Friday, April 30, 2010

Question of the Week: Multiple Retirement Accounts (Part 2)

Last week, we discussed the RMD requirements when you have multiple company plans, including the special exception for 403(b) plans. If you missed it, or just want to refresh your memory, you can read it by clicking here.

Great, you’re all plan RMD experts now right? OK, maybe not, but you probably have at least a basic idea of how it works. But what about when you have multiple IRAs?

Actually, one of the biggest benefits of having IRAs is their relative ease of administration - and one of those benefits is the ability to take one distribution, from one of your IRAs, that covers your total IRA RMDs. Like 403(b)’s (see last week), the RMD for each individual account is still required to be calculated separately, but the total sum can be taken from just one account.

For example, let’s say you have 3 IRAs. The required minimum distributions from the accounts have been calculated separately and are $4,000, $6,000 and $10,000 respectively. These RMDs can be taken separately, but if you prefer, the entire $20,000 total can be taken from just one account - providing there are enough funds to do so, of course.

What if you have an IRA and 401(k)? As you might suspect, the two distributions must be calculated separately and must also be taken separately from the two accounts. And how about IRAs and 403(b)’s? After all, similar RMD aggregation rules apply to each type of account, but does that mean that you can take one distribution from an IRA to cover RMDs from both your IRA and your 403(b)? Nope - still two distributions.

Think you’ve got it? Test yourself!!!

Question: You have six total retirement accounts - two 403(b)’s, two 401(k)’s and two IRAs - after calculating the required minimum distributions for all six of the accounts, what is the minimum number of distributions from the accounts that must be taken?

Answer: Four - Here’s why:

- A single distribution can be taken from either one of the 403(b)’s for the total sum of the RMD’s from both 403(b) accounts
- The RMD for each 401(k) must be taken from each 401(k)
- A single distribution can be taken from either one of the IRA’s for the total sum of the RMD’s from both IRA accounts.

In certain situations, there can be advantages to establishing and/or maintaining multiple types of accounts during life, but most people want to make their lives simpler as they get older, both for themselves and for their beneficiaries. If you’ve got multiple accounts or types of accounts, consider speaking with a qualified professional about combining them into one or more IRAs to make your life a bit easier.

Think we’re finished. Not by a long shot!!! Check back next week to learn more about the rules for taking RMDs from inherited retirement accounts.

By IRA Technical Consultant Jeffrey Levine and Jared Trexler
Comment, Question, Discussion Topic on your mind? Click on the Blue Comment Link below and leave your thoughts then check back to see what other consumers and advisors think.

*Copyright 2010 Ed Slott and Company, LLC

Thursday, April 29, 2010

Slott Report Mailbag: April 29th

It is time for another edition of The Slott Report Mailbag with a pair of questions from consumers and our expert answers.

We are providing this installment of the Mailbag from the Hyatt Regency O'Hare in Chicago, IL for the semi-annual Elite and Master Elite Group Workshop, which begins for NEW members this evening.

These financial advisors are the best in the nation, committing time, money and resources to better their IRA education. You can "Find an Advisor" that trains with us at our website, or CLICK HERE to find an Ed Slott-trained advisor in your area.


Situation: Wife age 59, works with an earned income of $50K in 2009 and is not covered by any employer retirement plan. Husband is also age 59 and is retired from the military with no earned income but draws a pension reported on a 1099R. Their combined AGI for 2009 is $140K. The husband says his Turbo Tax software is allowing his wife to deduct her IRA contribution but says his IRA contribution is not deductible since they are above $109K AGI. Can you please help me understand why the husband's IRA contribution is not deductible under spousal IRA eligibility?



It appears that neither spouse is an active participant in a company sponsored plan. There are no income levels for deductibility. Therefore, both spouses can have a deductible traditional IRA. The spousal IRA contribution rules allow for a non-compensated spouse to use their spouse's compensation when determining their IRA contribution limit.

In your case, since each spouse is over age 50, they can each contribute a maximum of $6,000 each to an IRA. Each spouse many choose whether they want to contribute to a Traditional IRA or a Roth IRA or they each may contribute to the same type of IRA. I can only guess that perhaps the husband told the software that he was covered by a plan since he is receiving pension funds or that the software made that assumption because of the 1099-R.


Ed and Company,

I have a 5-digit required minimum distribution (RMD) for 2010 and would like to convert a regular IRA for the same amount into an existing Roth. Can I kill two birds with one stone? With the same amount can I transfer it into my existing Roth and consider that transaction as satisfying my RMD?

I find your columns in Investment News very helpful.


Jim Black

Your 2010 required minimum distribution (RMD) from your traditional IRA must come out first as a check payable to you. After you have satisfied your RMD for the year you can convert any amount that remains in your Traditional IRA. An RMD can NOT be converted to a Roth IRA.

By IRA Technical Consultant Marvin Rotenberg and Jared Trexler
Comment, Question, Discussion Topic on your mind? Click on the Blue Comment Link below and leave your thoughts then check back to see what other consumers and advisors think.

*Copyright 2010 Ed Slott and Company, LLC

Wednesday, April 28, 2010

Recharacterization Tax Reporting

OK. So you did your recharacterization from the Roth IRA back to the traditional IRA and now you are wondering how you put this on your tax return so you don’t have to pay tax on the conversion.

You can find some guidance from IRS on the instructions for Form 8606 - which in most cases you don’t have to file when you do a recharacterization. You can find these instructions at On the left hand side of the screen click on Forms and Publications.

1099-R (we will assume that the conversion amount is the only IRA distribution)
You will have a 1099-R from the traditional IRA for the distribution you converted and a 1099-R from the Roth IRA for the recharacterization. The distribution amount will go on line 15a of Form 1040. On line 15b you will put a zero and an “R” for rollover.

