John Olsen

I know of no ruling or court case in which a NON-SPOUSAL beneficiary has been allowed to roll over IRA money. While the vagaries of the IRS tempt me to suggest that nothing emanating from it is impossible, I'd bet money that no such ruling exists or is likely to exist. The rules are pretty clear. IRC 401(a)(9)(B)(iv)(II) limits that rollover to a surviving spouse. John Olsen

If I understand correctly, you're saying that the Sect. 8 rules, governing certain Federally subsidized housing, include - a. Required Minimum Distributions from IRAs, and b. Earnings on IRA accounts in their definition of "income", for purposes of determining rent charged (where rent = 30% of "income"). Are you suggesting that either or both ought NOT to be included? I agree that including (B) in "income" may be unfair if the same rules do NOT include the earnings credited to a tenant's Qualified Retirement Plan, but excluding (a) from "income" would be just as unfair, if the same rules do NOT exclude income from Qualified Plans. And that's just from a "uniformity" pespective. The question of whether ANY retirement plan assets and/or income ought to be "safe" from any requirement of utilization by an individual who is applying for public subsidy is something else again. John L. Olsen, CLU, ChFC Olsen Financial Group St. Louis, MO

Your IRA custodian screwed up, if your paperwork clearly identified the second transaction as a CONVERSION to a Roth. And the notion that "a Roth conversion before April 17, 2000 'recharacterized' the contribution from traditional to Roth is BALONEY! Are they saying that ALL conversions in the first 3 1/2 months of the year are automatically "recharacterizations" of any contributions made in the prior year? Yeah, right. Somebody screwed up and doesn't want to admit it. DEMAND that they CORRECT the transactions. The more I work in this area, the more I'm convinced that MANY IRA Custodians should be legally barred from handling IRA money. And, perhaps, from handing ANY money in a fiduciary capacity. If they can't do fiduciary work properly, they shouldn't be doing it. ------------------ John L. Olsen, CLU, ChFC Olsen Financial Group St. Louis, MO 314-909-8818

I forgot to specify, in my previous post, that the children can take at H's death IF W DISCLAIMS. But the disclaimer doesn't alter the fact that, if W was the primary beneficiary at H's RBD, HER life expectancy, not the eldest child's, is used for RMD purposes. ------------------ John L. Olsen, CLU, ChFC Olsen Financial Group St. Louis, MO 314-909-8818

If W is primary beneficiary of H's IRA, with Children as continent beneficiaries, and H dies after RBD, children can take, but their RMD is based upon W's life expectancy, not their own. The facts situation you describe suggests that the IRA be payable to a QTIP Trust. Of course, you lose the spousal rollover opportunity, but you're going to lose that opportunity unless you want to give the spouse the right to behave as if this money is hers because it becomes just that. ------------------ John L. Olsen, CLU, ChFC Olsen Financial Group St. Louis, MO 314-909-8818

So long as (a) you're filing Married, Filing Jointly, and your AGI is less than $150,000 (phase out of eligibility occurs between 150 and 160K), and you earned at least $4,000, you can establish a Roth for EACH of you, irrespective of whether either participates in another retirement plan. Here are some cites to authority: "CAN I CONTRIBUTE TO A ROTH IRA FOR MY SPOUSE? You can contribute to a Roth IRA for your spouse provided the contributions satisfy the spousal IRA limit discussed in chapter 1 under HOW MUCH CAN BE CONTRIBUTED? and your modified AGI is less than the amount shown for your filing status in TABLE 2.1." - IRS Publication 590. **************** The following is from the Internal Revenue Code, Sect. 219©: © SPECIAL RULES FOR CERTAIN MARRIED INDIVIDUALS (1) IN GENERAL In the case of an individual to whom this paragraph applies for the taxable year, the limitation of paragraph (1) of subsection (B) shall be equal to the lesser of-- (A) the dollar amount in effect under subsection (B)(1)(A) for the taxable year, or (B) the sum of-- (i) the compensation includible in such individual's gross income for the taxable year, plus (ii) the compensation includible in the gross income of such individual's spouse for the taxable year reduced by-- (I) the amount allowed as a deduction under subsection (a) to such spouse for such taxable year, and (II) the amount of any contribution on behalf of such spouse to a Roth IRA under section 408A for such taxable year. (2) INDIVIDUALS TO WHOM PARAGRAPH (1) APPLIES Paragraph (1) shall apply to any individual if-- (A) such individual files a joint return for the taxable year, and (B) the amount of compensation (if any) includible in such individual's gross income for the taxable year is less than the compensation includible in the gross income of such individual's spouse for the taxable year. ***************** I hope that's helpful. ------------------ John L. Olsen, CLU, ChFC Olsen Financial Group St. Louis, MO 314-909-8818

