5 Year Roth Rules

[Guest Paladin]

If I set up a Roth IRA Dec 30, 2005, does my 5 year waiting end 1-1-2010??

I'm 58

Same question essentially for a Rollover Roth IRA????

Assuming I have a Roth Rollover account and I want to roll over 401k's (I have a couple) does the 5 year waiting period start from EACH rollover????

Thanks for any help

[Appleby]

The five year period would end 12/31/2009.

But see the posts at http://benefitslink.com/boards/index.php?showtopic=19477&hl

[Guest Paladin]

Thanks for the link...

Effectively the 5 year rule can turn out to be 4 plus a couple of days.

One source of confusion was/is that I'm used to seeing rules etc using terms "Rollover IRA" vs Regular IRA's"

Like my rollover can go back to a 401k but the regular IRA cant.

[Appleby]

U R welcome.

Before 2002, the rules you mention applied… Now your regular IRA can be rolled to your 401(k), if the plan is designed to accept rollovers from such IRAs….

A Rollover IRA, otherwise known as a conduit IRA, holds assets that were rolled from a qualified plan or 403(b) account.

To rollover your IRA, you distribute the assets and credit the amount to your IRA as a rollover. Does that help?

[Guest Paladin]

My brain just went south.

We have Regular IRA's, Conduit IRA's and Rollover IRA's????

What I want to do is get stock plus a very little cash in a 401K plan to a Roth IRA.

Technical stuff sounded like I have to move the 401K to a Regular IRA (rollover or conduit) and then move the IRA to a Roth IRA.

Once I do this, then I have a complicated question regarding the stock and it's valuation for tax purposes when it goes to the Roth.

The stock used to be SNTL Common stock but the company is in a very long and complicated Chapter 11 Plan which changed all the stock to "uncertificated" shares in a Litigation Trust for benefit of SNTL creditors.

The Plan and agreement with IRS says the "stock" is worth zero and can't be traded publically. The "problem" is there popped up an OTC market for these "uncertificated shares" for about .15 to .20 each.

Schwab has already told me they will use that value if I transfer to an IRA and the then to a Roth. I don't want to pay the tax and don't think I should have to. I screwed up and put my entire 401K in the stock originally and then bought after the BK. I'm trying to avoid tax on about $50,000 "worth" of stock.

I'm a classic example of not putting all eggs in one basket but it now looks like there is a chance the stock will in 4 years or so get about $4 per share or I get enough to haul butt to Baja forever.

[John G]

There are many parts to this story that do not add up.

Trying to do some fact checking on the above question was extremely difficult because of divergent threads of information on SNTL and litigation trust. One takes you to a former sun tan lotion company with three employees that somehow is now in high security systems - and trades pink sheets for pennies - and not every day! The other direction uncorks a world of bankruptcy and court settlements that tracks back of workers compensation fraud in California.... and that has dates in 2002.

I have some issues with the statements made - specifically about the IRS. First, the IRS does not set or establish the value of securities - markets do this. Second, the IRS does not determine if a stock can be legally traded - the SEC has this job.

I doubt that Schwab would let you do a Roth conversion involving a non-trading stock. It is the job of the custodian to establish the value of the stock on the date of conversion and the phrase "not applicable" applies to a stock that does not trade. Although I can not reliably find the stock (it is likely pink sheets and there are many similiar symbols), if Schwab says it is trading, the value will be determined based upon the date of the conversion transaction. You, the tax payer, have very little control over the day the paperwork gets processed.

I urge the readers of this post not to go looking into penny stocks for long term investments. This area is filled with toutists and more recently, the mob. There is ZERO reliable information on these companies. If you want to make wild bets, restrict it to more than $10 a year and try the track or the lottery. There are over 10,000 stocks of mini, mid and large cap companies in all sectors in just the USA for serious investors.

[Guest Paladin]

I can assure you this is a legitimate question and my facts are correct. The stock or "uncertificated" interests the Litigation Trust are true.

