John Olsen

NUTS! In the previous response, please read "after" instead of "before". I GOTTA learn to check my stuff before posting it. ------------------ John L. Olsen, CLU, ChFC Olsen Financial Group St. Louis, MO

Rule Number One: If the IRA owner's death was prior to Required Beginning Date, the ENTIRE amount of the IRA must be distributed by 12/31 of the year following the death of the IRA owner, as there was no "designated beneficiary". Rule Number Two: If death was before the RBD, the Five Year Rule applies. Distributions must be taken before 12/31 of the fifth year following the year of death. No exceptions are available, as there was no "designated beneficiary". IRC 401(a)(9)(B)(ii) ------------------ John L. Olsen, CLU, ChFC Olsen Financial Group St. Louis, MO

NO, the spouse CANNOT "roll over" any IRA received from her husband UNLESS SHE WAS THE "DESIGNATED BENEFICIARY". ------------------ John L. Olsen, CLU, ChFC Olsen Financial Group St. Louis, MO

The 5 year rule applies if the IRA owner or plan participant died BEFORE reaching Required Beginning Date. If death occurred AFTER the RBD, then the non-spousal beneficiary would be able to take distributions over the remainder of the Joint Life Expectancy of the deceased plan participant and beneficiary (if plan participant had opted NOT to use annual recalculation of his age)or the remainder of the beneficiary's Single Life Expectancy (if annual recalc had been elected). ------------------ John L. Olsen, CLU, ChFC Olsen Financial Group St. Louis, MO

As I read it, the language simply says that, if the existing Custodian is removed and no sucessor is appointed, the account value will be distributed. As IRA Custodial accounts MUST, by LAW, have a valid Custodian, why is this surprising? Would the law permit a Custodial account to "hang in there", absent a valid Custodian, while a Successor is being sought? I doubt that. I believe, with John G., that Market Forces will cause the Plan Sponsor, upon notice of resignation by the Custodian, to arrange for a Successor - or, better yet, have arranged for same in advance. ------------------ John L. Olsen, CLU, ChFC Olsen Financial Group St. Louis, MO

The value, for 706 purposes,of an IRA is its fair market value on date of death. There is no discounting of the sort you've described. If the beneficiary is a surviving spouse, the IRA qualifies for the Marital Deduction, which means none of that asset is includible in the TAXABLE estate. ------------------ John L. Olsen, CLU, ChFC Olsen Financial Group St. Louis, MO

If the variable annuity is funding a qualified plan (pension, profit sharing, 401(k), etc.), that qualified plan account can be "rolled over" to an IRA [provided rollover requirements are met], funded by whatever IRA-eligible funding vehicle you wish. If the variable annuity is non-qualified, then the only way you could "convert" this money to an IRA would be to surrender the annuity, pay the Surrender Charges (if any) AND the 72(t) 10% "early distribution" penalty [if applicable], and contribute NO MORE THAN $2,000 of the proceeds to an IRA. You cannot "CONTRIBUTE" a Variable Annuity account to an IRA directly, even if the balance in that annuity doesn't exceed $2K. That is because contributions to non-rollover IRAs must be in CASH, not "in kind". ------------------ John L. Olsen, CLU, ChFC Olsen Financial Group St. Louis, MO

Bruce, Alas, many financial institutions (not only ones named for part of a field army) are downright mulish when it comes to accepting designations which differ from their own templates. Cy Goldberg tells of Trust Company and Mutual Fund home offices which neither know, nor apparently wish to know, what the law permits, with regard to distribution options. I had a service person from a fund company object to my beneficiary designation submitted for a client's account with that firm (we didn't want to use their stock form, as it was silent on almost EVERY point, INCLUDING RECALCULATION), saying "we don't get into stuff like 'per stirpes'". The word I hear is that things are getting better, because the Fund Companies, Banks, and Trust Companies are learning that, if they don't want to accomodate reasonable requests, SOMEBODY ELSE WILL BE HAPPY TO. Alas, this hasn't penetrated to all quarters of the industry, yet. Goldberg has some good suggestions on this issue in his "Pension Distributions, Planning Strategies: Cases and Rulings" (1998, Seymour Goldberg - a link to ordering is on this Roth IRA Web Site). ------------------ John L. Olsen, CLU, ChFC Olsen Financial Group St. Louis, MO

Carter, The "best" place to invest your Roth IRA money depends upon your particular tolerance for risk, time horizon (when will you want to withdraw the money), and goals (how much return do you require, realizing that Return and Risk are partners - to get more of one, you're going to get more of the other). If you demand SAFETY OF PRINCIPAL (you can't lose any of the money you invested), you'll have to settle for rather modest (not to say "paltry") returns. If you can handle the prospect of PRINCIPAL RISK (that you not only aren't guaranteed a rate of return ON your investment, but you might lose some - or, theoretically, all - of the money you invested [your principal]), AND if you will be investing and withdrawing this money over a long TIME, then EQUITIES - stocks, or stock mutual funds - is PROBABLY the general category for MOST (if not all) of your IRA money. As to where, in that general category, you should be investing, that's a question which can only be answered by you (perhaps, with the assistance of a financial advisor who understands YOUR goals and YOUR situation). You might start by checking out (perhaps literally; libraries are a GREAT resource) general books on investing. Andrew Tobias is pretty good. Jane Bryant Quinn is pretty sharp about some things, but is both biased and remarkably ignorant, when it comes to insurance and certain types of investments [e.g.: annuities]). And there are lots of others. READ a lot! Discuss this subject with folks whose judgment you value. Above all, remember two rules: 1. Bulls Get Rich. Bears Get Rich. Pigs Get Slaughtered. If it looks too good to be true, IT IS! 2. If it makes you lose sleep, DON'T DO IT! Best wishes, ------------------ John L. Olsen, CLU, ChFC Olsen Financial Group St. Louis, MO