I don't see how the 3-year rule of IRC 2035 is relevant. As the policy is owned by the executive, the death benefit is includible in his or her estate. An exchange of the policy won't affect this. ------------------ John L. Olsen, CLU, ChFC Olsen Financial Group St. Louis, MO 314-909-8818

Loxie: If your accountant is telling you that TurboTax is incorrectly including the amount distributed from a regular IRA, but converted to a Roth, in the AGI, and, as a result, disallowing the conversion, he hasn't read the TurboTax instructions. The user enters the IRA distribution on a replica 1099-R. On page two of that form, line C shows the amount eligible for conversion to a Roth. The box beneath (box D), is checked when you've converted the entire amount. When you've converted less than the entire distribution, you enter the amount converted on line E. TurboTax will NOT add that converted amount into the Modified AGI which determines Roth conversion eligibility. That can be verified by looking at the 1099-R Report, Line 26 (Modified Adjusted Gross Income). That entry does NOT include the conversion. I hate to sound harsh, but are you sure your accountant knows what he's doing? First, the rule that IRA distributions converted to Roth don't count as part of Modified AGI for eligibility purposes is something anyone who does any tax work ought to know. Second, the TurboTax instructions, while not exactly crystal clear, are not all that hard to decipher. The 1099-R replica says it all. ------------------ John L. Olsen, CLU, ChFC Olsen Financial Group St. Louis, MO 314-909-8818

Could you give an example of the policy ownership/assignee/beneficiary structure you have in mind? I presume you're referring to the REPLACMENT of one life policy with another in a tax-free exchange (IRC 1035). ------------------ John L. Olsen, CLU, ChFC Olsen Financial Group St. Louis, MO 314-909-8818

Yes, a distribution from a 403(B) plan - OTHER THAN A REQUIRED MINIMUM DISTRIBUTION - may be rolled over to an IRA. See Tax Facts, Q. 379,380, parts of which are quoted below: A rollover must be completed within sixty days after receipt of the distribution. IRC Sec. 402©(3). Furthermore, unless a rollover is carried out by means of a direct rollover (a Trustee to Trustee transfer] the distribution amount will be subject to a mandatory income tax withholding rate of 20%. IRC Sec. 3405©(1). If a participant receives an eligible rollover distribution that was subject to the 20% withholding rate, the 20% withheld will be includable in income (to the extent required by Section 402(a) or Section 403(B)(1)) even if the participant rolls over the remaining 80% of the distribution within the 60-day period (see Q 386). See Reg. §§1.402©-2, A-11, 1.403(B)-2, A-1. Because the amount withheld is considered to be an amount distributed under Section 402©, the participant may add an amount equal to the 20% withheld to the 80% he has received, resulting in a rollover of the full distribution amount. The 10% premature distribution penalty (see Q 219, Q 417) may apply to the amount withheld where only the remaining 80% of the distribution is rolled over. Reg. §1.402©-2, A-11. ------------------ John L. Olsen, CLU, ChFC Olsen Financial Group St. Louis, MO 314-909-8818

Robert's "case study" is a FINE example of the perils of careless beneficiary designations. If surviving spouse dies soon, the other two beneficiaries' account balances will be forced out. They'll have no REMAINING TERM CERTAIN periods to use. I really HATE Annual Recalculation for both spouses, except in unusual cases. ------------------ John L. Olsen, CLU, ChFC Olsen Financial Group St. Louis, MO 314-909-8818

OOPS! I plain OVERLOOKED your having specified that the beneficiary shares WERE stated. (It's tax time, and I'm up to my hips in a couple of Byzantine estate cases. Be kind). Now that I've bothered to read ALL of what you said [exit self-flagellation mode], I believe that the RECALC issue will, as stated, be controlled by any default in the Custodial agreement. Absent same, it will be recalc/recalc. Which means that RMDs will be based as you stated in Q.1. Q.2 - I believe you're right. At surviving spouse's death, his/her LE becomes zero, which would require distribution of the entire balance by 12/31 of the following year. 3. Yes. One of these days, I am going to learn to SLOW DOWN and read ALL of a message before responding to it. Heck, I may even go so far as to THINK about my response first! ------------------ John L. Olsen, CLU, ChFC Olsen Financial Group St. Louis, MO 314-909-8818

