BPickerCPA

Private letter ruling may be your best bet.

Mbozek, Wouldn't there also be a prohibition against the IRA owner running the corporation?

Check out the prohibited transactions rules.

Before suggesting the earnings are taxable, one has to confirm what the poster means by "four years ago". If the IRA was opened in April, 1999, with a contribution that was attributable to 1998, then the account qualifies as over five years old and the earnings would NOT be taxable. The key question is whether there was a 1998 contribution.

The rules ARE different for first time home buyers. However, by your own admission, you do not qualify. (Note that under the law you are a first time home buyer if you haven't owned a home for two years, even if you're not technically buying your first home.)

You must replace the money withdrawn no later than 60 days after the date of the withdrawal. If you miss the 60 day deadline, all you can do is continue to make annual contributions for each year that you are eligible.

Kr, If you can afford to fund the Roth IRAs even with the 4% coming out for the 401k, then that is definitely the way to go. It becomes a difficult question only when you are faced with an either/or situation. Then you have to decide if you're better off with the current tax deduction, or the prospect of tax free income in the future. There are compelling arguments both ways, and you'll have to then make that decision.

Misty, Besides what John said, you also MUST make sure that all your dad's affairs are in order. Is his will up to date? Are their PROPER beneficiary designations on the retirement accounts? There is no harm in having things properly set up, and their not being needed. There is TREMENDOUS harm in needing things to be properly set up, and their not having been. There is also a question as to whether you can complete a Roth conversion after death. Whoever gave you that suggestion may not be giving you the best advice.

I think I understand what jmelamed is trying to say. IF one's ONLY income if foreign earned income, qualifying for the form 2555 exclusion, and not over $80,000, then one still has the standard deduction and exemption. IF one then converts IRA funds to a Roth IRA up to the amount of the standard deduction and exemption, one has successfully converted that amount to a Roth and avoided paying income tax on the conversion, due to the fact that taxable income is zero. If one has other deductions and/or credits available, a further amount can be converted and still have an income tax liability of zero. This technique is not limited to foreign earned income. It also applies in any situation where taxable income is below zero (or there are unused tax credits), and a Roth conversion in an amount that will bring taxable income up to zero (or will utilize tax credits), will be income tax free. No big mystery.

Dh, While Congress passed the retroactive law in July, 1998, the fact that the loophole was going to be closed was well publicized from the outset of the Roth IRA rules. The reality is that the taxpayer in the case was not blindsided by the law change. It appears to me that the taxpayer knew the risk or should have known the risk of his maneuver, but felt that he could get away with it on a legal technicality. He was wrong.

There have been numerous challenges over the years to tax law changes that have been retroactive. To my knowledge, they have all failed. When Roth IRAs were enacted in 1997 (effective for 1998), there was a loophole that permitted an individual under the age of 59½ to convert to a Roth and then pull the money out of the Roth, without incurring the 10% penalty. Congress RETROACTIVELY amended the law in July, 1998 to impose a penalty on such a maneuver. A taxpayer who had taken advantage of the loophole in early 1998, prior to the law's amendment, challenged the imposition of the 10% penalty. He lost. As far as changing the law on the taxation of Roth distributions, there is nothing to stop the law from being changed to tax the earnings on the account. The original contribution or conversion could not be taxed, since that was already taxed once. While it COULD happen, I'm not losing sleep over it.

Child actor or model is about it for a 4 year old. There is no reason why a parent cannot hire a child (I believe that in some if not most states, working for a parent does not run afoul of child labor laws). However, the child must actually perform work and the compensation must reflect the market value of the services. Besides the economics of it, it's not a bad idea if it helps to give the child a sense of responsibility as well as actually giving the child some skills. My kids can handle data entry as well as anyone, and they have also learned how to properly answer phones and take messages, which is sadly a lost skill among many young people.

dh, James Lange's article does a much better job of explaining what HE'S saying. While your post might be alluding to the same strategy, your verbiage is NOT stating the same thing he is. Your response about "majority of the year" and the statement "remaining part between the time that you can't recharacterize and the time you have to file taxes" clearly shows that you do not understand the Roth rules. Enough said!