I don't see the problem. I have an IRA with Oppenheimer, and my checks are sent to them, payable to "Oppenheimer Funds". ------------------ John L. Olsen, CLU, ChFC Olsen Financial Group St. Louis, MO

You may NOT "borrow" from your own IRA - EVER, for ANY reason! DISTRIBUTIONS made from an IRA are subject to various tax rules, including some EXCEPTIONS TO THE 10% 72(t) PENALTY which turn on the use of the money distributed [rather like "tracing rules"]. The "qualified first-time homebuyer's" exception is one of these. Not incidentally, the respondent who observed that using the Roth IRA to purchase a home COULD be a big mistake makes a good point. You cannot "repay" that distribution. You've lost the opportunity for tax deferred - and, eventually, tax FREE - growth of that money. That said, if the Roth distribution is the only way you can get the home, maybe it makes sense. Like everything else, it's a tradeoff. ------------------ John L. Olsen, CLU, ChFC Olsen Financial Group St. Louis, MO

He can still access the money in the Roth to buy the home, but the earnings will NOT be exempt from the 72(t) penalty, by reason of the "first time homebuyers's" exception (because he will have been an owner of a principal residence within 2 yrs of buying the new home [assuming that the new home is bought within that time]). You cannot borrrow against or from ANY type of IRA. It's a "prohibited transaction" and causes immediate disqualification of IRA and recognition of income. ------------------ John L. Olsen, CLU, ChFC Olsen Financial Group St. Louis, MO

Richard, Not only are your conclusions, in the scenario you present, entirely correct, but there is at least one other significant advantage to this "stretch out" Roth IRA which you did not mention. IN THOSE STATES which have accorded Roth IRAs the SAME CREDITOR PROTECTION as "regular" IRAs, the 30-year old beneficiary has, not only a LIFETIME of TAX FREE INCOME, but the assurance that this income will be generally exempt from attachment by creditors. Alas, MANY state "creditor protection" statutes do NOT include ROTH IRA accounts, specifically. Some, like MO, have statutes which make specific reference to IRC Sect. 408. As the ROTH IRA is governed, not by 408, but by 408A - A DIFFERENT SECTION - the creditor protections arguably do not apply to Roths. It is worth checking YOUR STATE'S laws on "creditor protection" to see if ROTH IRAs are accorded the same protection as "regular" IRAs. ------------------ John L. Olsen, CLU, ChFC Olsen Financial Group St. Louis, MO

Bruce, I would SURE like to get a copy of that article. Alas, I don't take Estate Planning, and neither does Washington University Law School. I'd be happy to pay for a reprint. ------------------ John L. Olsen, CLU, ChFC Olsen Financial Group St. Louis, MO

Richard, Thank you for your kind words. It is not necessary to repeat the identities of sender and intended recipient, unless it's not clear from context. No beneficiary, save a surviving spouse, may elect to treat an inherited IRA as his/her own. That election would include the ability to make recurring contributions to same. Having inherited an IRA doesn't preclude one from establishing one's own. Beneficiaries of ALL IRAs, even ROTH IRAs, are subject to "Required Minimum Distribution" rules. Those rules are VERY complicated. However, there are some EXCELLENT articles on same, right here on the rothira web site. I STRONGLY recommend that you read a few - especially those by Natalie Choate and Barry Picker. I referred to "tax deferral" in the "stretch out" IRA, because one cannot defer the tax on the GAIN on monies one is obliged to withdraw - because there won't BE any further tax deferred gain on a dollar withdrawn. "Designated beneficiary" means an INDIVIDUAL (or a Trust, for the benefit of one or more INDIVIDUALS, provided that the Trust meets a number of tricky requirements, such that it is, itself, a "Designated Beneficicary Trust") named NO LATER THAN the IRA owner's "Required Beginning Date". If NO designation is made, there may be a beneficiary, by action of State intestacy laws, or a default to "owner's estate" in the IRA Trust agreement, but that won't be the same thing. ONLY a "designated beneficiary" gets the opportunity to take distributions over LIFE EXPECTANCY. If you want to name a minor, you'll need to be REALLY careful. Minors cannot "take" under the law; somebody of age - and invested with the authority and responsibility to act on the minor's behalf - must do so. Who would that be? I STRONGLY, VERY STRONGLY, suggest that you consult an attorney who REALLY understands Required Minimum Distributions, particularly as they relate to TRUSTS, before making a decision on this matter. In addition to Dr. Daryanani's book, may I suggest Seymore Goldberg's "How To Pay Less On Your Retirement Savings" (Lasser paperback)? Goldberg has also written two (to my knowledge) books on the subject for financial advisors. For really IN DEPTH understanding of this issue, I cannot recommend highly enough Natalie Choate's "Life and Death Planning for Retirement Benefits". Like Cy Goldberg's "pro books" it's not cheap (it's $79 in paperback, with a 1988 Addendum), but IT IS, IN MY OPINION, WORTH ITS WEIGHT IN GOLD. My copy is DOG-EARED (possibly because I have to read something two or three times to get it through my skull). It's listed on this website, or you can order it directly from Natalie's website, www.ataxplan.com. Best regards, ------------------ John L. Olsen, CLU, ChFC Olsen Financial Group St. Louis, MO

