IRA Rollover
If a person has an existing Rollover IRA from a previous transfer from a 401(k) plan and they now want to do a rollover from a Simple IRA plan, can they roll the amount from the Simple IRA to their existing Rollover IRA account or do they need to setup a new Rollover IRA account.
Would the answer be different if each amount is approximately $10,000?
Permalink Submitted by Alan Spross on Tue, 2010-10-19 19:32
No need for a new rollover account to receive the SIMPLE IRA rollover, regardless of amounts. Of course, the 2 year waiting period from the date of the first SIMPLE contribution before doing the SIMPLE IRA rollover is critical.
Permalink Submitted by David Hochstadt on Fri, 2010-10-29 14:29
Hi Alan,
Thanks for the reply.
1. If someone is going to convert their Simple IRA at institution A to a Roth IRA at institution B, is it necessary to transfer the Simple IRA first to a Rollover IRA – and then convert that to the Roth IRA? Or can (and should) the Simple IRA be converted directly to the Roth IRA? Does it make any difference if the conversion is taking place at the same or a different custodian?
2. If someone has a Traditional IRA and is planning on rolling over an old 401(k) Plan, can these two accounts be merged into one? Or should the old 401(k) Plan be directly rolled into a new Rollover IRA, while keeping separate the Traditional IRA? Does it matter from a credit protection perspective? Does it depend upon the $ amount of each account?
Appreciate your help!
Permalink Submitted by Alan Spross on Fri, 2010-10-29 22:26
1. No reason to first roll it to a TIRA. A step can be saved by directly rolling to a Roth IRA from the SIMPLE IRA. Present vrs new custodian does not make a difference.
2. With respect to creditor protection, the federal BK rules provide unlimited dollar protection for rollover IRAs and 1 mllion for other IRAs. Therefore it is best not to commingle these accounts unless the 1 million will never come into play. The states have their own different rules, some have opted out of the federal rules and some offer much broader BK protection than others. But if you live in a state that fully protects IRAs and you commingle all of them, then you are stuck with the 1 million limit if you move to a different state later on that does not protect IRAs.
Permalink Submitted by David Hochstadt on Fri, 2010-11-05 14:49
Thank you for the response.
For someone converting a Simple IRA into a Roth IRA, but will first be moving the funds into a Traditional IRA:
1. Suppose the individual owns bonds (a bond fund) and stocks (stock funds). They wish to separate them and convert to 2 Roth IRA’s.
Is it okay for purposes of preserving the ability to recharacterization for all the transfer to go to the Traditional IRA, and then this would be converted into 2 Roth IRA’s (one for the bond fund; one for the stock funds)? Please confirm at your convenience. Thanks!
David
Permalink Submitted by Alan Spross on Fri, 2010-11-05 21:54
Yes, that can be done whether the conversions are done directly from the SIMPLE IRA to a Roth OR first transferred to a traditional IRA and then converted from the TIRA to a Roth IRA. You would then have 2 Roth conversions, one with stocks and another with bonds. Each one of those conversions can be partially or completely recharacterized if needed. Any recharacterization must go to a TIRA account even if the conversions were done directly from the SIMPLE IRA.
Permalink Submitted by David Hochstadt on Sun, 2010-11-07 20:07
Thank you, Alan.
Assume an account holder (Husband) of an IRA who has his spouse (Wife) as the primary beneficiary, with each of 2 sons as contingent beneficiaries. Upon the demise of both the husband and wife, the Husband wants his IRA to be split into 2 shares so that each son may invest it as desired based upon each son’s life expectancy.
Does it matter whether the husband (a) splits the IRA when he is alive into 2, which would then go to the wife and eventually go to each son (1 son would be 100% contingent beneficiary on one IRA; the other son would be 100% contingent beneficiary on the other IRA); or (b) leaves the IRA in 1 account, specifyting that if the primary beneficiary does not survive him, ownership of the account should be transferred in equal shares to the contingent beneficiaries?
Thanks.
David
Permalink Submitted by Alan Spross on Sun, 2010-11-07 21:53
If the wife pre deceases, the contingent beneficiaries apply, and the only difference between having the separate accounts set up by the decedent is that the sons will not have to create their own separate accounts. If the sons are responsible and have good counsel, it should not be necessary to set up the two accounts while the husband is alive.