One CANNOT "convert" a Roth IRA into a traditional IRA. One is able, within income limitations, to convert a traditional IRA into a Roth IRA. One who has done such a conversion can, within certain time limits, RECHARACTERIZE that conversion and move the assets back into a traditional IRA. The statement "you can always turn them into traditional IRAs so you don't get stuck paying taxes on $3000 contributed that's now only worth $2000)" is false because you do not pay tax on the $3,000 BECAUSE it is contributed to a Roth IRA. You have already paid tax on the $3,000 simply because it was part of your income, and you do not get a tax deduction for a contribution to a Roth IRA. In other words, you will pay tax on the $3,000 whether you contribute it to a Roth IRA or stick it under your mattress. If one qualifies for a tax deductible IRA contribution, one can contribute money into a Roth, and if it declines, recharacterize it as a traditional IRA contribution, and take the income tax deduction. The limitation of this strategy is that it assumes any decline will come within the time period for doing the recharacterization. However, what happens if you contribute $3.000 to the Roth, it rises to $4,000, and then after the deadline for recharacterizations the value falls to $2,000? Or, suppose you contribute $3,000 to the Roth, it falls to $2,000, you move to the traditional IRA, convert it back into the Roth, and then, after the deadline, it falls to $1,000. There are a lot of legal games you can play, if you are willing to take the time and trouble. But they only work if the investments behave the way you want them to in the allotted time period. The real world rarely works that way.

You cannot exclude the IRA withdrawal. In fact, your wife has to take her first withdrawal prior to doing a Roth conversion since she will attain 70½ in 2003.

The trust need not be provided to the custodian until the death of the account holder, unless the account holder is eligible to use the joint life table for lifetime MRDs. At death (deadline: 10/31 of year after the year of death), the trustee must provide the custodian with a copy of the trust agreement, OR provide the pertinent details AND agree to provide a copy of the trust if requested by the custodian. Bottom line, after the death the custodian is entitled to a copy of the trust.

You are correct that an individual cannot assign his interest to another individual. However, in the case of a trust, it is not one beneficiary deciding to give his interest to another bene, rather it is the trustee transferring the right to receive the benefit to the successor in interest. Perhaps, "assignment" is not the legally proper word to use. In this case, the trustee can only do what the trust authorizes him to do. In some cases the trustee must act in a certain manner; in other cases the trustee has discretion, within the parameters of the trust instrument.

The custodian of the IRA must pay the benefits to the named beneficiary, which is the trust. The distribution must then be reported using the trust's EIN. It is possible that the trustee can assign the rights to receive the IRA benefits to the underlying beneficiary, if, under the terms of the trust, the underlying beneficiary succeeds to the IRA benefits. If that is the case, future benefits will be paid to the individual(s) using their own SSNs.

It's partially correct. The distributions will be based on HIS life expectancy. He can also do a rollover which will allow him to take distributions based upon the uniform table. In either event, he should immediately name a beneficiary on the account.

My belief is that the spouse CAN open an IRA in the decedent's name. It most likely is her best alternative, although other options have been mentioned. My guess is that the custodian will not open the account until you show up with your own private letter ruling. However, you may get lucky and find a custodian who will open such an account.

I agree with Michele. The laws that you have to start distributions by the required beginning date and continue them over what the regs now call the uniform table. If you're a 5% owner you hit the RBD at 70½, and there is nothing in the law that permits you to stop once you've hit the RBD, even if you wouldn't have hit the RBD at 70½ under current circumstances.

Michael, If I'm understanding you correctly, there is nothing wrong with what you are proposing, but it really isn't any sort of loophole. Assuming you are eligible, income-wise, to make a Roth contribution, the source of the funds is immaterial. So there is no reason why you cannot borrow 401k money to contribute to the Roth IRA. You will have to repay the 401k loan, and that repayment will come from after-tax dollars. So if you were in the 50% bracket, you would have to earn $7,000 to put the $3,500 back into the 401k. Then when you later withdrew that $3,500 from the 401k, you would be taxed on the $3,500. Taking it one step further, if you had to repay $4,000 because of interest on the loan, which would be non-deductible interest, you would have to earn $8,000 to have $4,000 after tax, and then you would be taxed when you later withdrew the $4,000 from the 401k. Of course, if you default on the loan, that would also be taxable. So, it's no loophole because you WILL pay tax on the money going into the Roth IRA, one way or the other.

To clarify, if your $3,000 contribution to a traditional IRA is not deductible, the $500 catch up contribution will also not be deductible. You can always contribute to a Roth IRA instead, IF your income is within the limits.

Nope!

If the trust provisions permit the trustee to pay the entire account out to the spouse, there are private letter rulings that have permitted rollovers. Your situation will depend on trust provisions, which cannot be known without reading the trust document. Even if the provisions are "favorable", you will probably still need to get your own PLR.