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The $300,000 beneficiary form blunder

October 14, 2012

Stepchildren might not have the same legal standing as biological children if beneficiary forms don't make that clear. In a recent case, the 5th U.S. Circuit Court of Appeals ruled that a plan administrator didn't abuse her discretion in concluding...

Deadline for Roth conversions is near

September 16, 2012

For clients who made Roth IRA conversions last year, Oct. 15 is the last day that they can undo those conversions via a Roth re-characterization. If the value of the Roth individual retirement account has declined substantially, it often makes...

Not all disasters are equal, taxwise

August 19, 2012

Hurricane season is here, but not all hurricanes are alike, according to the Tax Court. In a recent case (Carter v. Commissioner, T.C. Summ. Op. 2012-33, April 17) the court ruled that a couple owed the 10% early-distribution penalty for a withdrawal...

Navigating the 2013 investment taxes

July 15, 2012

Taxes on investment income next year are just one part of the Patient Protection and Affordable Care Act of 2010 that was upheld by the Supreme Court. For certain clients, the crucial change will be the 3.8% surtax on investment income (interest,...

Why IRAs aren't the same as 401(k)s

June 17, 2012

You would think that an attorney would know that an individual retirement account isn't a 401(k), but Young Kim didn't and it cost him dearly. Here are the facts in the case. In 2005, at age 56, Mr. Kim left his job as a partner in a law firm....

A case of two wives and one pension

May 13, 2012

Consider the case of a man who named his wife as the beneficiary of his union pension but never told anyone that he had a first wife whom he never divorced. Here's the question: Which wife gets the money? Before we get to the answer, let's look...

When an IRA deduction is denied

April 15, 2012

In a recent Tax Court case, a taxpayer's $5,000 IRA deduction was disallowed because she and her husband were active participants in company retirement plans, and their joint income exceeded the limit to be able to deduct her IRA contribution....

Paying the Roth conversion tax

March 18, 2012

Certified public accountants across the country who are preparing 2011 tax returns are seeing clients who don't have the money to pay the first half of the 2010 Roth conversion tax now due. As a result, they need options to present to their...

Neither a borrower nor a lender be

February 26, 2012

In order to enjoy an IRA's tax-deferred growth, its owners must abide by certain rules. One of those rules is that they must avoid engaging in what are known as prohibited transactions. All such transactions carry the same severe tax consequences:...

When decisions are impaired by disability

January 22, 2012

In following self-imposed restrictions on her IRA distributions, a bipolar investor recently learned from the IRS that her actions would not cause any adverse tax consequences. Here's the story: “John” and “Jane” got divorced, and as part...

When a mom raids her child's IRA

December 11, 2011

In an unusual private-letter ruling, the Internal Revenue Service recently allowed a 13-year-old beneficiary of her father's company plan assets largely to undo a previously taxed lump-sum distribution and transfer the distributed plan funds...

A fraud warning for self-directed IRAs

November 13, 2011

In September, the SEC issued an investor alert warning investors to be wary of fraudulent promoters targeting self-directed IRAs. The alert began with a brief overview of conventional individual retirement accounts and self-directed IRAs, and...

More the exception than the rule

October 16, 2011

Recently, the Tax Court ruled that a taxpayer's continuing business activities and lack of credible evidence failed to qualify him as disabled under the tax code, and he was therefore subject to the 10% penalty on retirement account distributions...

IRAs and special-needs trusts

September 18, 2011

In a recent private-letter ruling (PLR 201116005), the Internal Revenue Service allowed a disabled beneficiary to transfer his share of two inherited individual retirement accounts to a special-needs trust of which he was the beneficiary. The...

Roth re-characterization confusion

August 21, 2011

Recent market volatility exposed a basic misunderstanding by financial advisers and even certified public accountants of the mechanics of undoing Roth conversions, a process called a Roth re-characterization. You will need to know how this works...

Broken window: Rollover horror stories

July 17, 2011

When clients withdraw money from an individual re-tirement account or employer retirement plan and want to move those funds to another retirement account, they must roll over those funds within 60 days of the date that they received the distribution...

Five considerations for Roth redos

June 12, 2011

Just as 2010 may have been the year of the Roth conversion, 2011 may be the year of the Roth re-characterization. Some clients had sticker shock after seeing the tax bill on their 2010 Roth conversions and want to undo those conversions. That...

401(k) rights trumped by ERISA

May 15, 2011

In a recent case (Cajun Industries LLC v. Robert Kidder, et al.), the court ruled that despite having previously named his three children as beneficiaries of his 401(k) plan, a deceased plan participant's 401(k) balance will pass to his new...

Defining the 'professional' trader

April 17, 2011

The Tax Court recently ruled that a taxpayer who made just three trades in 2005 didn't qualify as a “professional trader” that year. As a result, the income from his investments wasn't considered compensation and he was ineligible to receive...

Reporting Roth IRA conversions

March 20, 2011

Get ready for an avalanche of Form 8606 questions. The form, for non-deductible IRAs, is the one on which your clients will report their Roth conversions. Although this form has been around for years, this year it will be more popular than ever...

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