More problematic is the wife inheriting the IRA and thinking that she does not have to name the sons directly because their names still show as contingent. But the contigent beneficiaries become void upon the husband’s death and wife must name her own beneficiaries. She is then in the same position of deciding whether to create two accounts while living of just leave the IRA 50% to each son. They would then have to create separate accounts in order for each to use their own life expectancy.
Permalink Submitted by David Hochstadt on Wed, 2010-11-24 02:41
Hi Alan,
Thanks for the reply.
What if the husband and wife die simultaneously? It would not appear as if the sons, as contingent beneficiaries, are any worse off if the accounts have not previously been split because they would have until 12/31 of the year after death in order to split the IRA account. Is this correct?
All else being equal, as you mentioned, as long as the sone as competent and have competent counsel, they would have plenty of time to split the IRA. Can they split it as of any date after the parents have deceased? The accounts would have to keep the deceased parent’s name in the title I believe; exactly how should the accounts be titled (e.g. Jane Doe, deceased IRA FBO John Doe)? Please advise. Thank you.
David
Permalink Submitted by Alan Spross on Wed, 2010-11-24 03:45
In a simultaneous or near simultaneous death situation, the first order is to check the IRA agreement for specific provisions dealing with the situation. If there are none, then the state statutes prevail with respect to the Uniform Simultaneous Death Act and whether it applies in that state. Generally, this act indicates that if the deaths are within 120 hours of each other, each party is treated as pre deceasing the other. In that case, the funds would go to the contingent beneficiary(s).
If the Act applies, then the contingent beneficiaries are treated as primary beneficiaries and have until the end of the year following the deaths to set up separate accounts. Initially the IRA would be titled in beneficiary form with both the original owner and the beneficiarys included in the title. Then the separate accounts can be created enabling each contingent beneficiary to use their own life expectancy for RMDs.
Custodians sometimes have a preferred format for the title on inherited IRAs, eg which name appears first. There is flexibility here, so it does not matter which name is shown first as long as both are shown.
Permalink Submitted by David Hochstadt on Mon, 2011-01-10 23:20
Hi Alan,
I hope you are doing well and having a good start to the New Year.
Question:
1. If someone has a Profit Sharing Plan funded exclusively with a whole life insurance policy which is going to be surrendered, presumably this can be rolled directly into a SEP IRA. Correct? If not, is it not possible for a Profit Sharing Plan to be rolled into a SEP IRA?
2. If the individual in #1 is a business owner who also has an existing SEP IRA in addition to the Profit Sharing Plan, can the cash surrender value of the whole life insurance policy be directly rolled into the existing SEP IRA? Or should a new SEP IRA be established specifically for the insurance policy cash surrender value from the Profit Sharing Plan?
3. Suppose an individual has a Roth IRA (strictly contributions) and another Roth IRA that is a conversion from a Traditional IRA (e.g. Roth Conversion IRA 1). This individual also has a Non-Deductible IRA that he wishes to convert into a Roth Conversion IRA 2. Is it best to convert the Non-Deductible IRA into a new Roth Conversion IRA (#2) to keep it separate from the previous Roth Conversion IRA (#1) in the event of the need to recharacterize one or more of the Roth Conversion IRA’s?
If no Roth IRA is recharaceterized, presumably the two Roth Conversion IRA’s (#’s 1 & 2) can be combined for purposes of access to additional types of investments, lower fees, etc. However, I assume that the Roth Conversion IRA’s (#1’s & 2) should not be combined with the Roth IRA funded with contributions. Please confirm this.
Appreciate your assistance.
Permalink Submitted by Alan Spross on Tue, 2011-01-11 00:31
1) Yes, a rollover can be done into a SEP IRA after the life insurance is surrendered, annuitized, distributed etc.
2) Either way. A SEP IRA is just a traditional IRA that has special exceptions for employer based plan contributions.
3) Yes, generally it is recommended to keep Roth conversions in separate accounts until the recharacterization deadline has passed. If combined there is less control of the earnings results, but combining can work either in your favor or against you depending on what your strategy is. For the conversion taxes and application of non deductible contributions, it does not matter whether accounts are combined or separate, and recharacterization computations of earnings can still be easily done by custodian software either way. You just have fewer recharacterization strategy options.
4) No reason not to combine after the recharacterization deadlines have passed. For tax purposes, all your owned Roth accounts are considered as one combined account anyway.