In This Update:
- Q of the Month:
Can I Delay Roth
- Key Focus:
2012 Tax Code
- Ruling to Remember:
Taking IRA Advice
From a Loan Officer
Question of the Month: Do I only have to use the 5-year rule once?
I made a partial conversion of $400,000 from my traditional IRA to a Roth IRA in 2010. I wanted to
take advantage of the 2-year tax deal, and I had the money available at that time. However, I have since
lost my job, and I will need the money set aside for taxes to stay afloat. I know the recharacterization
period has expired, so is there any way to reverse the Roth, delay the payment, or set up a payment plan?
You cannot recharacterize later than October 15 of the year following the conversion. Since that date
has passed, you can request a private letter ruling (PLR) asking for an extension. However, PLRs are
generally granted only if the individual was not eligible for a Roth conversion or if there was an error by
the advisor or the IRA custodian. Also, the IRS cost to apply for a PLR is $4,000, plus the cost to pay
someone to prepare the request. If you cannot afford to pay the tax from other income sources, you can
always pay the tax with money from the Roth. There would be no income tax on the withdrawal. If,
however, you are under age 59 1/2, you would be subject to a 10% penalty on the amount withdrawn.
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Proposed IRA Tax Rules on QLACs, Romney’s IRA
The March issue of Ed Slott's IRA Advisor Newsletter discusses
the new proposed regulations to create qualified longevity
annuity contracts. These new rules will allow retirement account
owners to purchase certain annuity contracts with a portion of
their retirement assets that can be excluded from their required
minimum distribution (RMD) calculations.
Also in the March issue: Guest IRA Expert Joe Clark
discusses a hot topic in the IRA world, Republication
Presidential candidate Mitt Romney’s eight-(or nine?) figure
IRA. The article goes through the accumulation phase,
planning strategies and key points to consider.
READ ABOUT QLACs AND ROMNEY’S IRA IN THE MARCH ISSUE OF ED SLOTT’S IRA ADVISOR NEWSLETTER
QLACs - Proposed IRA Tax
Rules on Qualified Longevity
- IRS Releases New Proposed
Regulations to Create Qualified
Longevity Annuity Contracts - REG-
115809-11, Released February 3,
- Longevity Annuities and RMDs...
What’s the Problem?
- How QLACs Would Work
- Limits on QLAC Purchases
- Disadvantages of QLACs
- Death Benefit Options for QLACs
- QLAC Options for Non-Spouse
Guest IRA Expert
Joe Clark, CFP, RFC
Financial Enhancement Group
Mitt Romney’s Eight-(or Nine?) Figure IRA
2012 Retirement Plan Contribution Limits Chart
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March Key Focus
2012 Tax Code Changes
Numerous tax changes are in store for individuals in 2012. It’s
very difficult, however, to write with any degree of certainty about
those affecting your income because Congress has shown a
tendency to make retroactive changes at any point in time.
A number of income tax provisions that affected individual
taxpayers expired at the end of 2011. Some examples of these
- the option for individuals to deduct state and local sales taxes
instead of state and local income taxes on their federal return
- certain deductions for higher education expenses
- an allowance for school teachers to deduct up to $250 annually
in out-of-pocket classroom expenses
The end of 2011 also closed the curtain on U.S. savings bonds
available in paper form. Savings bonds, which dated back to 1935,
now will be available in electronic form only. While savings
bonds are no longer available for hardcopy purchase, many banks and credit
unions will continue to redeem them upon request.
Another provision that expired on December 31, 2011 and was
near and dear to our hearts was the “Qualified Charitable
Distribution” (QCD), which allowed seniors age 70 1/2 and older
to transfer up to $100,000 annually (including their required
minimum distribution for the year) from their IRAs to
qualifying charities without having to report the distributions as
If you have made one or more QCDs before, or were thinking
about doing so in the future, you might want to hold off on
taking any distributions from your IRA early in 2012. This
provision has been reinstated twice after the start of a new tax
year, and if for some reason it is instituted again this year, you will
be able to use it and pay no income tax on the amount going to
charity. However, once payments have been made from your IRA
to you, they are not eligible to be used for a QCD. A QCD would
have to be made using other funds in your IRA, which generally
would be less efficient for you.
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Ruling to Remember
Private Letter Ruling 201209023
“David,” a 45-year-old taxpayer, had an IRA with his financial institution. He
received a distribution from that IRA that he planned to rollover before any
possible tax consequences.
Before the distribution took place, David talked to a loan officer at his financial
institution and was advised that he had more than 60 days to put the money into
an IRA without tax issues. He deposited the distribution into a non-IRA account
at the financial institution with the intention of rolling over those funds into an
Relying on the loan officer’s advice, David attempted to complete the rollover
on a date that was before the loan officer’s requested date, but more than 60 days
after receiving the distribution. That was a major error.
David quickly discovered the error of his ways and requested a PLR for an
extension of the 60-day rollover rule. IRS granted the extension on the basis of
David’s assertion that his failure to accomplish a timely rollover was due to
incorrect advice from the financial institution. He was granted another 60 days
from the issuance of the letter ruling to contribute the desired amount to an IRA.
LESSON TO LEARN:
A loan officer is not the best source of IRA advice. If you are going to ask for
guidance and follow it to a tee, make sure you inquire with someone
knowledgeable in this specialized area.
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