The beneficiary will be the DEFAULT beneficiary according to the Custodial agreement. Many such agreements state that, in the absence of an election to the contrary, a surviving spouse shall be deemed to be 100% beneficiary. What does the Custodial IRA agreement say? The same holds true with respect to election of recalculation. Some Custodial agreements have a default. If this one is silent on the matter, Recalculation is assumed, per the 408 regs. Are you SURE that NO FORMS were filed with the Custodian? No beneficiary was EVER named - not even in the original account application? How in the world did the Custodian ever ACCEPT such an account? To whom does the Custodian say it will pay benefits? ------------------ John L. Olsen, CLU, ChFC Olsen Financial Group St. Louis, MO 314-909-8818

Re 59 1/2 distributions Sy Goldberg's "How To Pay Less Tax On Your Retirement Savings" (Lasser paperaback; available at most good book stores) is an excellent place to start. If you're prepared to wade through a lot of VERY complicated rules, check out Chapter VIII in Noel Ice's monster treatise on QP Distributions, available (for FREE!) on his website (www.trustsandestates.net). With regard to asking your IRA Custodian to help, that might work - if you luck into talking to someone who actually knows the rules. Unfortunately, a LOT of advice emanating from IRA Custodians is being dispensed by customer representatives who have VERY little knowledge or training, and who OFTEN confuse their Company Policies with Tax Law. The rules for pre-59 1/2 distributions (IRC 72(t)) are not all that easy, because they're not all that clear. The IRS has yet to define PRECISELY what will and will not work. I'd suggest consulting a pro who REALLY understands this subject. If your income requirements are such that a simple schedule like amortizing the account balance over your lifetime (from Table V) at, say, the Sect. 7520 rate (currently 8%) won't produce what you need, and you don't want to be locked into using a commerical annuity, you may need to apply for a Private Letter Ruling from the IRS, to approve the arrangement you eventually come up with. In any event, be aware that you MUST ADHERE TO THIS SCHEDULE UNTIL YOU REACH AGE 59 1/2, or ALL DISTRIBUTIONS WILL BE "RECAPTURED" FOR APPLICATION OF THE 10% PENALTY TAX. ------------------ John L. Olsen, CLU, ChFC Olsen Financial Group St. Louis, MO 314-909-8818

You cannot contribute more than $2,000 per year into a Roth IRA(or all IRAs combined, for that matter). Nor may you "convert" non-IRA funds to a Roth. And 28% is not a bracket for Long Term Cap Gains. You're probably looking at 20%. ------------------ John L. Olsen, CLU, ChFC Olsen Financial Group St. Louis, MO 314-909-8818

The following, from National Underwriter's "Advanced Sales Reference Service", may be helpful. ************* A “qualified first-time homebuyer distribution” is defined as any payment or distribution that is used within 120 days after the day it was received by the individual to pay the qualified acquisition costs of a principal residence of a first-time homebuyer. IRC Sec. 72(t)(8)(A). The aggregate amount of payments or distributions received by an individual from all Roth and traditional IRAs which may be treated as qualified first-time homebuyer distributions is limited to a lifetime maximum of $10,000. IRC Sec. 72(t)(8)(B). The first-time homebuyer may be the individual, his spouse, any child, grandchild, or ancestor of the individual or his spouse. A first-time homebuyer is further defined as an individual (and, if married, such individual’s spouse) who has had no present ownership interest in a principal residence during the two-year period ending on the date of acquisition of the residence for which the distribution is being made. IRC Sec. 72(t)(8)(D)(i), as added by TRA ’97. The date of acquisition is the date on which a binding contract to acquire the residence is entered into or the date construction or reconstruction of the residence begins. IRC Sec. 72(t)(8)(d)(iii), as added by TRA ’97. Qualified acquisition costs are defined as the costs of acquiring, constructing or reconstructing a residence, including reasonable settlement, financing, or other closing costs. IRC Sec. 72(t)(8)© . ------------------ John L. Olsen, CLU, ChFC Olsen Financial Group St. Louis, MO 314-909-8818

