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Restarting RMDs in 2010 — THEY'RE BACK!

The April issue of Ed Slott's IRA Advisor Newsletter goes into detail about the return of RMDs in 2010. The Worker, Retiree, and Employment Recovery Act (WRERA) of 2008 included a temporary suspension of RMDs for both IRAs and defined contribution plans in 2009.

However, WRERA left many questions on what RMDs must be taken in 2010 and how those withdrawals will be calculated. It is important for all clients to take the RMD for 2010 as any RMDs not taken are subject to the 50% penalty.

For a more detailed analysis of this subject, check out the April issue of the newsletter.


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Inside Ed Slott's IRA Advisor Newsletter

Restarting RMDs in 2010
They're Back!

  • 3 Things WRERA Did Not Change
    1. The Required Beginning Date
    2. Life Expectancies for Non-Spouse Beneficiaries
    3. Which Year-End Balance to Use
  • Stretch IRAs for 2008 and 2009 Plan Beneficiaries
  • 5-Year Rule Extended
  • Answers to Common Questions
  • Advisor Action Plan

Court Denies 10% Penalty Exception for IRS Levy

  • James A. and Linda A. Willhite v. Commissioner of Internal Revenue
  • IRS Levy Exception
  • Facts of the Case
  • The Ruling

Guest IRA Expert
Michael J. Jones, CPA
Thompson Jones, LLP
Monterey, California

Roth IRA Conversions:
Dealing with Nontraditional Assets in Traditional IRAs

If you are not already an Ed Slott's IRA Advisor Newsletter subscriber, you can preview past issues before subscribing.


The IRA owner has died. Only one individual is named on the beneficiary form, let's call him David. He wants to do the right thing and share the IRA with his siblings or the other individuals who should have had a share of the IRA. I know, it is hard to believe but some beneficiaries do want to do the right thing!

So, what can David do? Frequently, beneficiaries look to do a disclaimer. If David disclaims the IRA he will be treated as though he died before the account owner. For many assets, that would mean the asset passes in accordance with the terms of the will. That does not always happen in the case of an IRA.

After David disclaims the IRA, you have to look at the beneficiary form. If there is a contingent beneficiary named, that is who will inherit the IRA after the disclaimer. When there is no contingent beneficiary, then you have to look at the default language in the IRA agreement. Some agreements will say that if there is no beneficiary then the account goes to the spouse, if there is no spouse the account will go to the children. Many IRA agreements will say that if there is no beneficiary, then the account will pass in accordance with the will.

Bottom line, before you disclaim an IRA, you need to know where it will go. The beneficiary cannot direct where the asset goes when he disclaims. Since a disclaimer is a legal document, you should also consult with an attorney familiar with disclaimers to ensure that you meet all the necessary requirements of a qualified disclaimer.



A taxpayer we will call Doug had a 'golden opportunity' to invest in a limited parternship...but he had to act fast!

As the admission deadline approached, Doug learned that his financial institution would be unable to distribute the funds from two IRAs by the required date.

The investment company advised Doug that the investment could be made with non-IRA funds and later, when the IRA funds were available, could be 'restructured' as an IRA. (This is completely false. There can be NO self dealing between an IRA owner and an IRA.)

Doug eventually received IRA funds and put them in a separate account in a different institution. The funds were NOT commingled with other funds and the funds were NOT used for any other purpose.

The investment company told Doug the account MUST be maintained as an IRA and that it would send the appropriate documents. On the 60th day after the withdrawal from the IRA, the fund company told Doug the IRA could NOT be established for another 10 days.

Doug is granted an extension to roll the IRA funds into an IRA. In this case, he is very, very fortunate the investment company erred. If he had done what they advised him to do and restructured the investment as an IRA, he would have had a prohibited transaction.

The amount of his investment would be taxable in the year of the restructuring (and subject to the 10% early distribution penalty if he was under age 59 1/2) and he would not have an IRA.


Q: Under what circumstances is an inherited Roth IRA subject to estate taxes if it's left to beneficiaries? Is the Roth considered part of the taxable estate, or does it escape estate tax altogether? Or does the answer depend on certain circumstances? What is the best answer, and why does there seem to be a lot of inconsistency about this matter?

A: An inherited Roth IRA is always part of the taxable estate. While distributions from the inherited Roth account are income tax-free, they are NOT estate tax-free if the overall estate is subject to estate tax. The federal estate tax has been eliminated, so far, for 2010.

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