The only beneficiary of an IRA (Roth or otherwise) who can take over the decedent's IRA as "his own" is a surviving spouse. All other beneficiaries must take Required Minimum Distributions per IRC 401(a)(9). There is still the opportunity for a CONSIDERABLE "stretch out" of tax deferral, but not as much as you outlined. ------------------ John L. Olsen, CLU, ChFC Olsen Financial Group St. Louis, MO

The rules say that the deadline is the DUE DATE of your return, not the day you actually FILE it. ------------------ John L. Olsen, CLU, ChFC Olsen Financial Group St. Louis, MO

Haydenks: True, but a National Sales Tax would be IN ADDITION to State and Local sales taxes. Thus, the money WOULD be "taxed twice", compared to the tax treatment under the present setup. ------------------ John L. Olsen, CLU, ChFC Olsen Financial Group St. Louis, MO

You can withdraw the annual (non-rollover) contributions to your Roth IRA at ANY time with NO tax consequence. But you cannot REPLACE that money, as if it were a plan LOAN. All you can put into a Roth is 2K/year, so, if you plan on being able to do that each year, any withdrawal you make cannot be replaced. ------------------ John L. Olsen, CLU, ChFC Olsen Financial Group St. Louis, MO

I believe you've identified the problem quite accurately. If a National Sales Tax is implemented, ROTH accountholders will lose the benefits promised. Now, will that happen? Nobody knows. What are the CHANCES of that happening? Nobody knows. Personally, I cannot plan on that basis. Just as I cannot do estate planning on the basis that the Federal Estate Tax MIGHT be repealed. So... I've taken the position that it's more an EMOTIONAL than FINANCIAL decision. As the financial consequences of your scenario cannot be quantified (unless one is willing to estimate the probability to the passage of a NST for the period of time being analyzed, and place sufficient faith in the result of any equation based on that estimate as to let it determine one's financial future), I think it's a matter of Sleeping Soundly. If worry over the prospect of paying tax on the same dollars twice (which is what would happen if you converted to a ROTH and those ROTH dollars were then subject to a NST) will keep you awake at night, DON'T DO THE ROTH! But I suppose I should confess, at this point, a rather strong bias. I believe that Financial Planning (and Estate Planning, too) is 90% emotional and 10% financial. ------------------ John L. Olsen, CLU, ChFC Olsen Financial Group St. Louis, MO

Mac, I don't dispute that MANY "financial advisors" life insurance agents, stockbrokers, financial planners - even some accountants and attorneys - who offer opinions on retirement planning, and technicalities therein, are woefully ignorant. I simply wondered why you were picking on life insurance agents specifically. As you say, the ignorance is widespread. When it comes down to the technicalities of the distribution rules (our beloved 401(a)(9)), the spread of bum information has reached epidemic levels. ------------------ John L. Olsen, CLU, ChFC Olsen Financial Group St. Louis, MO

The Excise Tax on "excess accumulatons" in IRAs and qualified plans (IRC 4980A) has been repealed.

Why would you assume that the bogus advice (and it is surely that!) comes from an insurance agent or broker? ------------------ John L. Olsen, CLU, ChFC Olsen Financial Group St. Louis, MO

Kathy, They may be thinking of legislation currently in the House which will permit a living IRA accountowner to GIFT her IRA to a Charitable Remainder Trust without triggering tax to the donor. (I SURE hope it passes. We NEED it!) Or it may be the same kind of "urban legend" muleheadedness which compels some folks, each year, to buy into schemes like the "Constitutional Trust", because they've HEARD that they can get away with it. ------------------ John L. Olsen, CLU, ChFC Olsen Financial Group St. Louis, MO

Actually, both techniques are dollar-cost averaging. Over a twenty year period, the second one will average 240 costs. The first one will average 20. I prefer the lump sum technique, because (a) I don't know WHEN the market will "dip" any more than I know when it will rise suddenly, but I want to be IN the market when the latter happens, and (B) I want all the TIME working for me that I can get. Of the three components of the accumulation equations (Payment, Time [Number of periods], and Yield), TIME is, by FAR, the most influential. ------------------ John L. Olsen, CLU, ChFC Olsen Financial Group St. Louis, MO