The "ordering rules" which govern the taxation of Roth distributions say that withdrawals, whenever taken, are considered to be annual contributions (the money you put in, each year), to the extent of any remaining annual contributions. Those contributions may be withdrawn at ANY time with no tax or penalty due. Once you've withdrawn all of your annual contributions, then you get into Conversions, and then the rules get a bit stickier. ------------------ John L. Olsen, CLU, ChFC Olsen Financial Group St. Louis, MO 314-909-8818

I have no doubt that SOMEBODY will inform our questioner that there IS, in fact, a "perfectly legal" way to do what he's attempting. The folks out there hawking "Constitutional Trusts" surely don't want to let an opportunity like this slip through their fingers! Maybe one of the former [?] promoters of "Charitable Reverse Split Dollar" would care to take a crack at it. ------------------ John L. Olsen, CLU, ChFC Olsen Financial Group St. Louis, MO 314-909-8818

If you mean "can I DEDUCT any loss in value which has occured in my traditional IRA account, on my Income Tax", the answer is NO. On the other hand, you don't have to declare that lost money as income. Hypothetically, if there had been NO GAIN in the account, you'd actually get some tax relief from a loss in value, because you might have enjoyed a tax deduction for every dollar you contributed, but will have to recognize as income only the current value (amount contributed, less investment "loss"). ------------------ John L. Olsen, CLU, ChFC Olsen Financial Group St. Louis, MO 314-909-8818

To contribute to a Roth IRA, one must have "earned income". Social Security, income from a retirement plan, deferred compensation, etc. do NOT count as such. As was noted, this requirement does NOT affect a CONVERSION to a Roth from a traditional IRA (as a "conversion" is not a "contribution"). ------------------ John L. Olsen, CLU, ChFC Olsen Financial Group St. Louis, MO 314-909-8818

If a 401(k) participant needs to borrow money from the plan, and may choose whether to borrow either deductible or nondeductible money, which would be the better choice? ------------------ John L. Olsen, CLU, ChFC Olsen Financial Group St. Louis, MO 314-909-8818

If your bank's employees are that ignorant of the BASICS of IRAs (as John said, the reasons for not combining "regular" and "conversion" Roth accounts were eliminated long since;they should have gotten the word by now), .... ... just IMAGINE how they'll perform when it comes to something really COMPLICATED. Alas, this institutional boneheadedness seems to be almost commonplace. Some IRA Custodians insist that "the law" REQUIRES what some functionary decided upon as bank POLICY, MANY will refuse to acknowledge a simple "per stirpes", in the beneficiary designation. MOST of the Custodians I surveyed would NOT allow an IRA beneficiary to name his or her own beneficiary. I believe there's a great opportunity here, for some savvy institutional custodian that is willing to act as a FIDUCIARY. ------------------ John L. Olsen, CLU, ChFC Olsen Financial Group St. Louis, MO 314-909-8818

Yes. Because the "ordering rules" affect the taxation of distributions from ALL Roth IRAs, there is no longer any practical reason to segregate the "rollover" from the "non-rollover" account. ------------------ John L. Olsen, CLU, ChFC Olsen Financial Group St. Louis, MO 314-909-8818

Bruce, I certainly agree that the solution is ALWAYS driven by the client's situation. The spreadsheet is simply a tool to discover - and, if that's successful, illustrate - a possible solution. I'm not in love with software. I'm in love with solutions that work. But I confess that some of the newer programs let me find solutions I couldn't be sure of without them. ------------------ John L. Olsen, CLU, ChFC Olsen Financial Group St. Louis, MO 314-909-8818

There are a number of software programs designed to help the practitioner do DISTRIBUTION PLANNING for IRAs and qualified plans, and more are being developed. They're getting MUCH stronger and MUCH more sophisticated. Unfortunately, that also means they're getting more COMPLICATED. Would there be interest in a discussion area devoted to looking at the programs available? As one who is rather heavily involved in this subject (I'm doing CE seminars on it), I'd be happy to contribute - and learn from folks who've found things I missed (or hadn't thought about). ------------------ John L. Olsen, CLU, ChFC Olsen Financial Group St. Louis, MO 314-909-8818