited distribution. That's how it looks from here. You would really have to sit down with a KNOWLEDGEABLE attorney and IRA specialist to hash this all out in person.

Yes. Once you've contributed the maximum, you cannot make any further contributions.

tpainton, What you have to do is to get a private letter ruling from the IRS that will permit you to do a late recharacterization. The IRS is fairly liberal with these rulings, and I have gotten several of them for clients. There is an IRS user fee, as well as a professional fee if you have a pro do it for you (which I recommend since the procedure is quite technical). Perhaps the advisor will pay for the ruling. They should, IMO.

If you convert in '03, the taxes aren't due until '04. At that point you can take the money from the original IRA, or the Roth. Just don't withhold the taxes.

Participants in this scheme(scam??) had to sign a non disclosure, so I don't think there's a lot out there on this. What I gathered (and don't hold me to this) is that the Roth owns a corporation, and the individual donates property to the corporation. How an individual can do this with a corporation that he doesn't own (directly) is unanswered.

There is a difference between the beneficiary who is receiving the distributions, and the identity of the designated beneficiary, who determines the distribution payout period. In PLR 200343030, the IRS IS following the regulations. The regs state that a beneficiary who inherits through the estate, cannot use their own life expectancy. In other words, they are the beneficiary, but not the DESIGNATED beneficiary. Since the estate was the original beneficiary, there is no designated beneficiary. But the daughter is most definitely the beneficiary. There are other examples in PLRs.

Appleby, I have to disagree. There is no way a custodian will make checks out to an individual, as in PLR 200343030 (the daughter), and the tax reporting will be anything but that individual's SSN. The whole point of the exercise is not to keep the estate open. Let me give you an analogy: Decedent owned stock in IBM. The stock goes into the estate after death, and the estate then transfers ownership to the heirs under the will. Who will get the dividends after the transfer? The heirs. In whose TIN are those dividends reported? The heirs' SSN.

The Service DID rule positively on this. See PLR 200343030, released in the past week.

There is no tax problem with doing this. There should be no legal problem either. Unfortunately, some custodians have an internal problem doing this. I hope you don't run into that situation.

I think you need to speak to an attorney as to how state law affects all this. The IRA custodian cannot, in my opinion, decide who will receive the IRA benefits if the primary beneficiary dies. As a matter of law, once the primary beneficiary becomes the owner of the account after the account holder's death, he/she has absolute ownership which includes control of what happens after their death.

There are actually very few limitations on who or what can be named as a beneficiary of an IRA. The issue is what payout period is available after the death of the account holder. If you want to be able to stretch after death distributions over the life expectancy of an individual, certain rules have to be followed.