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Self-Directed IRA Implodes
May 20, 2013
By Kaye A. Thomas
Individual retirement accounts typically hold conventional investments such as publicly traded stocks, bonds, mutual funds and certificates of deposit. If you want it to hold something unusual, such as real estate or an interest in a business that isn’t publicly traded, you have to establish a self-directed IRA at a financial institution that will accept these entities. I’m not a fan of the idea, and a recent Tax Court case illustrates one of the dangers.
May 20, 2013
By Kaye A. Thomas
Individual retirement accounts typically hold conventional investments such as publicly traded stocks, bonds, mutual funds and certificates of deposit. If you want it to hold something unusual, such as real estate or an interest in a business that isn’t publicly traded, you have to establish a self-directed IRA at a financial institution that will accept these entities. I’m not a fan of the idea, and a recent Tax Court case illustrates one of the dangers.
Expert’s Expert on IRAs
May 19, 2013
Where does an expert turn for answers on IRAs? Whenever possible, I turn directly to the law: Internal Revenue Code, regulations, IRS rulings and court cases. Sometimes I want a reliable way to get to an answer more quickly though, and fortunately there’s a great way to do that. I reach for one of the most valuable books in my library, Life and Death Planning for Retirement Benefits by Natalie B. Choate. This 600-page reference would be overkill for an investor who might have an occasional question about how to deal with an IRA or other retirement account. For a financial advisor or tax professional who regularly deals with retirement planning issues, the book is simply indispensable. I’ve referred to it often, and it never lets me down.
- Learn more about this book and the author at Ataxplan Publications.
May 19, 2013
Where does an expert turn for answers on IRAs? Whenever possible, I turn directly to the law: Internal Revenue Code, regulations, IRS rulings and court cases. Sometimes I want a reliable way to get to an answer more quickly though, and fortunately there’s a great way to do that. I reach for one of the most valuable books in my library, Life and Death Planning for Retirement Benefits by Natalie B. Choate. This 600-page reference would be overkill for an investor who might have an occasional question about how to deal with an IRA or other retirement account. For a financial advisor or tax professional who regularly deals with retirement planning issues, the book is simply indispensable. I’ve referred to it often, and it never lets me down.
- Learn more about this book and the author at Ataxplan Publications.
Basis Isolation for Roth Conversions
March 26, 2013
By Kaye A. Thomas
We first posted on the topic of basis isolation for Roth conversions some four years ago, and we continue to receive inquiries on the topic. In response, we’ve upgraded our coverage. Previously we had a single article that described and critiqued the techniques that have been proposed. Now we offer a collection of seven articles dealing with different aspects of the topic.
March 26, 2013
By Kaye A. Thomas
We first posted on the topic of basis isolation for Roth conversions some four years ago, and we continue to receive inquiries on the topic. In response, we’ve upgraded our coverage. Previously we had a single article that described and critiqued the techniques that have been proposed. Now we offer a collection of seven articles dealing with different aspects of the topic.
Last Chance for Retroactive Charitable Distributions
January 29, 2013
As reported here earlier, the American Taxpayer Relief Act of 2012 includes provisions making it possible to treat certain 2013 transactions qualified charitable distributions from IRAs for tax year 2012 — but you have to act by the end of January. Limited guidance from the IRS, including how these transactions affect required minimum distributions, is available here.
January 29, 2013
As reported here earlier, the American Taxpayer Relief Act of 2012 includes provisions making it possible to treat certain 2013 transactions qualified charitable distributions from IRAs for tax year 2012 — but you have to act by the end of January. Limited guidance from the IRS, including how these transactions affect required minimum distributions, is available here.
IRS to Issue Guidance on In-Plan Conversions
January 29, 2013
Speaking at a meeting of the Tax Section of the American Bar Association, a Treasury official said there is a plan to issue guidance concerning in-plan Roth conversions. As reported here earlier, the American Taxpayer Relief Act of 2012 expanded the availability of these transactions, which move assets from a traditional 401k or similar account to a designated Roth account within the same plan. The timing for this guidance has not yet been determined but the goal is to have it out by mid-year.
January 29, 2013
Speaking at a meeting of the Tax Section of the American Bar Association, a Treasury official said there is a plan to issue guidance concerning in-plan Roth conversions. As reported here earlier, the American Taxpayer Relief Act of 2012 expanded the availability of these transactions, which move assets from a traditional 401k or similar account to a designated Roth account within the same plan. The timing for this guidance has not yet been determined but the goal is to have it out by mid-year.
Qualified Charitable Distribution Transition Rule
January 11, 2013
The American Taxpayer Relief Act of 2012 (ATRA) extends the tax treatment of qualified charitable distributions from IRAs, so that they are available for 2012 and 2013. Because this law wasn’t enacted until January 2013, it includes a special transition rule. You can take advantage of this rule retroactively for 2012, but only if you act before the end of January 2013.
January 11, 2013
The American Taxpayer Relief Act of 2012 (ATRA) extends the tax treatment of qualified charitable distributions from IRAs, so that they are available for 2012 and 2013. Because this law wasn’t enacted until January 2013, it includes a special transition rule. You can take advantage of this rule retroactively for 2012, but only if you act before the end of January 2013.
American Taxpayer Relief Act
January 3, 2013
By Kaye A. Thomas
In a last gasp effort Congress passed legislation to avert the fiscal cliff and prevent tax increases on 98% of Americans. Key features of the American Taxpayer Relief Act of 2012 (“ATRA”) include the following:
- Existing income tax rates (including marriage penalty relief) are preserved for taxpayers with income up to $400,000 ($450,000 for couples filing jointly). A tax rate of 39.6% applies above that level.
