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January 2010 is a new beginning. A decade is in our rearview mirror, and there is a major change to Roth IRA conversions to ring in the New Year.

This month marks the end of the $100,000 income cap on Roth conversion eligibility. What does this mean?

First of all, anyone can now convert, including higher-income IRA owners. This will draw more attention to the Roth conversion strategy in 2010. More information on this can be found in January's issue of Ed Slott's IRA Advisor Newsletter.

You can also learn more about 2010 Roth Conversion Planning at our 2-Day IRA Workshop in Orlando, Florida on March 19-20.




Inside Ed Slott's IRA Advisor Newsletter

Feature Article

Top IRA Rulings of 2009 and IRA Planning Opportunities for 2010

  • A New Era for Roth IRA Conversions
  • New Stretch IRA Benefits for Non-Spouse Plan Beneficiaries
  • Waiver of 2009 Required Minimum Distributions
  • U.S. Supreme Court Ruling Stresses the Importance of the Beneficiary Form
  • 72(t) Payment Plan Flexibility
  • Disability Exception Case
  • 60-Day Ruling
  • Spousal Rollover Ruling
  • Post-Death IRA Payout Period
  • DOL Ruling on Family Member Trustee Commissions
  • No NUA Break on a Roth Conversion

IRA Impact on the First-Time Homebuyer Tax Credit

  • Higher Income Limits and a Broader Definition
  • IRA Distributions and the Tax Credit
  • Advisor Action Plan

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


This is just a reminder that there are required minimum distributions (RMDs) for 2010 from defined contribution plans (401(k), 403(b), 457 type plans) and from IRAs.

The suspension of RMDs has not been extended - as of the release of this update.

Individuals who turned 70 1/2 in 2009 will calculate their RMDs for 2010 as though there was no suspension last year. They do not have to take the 2009 RMD before April 1, 2010.

All other individuals will also calculate their distributions as if the 2009 suspension did not exist. If you are doing a Roth conversion you must take your RMD before doing the conversion. The RMD amount cannot be converted to a Roth IRA. RMDs cannot be rolled over and the first funds out of an IRA are considered to be the RMD.

This is an important fact to remember as the calendar has turned to 2010. And it is worth repeating: The suspension of RMDs has not been extended - as of the release of this update. Individuals who turned 70 1/2 in 2009 will calculate their RMDs for 2010 as though there was no suspension last year. They do not have to take the 2009 RMD before April 1, 2010.

Private Letter Ruling 200950052:

A taxpayer we will call "Sue" wanted to take a distribution from her IRA to purchase a residence and then return the amount within an appropriate time period. She met with her financial institution, which erroneously informed her that she had an extended time frame beyond the 60-day period to roll the distribution back into the IRA since it was used for the purchase of a home.

However, such an extension only pertains to first-time homebuyers, and in her letter to the IRS, Sue said that she wasn't a first-time homebuyer and that she received incorrect information from the financial institution before taking a distribution from her IRA.

After reviewing the facts, the Internal Revenue Service waived the 60-day rollover requirement with respect to the distribution. The IRS granted that the two later contributions would be considered rollover contributions.

Q: My wife recently changed jobs and we would like to know what would be the best way to handle her 401(k) retirement savings plan. Should we leave it alone or should we move it into a different account like a rollover to an IRA?

A: Generally, we do favor doing a rollover from a company plan to an IRA when you leave the company, assuming the money will not be needed to live on. An IRA will allow many different investment options and not be subject to any company rules that they may have for their 401(k) plan. The one exception to this advice is when there is low basis company stock in the employer plan. In that case, you might want to consider taking the stock out in kind and paying income tax on the cost basis only. When the shares are sold, the difference between the cost basis and the market value at the time of distribution, the net unrealized appreciation (NUA), is taxed at long-term capital gains rates. You should work with a financial advisor if you qualify to do an NUA transaction.

Any assets going from the plan to an IRA should be done as a trustee-to-trustee transfer to an IRA. The money should go directly from the 401(k) plan to the trustee or custodian of the IRA. The custodian or the trustee will work with the plan administrator to make the transfer.

Rolling the funds over to an IRA will not incur any income tax and the money will continue to grow on a tax deferred basis. When establishing her IRA rollover don't forget to name a primary and contingent beneficiary on the designation of beneficiary form.

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