Mary Kay Foss

There's no penalty on withdrawals once you reach age 59.5. You can take it all at once. Remember you will pay income tax on the entire withdrawal (unless you made some nondeductible contributions).

The concept of a direct transfer of an IRA to charity during lifetime comes up in proposed legislation from time to time. The current bill that would allow nonitemizers to take charitable deductions included this kind of provision at one time (it may still be there). She should be sure that the charity is named as beneficiary at her death and hope that Congress makes it easy to do what she wishes.

The spouse has to be the sole beneficiary to do the rollover, but separating the accounts on a timely basis will solve the problem. Beneficiaries are determined on September 30 of the year after the death and accounts are supposed to be separated by December 31 of the year after the death. If I were you, I'd try to separate the accounts by September 30 and do the rollover (after taking an RMD) between then and December 31.

The final regulations indicate that after the Required Beginning Date with an estate as beneficiary that the decedent's single life expectancy is used to determine remaining distributions. The distribution in the year of death is based upon the decedent's age that year and is whatever amount she would have received if she had not passed away. A distribution must be made in the year of death if the decedent did not take it before she passed away. The next year's distribution uses the single life table. You reduce the life expectancy for the age in the year of death by one. As each year goes by one is subtracted again.

There is one Modified AGI limit for Roth contributions and a separate one for Roth conversions. To make a contribution to a Roth, there must be earned income and modified AGI for a married couple must be $150,000 or less. A partial contribution is allowed when modified AGI is between $150,000 and $160,000. To convert a traditional IRA to a Roth, Modified AGI must be $100,000 or less for a married couple or a single person.

The plan must be rolled first to a traditional IRA and then to a Roth. A Roth cannot accept funds directly from a qualified plan.

The final regulations Reg. 1.401(a)(9)-5, A-5 ©(1) indicate that the life expectancy of the beneficiary is reduced by 1 each year. There is no provision or requirement for shortening the period because the beneficiary has passed away. Some custodians will allow the beneficiary to name a person to receive benefits if they don't live for the period measured by their life expectancy when payments begin. This should be done before the beneficiary passes away. Choices are: Keep estate open or have executor assign benefits to beneficiary of estate. I'd choose whichever alternative the custodian will go along with. Remember that the payments are minimums and they could be accelerated at the request of the beneficiary. Often the custodian tries to pay out the entire account when the beneficiary dies but the regulations don't support this. If a check for the entire balance is sent, the executor should send it back and request that payments be made in accordance with the regulations. Good luck.

The final regulations indicate that the trust is the beneficiary rather than the beneficiaries of the trust. You can't ignore the trust, which is what the successor trustee seems to want you to do. Although beneficiaries' SSNs is not one of the pieces of information that must be provided by 10/31 after the death, the successor trustee needs to provide information on a timely basis so that the trust is treated as a designated beneficiary (with a life expectancy). Failure to qualify may cause the RMDs to be distributed based upon the decedent's table life expectancy if he/she was receiving RMDs or the five year rule if he/she had not reached the required beginning date.

The custodian is not responsible for determining how much of a distribution from an IRA is taxable. It's totally up to the account owner. Also there is a penalty for overstating basis in an IRA so good record keeping will be essential. Before after tax funds could be rolled one of my clients was able to have the after tax portion refunded with no hassle from the custodian. If it's a pre-2002 rollover, I hope that will work. Form 8606 has been used to calculate the taxable vs basis recovery portion of an IRA distribution. Logically the IRS will update this to handle the new law. Unfortunately, my version of logic and that used by forms designers doesn't always coincide. Good luck

I am not an expert in this area but have been to seminars where it is suggested: 1. The policy be distributed and it's taxable at fair market value. Either special policies or special valuation methods are used to keep this value low. 2. The participant can buy the policy from the plan. Apparently there's an exception to the prohibited transaction rules for this. The seminars have been put on by people selling new insurance with a single premium that has a big drop in value 2-3 years out. There must be some application to an existing policy. Good luck in finding the best answer.

I don't agree. FSA 1999-1019 says that a special allocation of Keogh plan deductions is not correct. The partnership agreement made no provision for allocations that differed from the partners' profits percentages in that situation. If the partnership actually makes the contributions, each partner is only responsible for his or her pro rata share.

I prepared Forms 990-T for an individual who invested in his employer that was operating as a partnership. When the business was acquired by another entity, most of the gain was ordinary income due to receivables and inventories. The UBIT applied for two years and was over $20,000. Also you can't rely on not filing the year before to avoid penalties on Form 990-T so there were Form 2220 penalties as well. Unless the LLC couldn't possibly generate UBI, I wouldn't recommend that kind of investment for an IRA, SEP or other retirement vehicle.

Did the loan qualify under 72p so it wasn't treated as a distribution? I don't know if the loan being a PT in 2001 would give you any break under 72p as to the maximum amout of loan that could be taken. If 72p is going to limit the amount of the loan or treat it as a taxable distribution, consider taking a distribution to pay off the loan.