DO NOT BUY the crap....The Chapter 11 Plan specifically says the Trust has no responsiblity for tracking down and paying any new owners that happened after the Plan was approved.

Yes it was the Workers Compensation Fraud deal in California.

The symbol being used for the non approved trades is SNLLZ......

The www.sec.gov has information regarding the bankruptcy of the Company...the Company name was Superior National insurance group.

The Government has a Pay for Use web site....PACER for every Federal Court in the US.

I believe the Bankruptcy Court handling this California Central. It's all there and public record.

Schwab takes the position that there is a value on the "stock"...Schwab is dead wrong...the Second Amended Plan of Reorganization clearly states that from an IRS standpoint...the original stock went to ZERO when the Plan was approved....an estimated 98% of all stock was held outside IRA/401K type plans.

MY question was straight forward...this appears to be a great site for questions and especially the quality of the expertise of folks that provide answers.

If anyone wants to question my integrity then please feel free to call Terence Moore 559 304 7707

[John G]

Thank you for posting additional information. Your previously posted facts did not have enough details. The acronym or stock symbol of SNTL leads in many directions and coincidentally two of them involve penny stocks, both involving bankruptcies! In the past this site has had oblique references to penny stocks that were clearly touts in disguise, so as a moderator I did as much fact check as I could. Bear in mind, there are two audiances for responses: (1) the single person who posted the question and (2) potential hundred others who read information here. My comments about penny stocks was posted for the second group.

OK, so your question is related to the Quackenbush (Calif insurance commissioner) seized Superior National that was part of the worker's compensation problems in California. I have some knowledge about the impact on a few companies. It looks like the Superior National legal battle started five years ago. {I followed Fremont General for a while. They cut a deal to shed their liability to only get sued when Arnold's appointees took over the insurance commission, and only recently have they seen all claims dismissed.}

SNLLZ is listed as "SNTL Litigation Trust W/DB", a pink sheeted stock that occasionally trades. There is little public information in standard investor resources. The last price was reported as $0.14, but note that pink sheet stock price or volume data is not reliable. Some sources suggest that the stock has traded erradically between $0.10 and $0.20 for the past year, with recent spikes in volume. You won't find information about this stock from Standard and Poors, Reuters, Argus, Goldman Sach or Morgan Stanley... such is the world of bankrupt companies in the pink sheets.

You apparently want to use some IRS comment about the value of the company to determine the valuation in a Roth conversion. Sorry, that's not the way it is done. The valuation of a stock is not based upon what the IRS or a court might say, but rather the value placed by the market place. Apparently, this stock does trade on some days and there is a non-zero price. Some parties seem to think that there may be some upside value to the stock. Ideally you would like to see prices set by a more active market... but that's not the case here. You alluded to a potential for the stock to be worth $4 a some point. If that has a 5% probability, one year out, someone might be willing to pay $0.14 for the potential payoff. If any of the original holders of this stock are still around, they would likely be making tax loss sales right now.

I agree with Schwab's position. SNLLZ is not dead, just nearly dead. I can't pull up the historical data on the original company stock prices, but a "zero" price at some prior date is not relevant. There is a current market price for the stock. {This happens a lot with bankrupt companies. Enron is now listed as ECSPQ and traded over 5,000 shares for $0.10 on Friday in the pink sheets} If you do a conversion, both you and Schwab is required by law/regulation to use the most recent stock price to set a value on the conversion. Schwab has a fiduciary duty and they are not supposed to be an advocate for your view on the stock value. If you think a future price of $4 is highly likely then paying tax on a $0.14 (more or less, you don't control the date of the conversion paperwork) could be profitable. If the future value is uncertain, why not leave the stock in your 401K? This way you would not be paying conversion taxes now for a stock that might subsequently have no value.

[Guest Paladin]

Thanks for your response.....you do do your homework...and Yes Fremont is an interesting deal...quite a coup that was pulled over Big John, Ins Commissioner

The chapter 11 Plan has progessed far enough that it is somewhat "simple" now if there is such a thing in this mess.

