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 In This Update:
  • Q of the Month:
    Can I Move My Company Funds to a Roth IRA or Roth 401(k)?
     
  • Key Focus:
    Inflation: The Silent Retirement Killer
     
  • Ruling to Remember:
    The 60-Day Rollover Window
     


 Resources  Expert
 Professional
 Assistance


 
 
 
 
 
 
 

?? Question of the Month: Can I move my company funds to a Roth IRA or Roth 401(k)?


Q: I participate in a company 401(k) and have accumulated a large sum over the years. I would like to convert this money into either a Roth IRA or a Roth 401(k), neither of which is offered by my company for the employees. Is there any way (short of hardship or borrowing) to access this money?

A: If your company does not offer a Roth 401(k) plan option, you cannot use a Roth 401(k). It is that simple. Your 401(k) plan document or summary plan description will state under what conditions you can withdraw from the plan. If you are eligible to take a withdrawal (watch out for adverse consequences), you can convert to a Roth IRA. A hardship withdrawal will not be eligible for conversion to a Roth IRA or for rollover to an IRA. You will, of course, pay income tax on the pretax dollars at the time of the conversion. It is always preferable to pay any income tax due on the conversion with outside money rather than using the IRA funds.


 

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The Top IRA Rulings of 2011


The January issue of Ed Slott's IRA Advisor Newsletter goes through all of the key developments involving IRAs and other retirement plans during 2011. There are no major tax law changes at year end, but advisors should stay mindful of other important court decisions, private letter and 60-day rulings that came down last year.

A few of the important developments included Robert K. and Joan L. Paschall v. Commissioner and the landmark 2010 Tax Act (which affected tax law in 2011 and beyond).

READ ABOUT ALL OF THE RULINGS IN JANUARY’S ISSUE OF ED SLOTT’S IRA ADVISOR NEWSLETTER

Inside Ed Slott's IRA Advisor Newsletter

Top IRA Rulings of 2011

  • Legislation - 2010 Tax Act
  • Court Decisions
    • Robert K. and John L. Paschall v. Commissioner
    • Michael S. and Pamela S. Ohsman v. Commissioner
    • Rochelle Mandelbaum v. Fiserv
    • Willis v. Menotte
    • Thiem, Bktcy Ct AZ
  • Department of Labor Opinions
    • ERISA Opinion Letter 2011-04A, 2/3/2011
  • Private Letter Rullings
    • PLR 201128036 - Estate Transfer to Inherited IRAs
    • PLR 201125009 - Disclaimer After RMDs
    • PLR 201113407 - 72(t) Correction Allowed
    • PLR 201139011 - Conservator Reverses Distribution
    • PLR 201104061 - Payment of IRA Wrap Fees
    • PLR 201122033 - Late Roth Recharacterizations
    • 60-day Rulings
      1. PLR 201121035
      2. PLR 201130014
      3. PLR 201129045
      4. PLR 201139012
      5. PLR 201134025

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January Key Focus


Inflation: The Silent Retirement Killer

Inflation is a big impediment to all of the best laid plans for funding a secure retirement. It has a way of eroding your savings over time. The fact that inflation has been relatively low during the recent economic downturn has masked how inflation can seriously reduce an investor’s long-term purchasing power. Also, fewer financial columnists have addressed this issue over the last few years as other matters have grabbed the headlines. However, regardless of the official rate reported by the government, inflation remains a terrible threat to everyone’s financial health, particularly retirees.

Unlike mutual funds or stock and bond prices, inflation’s daily fluctuations are not tracked in the media. Inflation is an invisible, silent killer, the high blood pressure of the financial world. Just as you can have high blood pressure for years and not know it until you suffer from its consequences, inflation can quietly shrink the purchasing power of your dollars without you ever realizing the risk.

Although it may be easy to understand what inflation is, it is often difficult to grasp what it will do to your funds. Simply stated, inflation erodes your money’s value. It makes the same products or services you buy today cost more in the future, possibly double or triple the price, whether it be a haircut, a house or a loaf of bread.

It is easy to take inflation too lightly because it seems so benign. When you hear that the inflation rate for a particular year was 3%, you might think, “that’s three cents on the dollar, what’s the big deal?”

However, the impact of a few pennies, continually compounded over decades, can significantly undermine your chances of achieving the investment and retirement goals you have carefully established. Need some affirmation on that? Just ask those who have already retired and have seen the purchasing power of their fixed incomes slowly erode over 10, 20 or 30 years.

Ruling to Remember


Private Letter Ruling 201150038

A taxpayer we will call “Nick” maintained an IRA with his financial institution. In March, in an attempt to modify his retirement plan investments, Nick requested a distribution from his IRA. He received a check one week later and placed it in an office safe.

Nick believed he had 60 days from the date of the check to complete the rollover. He became overworked (spending 90 hours per week at the office) and in turn extremely fatigued during this period. He finally realized he had not completed the rollover after what he believed to be his 60-day window.

Three days after the window “closed”, Nick requested a waiver of the 60-day period. That waiver was received two days later, which happened to be one day before the actual expiration of the 60-day period.

Nick was wrong in thinking that the clock started with the date on the check instead of the date he received the funds. He filed a Private Letter Ruling (PLR) and it was received one day before the end of the 60-day period.

The PLR was granted because IRS ruled after the end of the 60-day period. IRS believed that Nick’s failure to accomplish a timely rollover was due to his misunderstanding of the 60-day period, which led him to apply for a waiver before the window had expired.

LESSON TO LEARN:
Be mindful of the 60-day period’s start and end date. It starts when you receive the funds, not when the check is written or sent.





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