- Qualified dividends will continue to be taxed at capital gain rates, but a 20% rate will apply to both of these beginning at the income thresholds mentioned above.
- The personal exemption phaseout and the Pease rule for reducing itemized deductions are revived, but at higher income levels than under prior law.
- The law permanently fixes the alternative minimum tax (“AMT”), eliminating the recurring need for an “AMT patch.”
- Seemingly out of nowhere, the law expands the availability of in-plan Roth conversions.
- The estate tax provisions are more generous than might have been expected, retaining the $5 million exemption and raising the rate by only 5 percentage points, to 40%.
January 3, 2013
By Kaye A. Thomas
In a last gasp effort Congress passed legislation to avert the fiscal cliff and prevent tax increases on 98% of Americans. Key features of the American Taxpayer Relief Act of 2012 (“ATRA”) include the following:
- Existing income tax rates (including marriage penalty relief) are preserved for taxpayers with income up to $400,000 ($450,000 for couples filing jointly). A tax rate of 39.6% applies above that level.
- Qualified dividends will continue to be taxed at capital gain rates, but a 20% rate will apply to both of these beginning at the income thresholds mentioned above.
- The personal exemption phaseout and the Pease rule for reducing itemized deductions are revived, but at higher income levels than under prior law.
- The law permanently fixes the alternative minimum tax (“AMT”), eliminating the recurring need for an “AMT patch.”
- Seemingly out of nowhere, the law expands the availability of in-plan Roth conversions.
- The estate tax provisions are more generous than might have been expected, retaining the $5 million exemption and raising the rate by only 5 percentage points, to 40%.
ATRA Expands Roth Conversions
January 3, 2013
Our book Go Roth! lists eight ways the availability of Roth retirement accounts has increased since 2005. The American Taxpayer Relief Act of 2012 (“ATRA”) adds another. Beginning in 2013, if permitted by your employer’s plan, you can convert an existing 401k, 403b or 457b account to a Roth account, even if you aren’t eligible to take a distribution.
January 3, 2013
Our book Go Roth! lists eight ways the availability of Roth retirement accounts has increased since 2005. The American Taxpayer Relief Act of 2012 (“ATRA”) adds another. Beginning in 2013, if permitted by your employer’s plan, you can convert an existing 401k, 403b or 457b account to a Roth account, even if you aren’t eligible to take a distribution.
Roth Conversions Ahead of 2013 Tax Increases
September 20, 2012
By Kaye A. Thomas
High-income individuals have special reasons to consider Roth conversions before the end of 2012. They can benefit in two ways:
- Scheduled increases in income tax rates could make it more expensive to convert to a Roth after 2012.
- These same increases, together with other increases targeting investment income, could significantly enhance the post-conversion benefits.
This post is an excerpt from the new edition of our book Go Roth!, which is now available. Click here for details.
September 20, 2012
By Kaye A. Thomas
High-income individuals have special reasons to consider Roth conversions before the end of 2012. They can benefit in two ways:
- Scheduled increases in income tax rates could make it more expensive to convert to a Roth after 2012.
- These same increases, together with other increases targeting investment income, could significantly enhance the post-conversion benefits.
This post is an excerpt from the new edition of our book Go Roth!, which is now available. Click here for details.
403b Compliance Isn’t Universal
July 31, 2012
The IRS Employee Plans Compliance Unit is conducting a survey of colleges and universities to assess their compliance with the universal availability rule for 403b plans. This rule says that with limited exceptions, all employees must be eligible to participate when such a plan is offered. Interim results of the survey indicate that many of these institutions fail to comply with the rule, excluding certain categories such as administrative employees or adjunct faculty. While certain exclusions are permitted (such as employees normally working fewer than 20 hours per week and certain student employees), employers offering these plans are not permitted to impose other restrictions on participation.
This rule is a condition for qualification of the plan, so correction of the problem will be mandatory. In some cases employers may be required as part of the correction process to make plan contributions for employees who were improperly excluded.
July 31, 2012
The IRS Employee Plans Compliance Unit is conducting a survey of colleges and universities to assess their compliance with the universal availability rule for 403b plans. This rule says that with limited exceptions, all employees must be eligible to participate when such a plan is offered. Interim results of the survey indicate that many of these institutions fail to comply with the rule, excluding certain categories such as administrative employees or adjunct faculty. While certain exclusions are permitted (such as employees normally working fewer than 20 hours per week and certain student employees), employers offering these plans are not permitted to impose other restrictions on participation.
This rule is a condition for qualification of the plan, so correction of the problem will be mandatory. In some cases employers may be required as part of the correction process to make plan contributions for employees who were improperly excluded.
Our books
| That Thing Rich People Do |
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The fastest, easiest way to learn the principles of investing. |
| Go Roth! | |
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Our complete guide to Roth IRAs and Roth accounts in employer plans: choosing, creating, building and using these accounts. |
| Consider Your Options | |
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A plain-language guide for people who receive stock options or other forms of equity compensation. |
| Equity Compensation Strategies | |
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A text for financial advisors and other professionals who offer advice on how to handle equity compensation including stock options. |
| Capital Gains, Minimal Taxes | |
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Tax rules and strategies for people who buy, own and sell stocks, mutual funds and stock options. |