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 In This Update:
  • Q of the Month:
    What is Considered Earned Income?
  • Key Focus:
    How to Count the 60 Days For a Rollover
  • Ruling to Remember:
    A New Beneficiary Form = A New IRA

 Resources  Expert


?? Question of the Month: What is Considered Earned Income for Roth Contributions?

Q: Is a monthly retirement check considered income in order to open a Roth IRA? I have received conflicting answers to this question, and I was really looking into opening a Roth.

A: A Roth IRA contribution must be based on the taxable compensation of the individual for the year of the contribution. Pension, profit sharing or IRA distributions are not considered compensation for the purpose of a contribution to an IRA. We also recently wrote a Q&A article on Roth IRA and IRA contributions. You can CLICK HERE to read that article.




Man Dies with Two Wives...But Just One Can Be Surviving Spouse

The May issue of Ed Slott's IRA Advisor Newsletter describes a scenario straight out of a daytime soap opera. A man died with two wives... and one pension plan. I guess there wasn’t enough money to go around.

The second wife was named as the beneficiary on the plan beneficiary form, so it’s an open-and-shut case, right? Not so fast. We discuss this case in May’s newsletter.

In this issue, Ed Slott and his contributing writers detail the two-wives-one-pension court case, IBEW Pacific Coast Pension Fund v. Lee. Also, Guest IRA Expert Harry Rubins discusses the unique IRA advantages for spouses -- great planning strategies for loved ones!


Inside Ed Slott's IRA Advisor Newsletter

Man Dies with Two Wives...But Only One Can Be the Surviving Spouse

  • IBEW Pacific Coast Pension Fund v. Lee (2012, CA6), February 13, 2012
  • Facts of the Case
  • From the Appeals Court
  • The Bottom Line
  • The Plan Beneficiary Form is Trumped by ERISA
  • Know Your Spousal Waivers
  • Advisor Action Plan
  • Cajun / Kidder Case from April 2011

Ex-Spouse Can Be Sued by the Estate to Recover ERISA Plan Funds Distributed to Her

Guest IRA Expert
Harry Rubins
Foothill Securities, Inc.
Santa Rosa, California

Unique IRA Advantages for Spouses

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May Key Focus

60-Day IRA Rollovers - How to Count The 60 Days

An IRA rollover occurs when you take money out of your IRA or Roth IRA and the distribution is payable to you. You can put the funds in your bank account, spend them, invest them, do anything you want with them (within reason of course). Then, within 60 days, you can put all or part of the distributed amount back into your IRA or Roth IRA. There are no taxes or penalties on this transaction.

But how do you know when the 60 days are up? You do NOT start counting the 60 days from the date you request the distribution, the date on the check, or the date the funds left the IRA account. You start counting the days on the date you receive the funds if they are mailed, or the date they hit your bank account if they are transferred.

NOTE: It is 60 days, not 90 days as many taxpayers seem to believe based on the countless Private Letter Ruling (PLR) requests to IRS we read from individuals begging for an extension to complete a rollover.

It is never a good idea to wait until the last day to complete a rollover. You might find that the bank closed early for a holiday or that your 60th day falls on a weekend. The financial institution could make a mistake and put your funds in a non-IRA account (we’ve seen this happen before). Any number of things could go wrong so you want to complete your rollover as soon as possible - not as the clock is counting down.

In fact, don’t do a rollover at all. You can do a direct transfer from one IRA custodian to another. Then you don’t have any of the problems or issues described above. You worked hard for that money. Don’t lose it because of a careless mistake, procrastination or a bank holiday.

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Ruling to Remember

Private Letter Ruling 201218025

“Nancy” made a distribution from her IRA with the intention of using the money to make an advance payment for back surgery. She subsequently became ill and had to cancel the procedure, yet her investment advisor urged her to nevertheless file the form requesting a transfer of all IRA funds to another account. He never made mention that the account was a non-IRA account and urged her to indicate on the form that there would be no income tax withholding, leading Nancy to believe that the funds were being transferred to another IRA.

Nancy filed the form requesting a total distribution from her IRA. She left blank the box for transferring the remaining balance to a non-IRA account and circled “non-IRA Account” with a question mark. She also checked the box for no income tax withholding. She spoke with a representative from the financial company, who altered the form during or after their conversation. Nancy did not see the altered form, but verbally authorized processing.

At a later date, after the 60-day rollover window, Nancy’s accountant informed her that a taxable distribution of her entire IRA had been made. Nancy had made no withdrawals and had treated the account as an IRA.

She immediately requested on an extension of the 60-day window to move the money back to an IRA. IRS waived the 60-day rollover requirement and gave Nancy 60 days from the issuance of the ruling letter to contribute the money back into an IRA.

What is a main indicator that you have opened a new IRA? A beneficiary form. No beneficiary form = no IRA. The advisor wanted to invest the funds for the account owner, yet he not only took the funds out of the IRA and subjected them all to income tax, but he also lost money in the account.

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