My answer is based purely on the corporate deduction for the plan. The corporation can extend its return and delay the payment of any profit sharing contribution to 8.5 months after the fiscal year end. If the 401(k) is combined with a profit sharing plan, I'm not sure what happens to that deferral. If its a straight 401(k), the calendar year doesn't seem to cause any difficulties.

FYI One of my clients is the attorney in fact on a Durable Power for her mother who has Alzheimers. The IRS requested copies of Drs. letters showing the Mom's incompetence before they would accept a signature and issue a refund to the attorney-in-fact.

Mike Jones is a CPA in Monterey CA who specializes in IRAs and other retirement plan issues. I know he has issued valuation letters in more than one case indicating that the value of the retirement funds is less than the date of death market value because of the income taxes to be paid. I believe his reasoning is similar to that used to take into account built in gain within a corporation when it is valued for estate tax purposes. There have been recent tax cases where the discount is allowed in valuing the corporation because "a willing buyer" would not have access to the assets without the double tax on a corporate liquidation. It makes sense to me that the logic would apply with retirement plan assets as well.

Section 1361©(6) says that "certain exempt organizations permitted as shareholders" -- the law change came in 1996 P.L. 104-188. I'd check for any regs (proposed or otherwise) and the committee reports before I'd draw a definite conclusion. Good luck.

At a seminar I attended the speaker said that UTMA and UGMA accounts cannot be transferred to a Section 529 plan. They were completed gifts when established. He went on to say that the UTMA/UGMA could INVEST in a Section 529 plan. I'm not sure how you do that but someone who offers Section 529 plans may have the answer.

Individuals, decendents' estates, bankruptcy estates, certain trusts and tax-exempt charitable organizations can be S corporation shareholders. A Profit Sharing Trust that is qualified under Sec. 401(a) does qualify. I'm surprised, I was going for another answer and pulled out the rules. The change to include 401(a) qualifed plan trusts happened within the last five years.

There is no direct estate tax deduction or credit for the income taxes paid on the Roth recharacterization. However, the gross estate is already reduced because the payment was made before death. The recharacterization can only be done if it's within the time period. A 2001 conversion could be recharacterized up until 10/15/2002. If the Roth qualifies to be recharacterized and IS in fact recharacterized, it will be a traditional IRA -- still subject to estate tax and income taxes will be due by the heirs when they receive the proceeds. The estate will also be increased by the income tax refund related to the recharacterization. In planning for terminally ill clients we often consider a "deathbed " Roth conversion because the income taxes on the conversion are deductible on the estate tax return. Often a tax year shortened by death is the only time AGI is low enough for a Roth conversion. It seems to me that the predeath recharacterization and tax payment was a good thing and shouldn't be undone.

I still like the Section 529 plans. If you're unhappy with the investment performance, you're now able to roll the funds to another state's plan once a year. With that possibility hanging over the investment manager's head, I'm hoping the returns will improve. They are better than the UTMA accounts especially because they don't belong to the child once they reach 18 or 21. The parent's Roth wouldn't be considered the child's funds for financial aid purposes like an UTMA account would be. I practice in California where it's very difficult to put sizeable amounts into an IRA because of the gross income limitations.

When you convert an IRA to Roth it doesn't matter that all the funds transferred were from a Nondeductible IRA. All of the IRAs you own are considered as one; the dollar amount converted will be partially basis from the nondeductible IRAs (nontaxable) and partially earnings and deductible or pretax contributions. Form 8606 is used to make the calculation.

I think you've lost me in this exchange. Social security benefits are not compensation income that allows you to make an IRA contribution. There is an Appendix (B) in Publication 590 to help calculate the maximum IRA contribution if ALL of the following apply: 1. Social Security Benefits were received 2. Taxable compensation was received 3. Contributions were made to a traditional IRA 4. Taxpayer or spouse was covered by an employer retirement plan. I did not think the questioner met all of these criteria. I don't see that a deduction can be made, even a nondeductible one.

You can't leave it in indefinitely. The Roth owner need take no distributions during life but an inherited account requires distributions. Life expectancy of the beneficiary or 5 years are the two choices. Life expectancy is the default, you elect it by taking a distribution of the minimum amount based on life expectancy by 12/31 of the year after the death of the Roth owner. If this deadline is missed, you use the 5-year rule. With this rule, no minimum amount is required in any year but everything must be drained from the IRA by 12/31 of the year that contains the five year anniversary of the death. There's still no tax on the distributions, but the 50% penalty for not taking the minimum can apply so you should adopt a strategy and stick to it.

Wow. This is a new one on me. My concern would be that the payment of fees for another account of the taxpayer would be a prohibited transaction, which could disqualify the IRA. I've had clients pay investment fees outside the IRA to maximize the deferral. When the fees are large enough to exceed the 2% limitation, they're also large enough often to cause an AMT liability. Has anyone else dealt with the issue of the IRA paying fees?