I believe all the A, B and part of C creditors have now been paid from the proceeds of the $130,000,000 settlement from Foundation Health who was the parent of Cal Comp which comitted the fraud on its sale to Superior National.

The basic status is now JP Morgan Chase is using $1.4 Billon of NOL's from Superior. Based on the terms of sale of the NOL's, Chase will start paying money back to the Litigation Trust in about 4 to 6 years. Assuming the two remaining large claims in BK, ie, Centre Re and the Surety Claims can be settled at what informed people think is fair, then the NOL money from Chase will pay off the remaining C claims and D claims...the prior SNTL stock holders are E Creditors. There were about 18 million shares outstanding and the "math" indicates a chance of around $4 per "share" going back to E creditors.

Bottom line your advice has helped my thought process...why take a chance that the Plan doesn't mean what it says and I get into big fight with the IRS over the "value" of what was transferred to a Roth IRA.

Yes I'll leave it in the 401K and pay taxes when and if I ever "win" on this deal.

Thanks for your thoughts.

PS It is a mistake to refer to the current "stuff" being traded as stock, it isn't, there is nothing at all that anyone receives when they buy SNLLZ "uncertificated" shares. It's a hope and dream and assumes that the Dispersing Agent for the Lititgation Trust will not follow the approved Bankruptcy Plan of Reorganization for paying creditors.

[John G]

I just re-read your last post. I am now wondering if the shares that you hold should be considered the same as the shares that are currently trading. I had assumed that they were the same. Perhaps not. It is not an issue that I can not resolve from the info I have found on the internet.

You may want to correspond with the court or track down a lawyer who specializes in bankrupt companies. An hour consultation may be worthwile given the number of shares. You missed the window when you could have shown that the shares were worthless.

[Guest mjb]

I dont understand what is the basis for the value of stock that you are holding. When a company files for Chapter 11 bankruptcy the assets of the Co, including its stockholders equity become property of the bankruptcy estate which is subject to the claims of its creditors of whom the hightest priorty (after holders of secured debt) are the holders of bonds. If there are insufficient assets owned by the bankrupt co to pay the creditors, the stockholders equity will be divided among the bondholders who then will own equity in the reorganized company when it emerges from bankruptcy. Sometimes, but not very often, the holders of equity in the prebankruptcy company recieve a cash settlement. Usually the holders of the equity in the pre bkcy co get bupkis (0). When the co. emerges from bkcy the creditors holding debt receive a new class of equity in the reorganized co which has no connection with the stock of the prebankruptcy co.

The odd thing about co. that file for ch 11 is that very frequenty a market emerges in the shares of the bankrupt co by speculators who trade up the price of the stock in the mistaken belief that there will be some residual cash value for equity owners after the creditors are paid off. ( United Airlines anyone)

What I cannot determine is whether the stock you hold is pre or post bankruptcy stock.

[Guest Paladin]

I guess Im having a hard time communicating a very complicated Reorg Plan

#1 The stock pre BK was cancelled..gone...does not exist.

#2 The old stockholders picked up UNcertificated prorata shares in Series E Litigation Trust

#3 The Plan is clear..there is no more stock, the value went to ZERO

#4 The "trading" is not authorized by the Plan and the Trustee of the Lit Trust has no responsibility to track down and sales or change of ownership.

#5 The Plan says that any payment to past stock holders will be treated as 100% gain.

#6 The old stock holders that held stock outside of a 401K plan have already taken a 100& write off loss.

#7 The Trust by IRS rules and agreement has to be valued each and every Oct 1 to detirmine VALUE according to their rules.

#8 The valuation mst assume that all pending disputed claims be valued at disputed amount which means that the Series E Litigation Trust Certs are still "worth" zero.

I know the value is zero from the strandpoint of transferring to a Roth but like I said before the advice makes me not want to fight the IRS over something that may never happen. If I knew for a fact that I would be getting $4 per share times 260,000 in 5 years, I would probably move to Roth and fight the IRS.

I'd sure like to have the benefits of a Roth but?????