You must attach a note to the return saying that you have done a recharacterization. You will give the amount and the date of the conversion and the amount and the date of the recharacterization.

Form 5498
You will have a Form 5498 from the Roth IRA conversion and one for the recharacterization. These are informational only and you do not need to attach them to your return.

Form 8606
Generally you only need to file this form if you have any after-tax amounts in any IRA you own.

If you do the conversion and the recharacterization in the same year, you will have all your tax reporting done in the same year and things are easy. If you convert in one year and recharacterize in the next, your tax reporting will also span two years. You will still follow the above instructions for your return (or your amended return).

However, you will not have the 1099-R from the recharacterization to attach to the return. The note that you attach will cover you and on your return for the following year you ignore the 1099-R from the recharacterization.

By IRA Technical Consultant Beverly DeVeny and Jared Trexler
Comment, Question, Discussion Topic on your mind? Click on the Blue Comment Link below and leave your thoughts then check back to see what other consumers and advisors think.

*Copyright 2010 Ed Slott and Company, LLC

Tuesday, April 27, 2010

When to Pay Taxes on a 2010 Roth IRA Conversion

One of the questions most frequently asked of us is “When do I have to pay the income tax on a 2010 Roth IRA conversion?” There is a lot of confusion around this question, and understandably so. A special one-time rule applies to the federal tax reporting of 2010 conversions which could affect three years worth of income tax filings. Who said things are getting simpler?

Two options exist for reporting a 2010 conversion and paying the income tax. First, you can elect to include the entire taxable amount of the conversion on your 2010 federal return and pay the tax all in one year. No further reporting would be necessary, and the tax payment would be behind you forever. This option should appeal to individuals who either know they will be in a higher tax bracket after 2010, fear the unknown and are concerned that tax rates are definitely headed higher after this year, or have some attractive tax attributes in 2010, such as net loss carry forwards, that can be utilized to offset some or all of the tax liability associated with the conversion.

Alternatively, you can report the taxable portion of the conversion in equal installments in years 2011 & 2012, while reporting nothing in 2010. An equal portion of the converted amount would be added to your income in each of those years and the resulting income tax would depend on your total income for those years. This option should be attractive to those who believe their taxable income will go down after 2010 or have special tax attributes in those years that would allow them to offset some or all of the conversion tax liability.

Keep in mind that only one method can be used to report 2010 conversions, regardless of how many conversions you actually do. You can’t pick a different reporting treatment for each conversion. If you are married, you and your spouse can choose separate methods of reporting, but again each of you must use that chosen method for all conversions that you each do. Also keep in mind that state and local taxing authorities may not follow the federal process for reporting 2010 conversions, and your state tax liability could be different.

Another related question we receive is, “If I do a 2010 conversion and elect one option and then change my mind, can I amend my tax return and elect the other option?” The answer is no, the election you make becomes irrevocable after the time has passed for filing your tax return (plus extensions). However, your tax liability could be accelerated if you withdraw conversion dollars from the Roth IRA while still in the process of paying the income tax under the 2-year option.

Finally, don’t forget the “pro-rata rule” when determining whether converting to a Roth IRA would be a good deal for you. The pro-rata rule requires you to aggregate all of your IRAs, including traditional, SEP, and SIMPLE, in order to determine the allocable portions of taxable and non-taxable dollars. Generally, you may not convert just non-taxable dollars in a traditional IRA, even if you isolate your after-tax contributions in a separate IRA. The IRS looks at the value of all your IRAs in the aggregate as of the end of the year to determine the taxable portion of your Roth IRA conversion. This pro-rata rule may apply to any conversions that originate from an employer-sponsored retirement plan as well. In those cases, each plan is looked at separately.

By IRA Technical Consultant Marvin Rotenberg and Jared Trexler
Comment, Question, Discussion Topic on your mind? Click on the Blue Comment Link below and leave your thoughts then check back to see what other consumers and advisors think.

*Copyright 2010 Ed Slott and Company, LLC

Monday, April 26, 2010

InvestmentNews: Roth conversions can ease new tax

You still have time to plan...if you have a competent, educated financial advisor that knows the ins and outs of the new health care bill and how it will affect you.

Ed Slott wrote an April 25th article in InvestmentNews that discusses a 3.8% levy on investment income as a revenue-raising provision of the new health care law.

Slott points out that the levy is, "actually a surtax on net investment income."

If this affects you, there is still time as the provision does not go into effect until 2013.

CLICK HERE to read the entire article.

Friday, April 23, 2010

Ed Slott's Retirement Decisions Guide on Kindle

Ed Slott's Retirement Decisions Guide has reached the digital world!

You can now purchase the 86 ways to a safe and prosperous financial future as an eBook on Amazon's Kindle.

Just navigate to to purchase the digital version of Ed Slott's latest book.

CLICK HERE to be sent straight there and purchase the book that includes all of the information you need to stay ahead of the financial retirement curve.

Question of The Week: Multiple Retirement Accounts (Part 1)

This week the Ed Slott and Company IRA Discussion Forum featured a question about how having multiple retirement accounts impacts RMDs. Want to know the answer too? Read on to find out…

Ok, so you have multiple retirement accounts. Can you take your required minimum distribution(s) from just one of them, leaving the others untouched? Well… …it varies… …a lot.

First things first - you need to know how many different accounts you have and what type of accounts they are. Is it an IRA? A 401(k)? A 403(b)? Something else altogether? And how many of each type of retirement account do you have? Make sure you have this information correct, because getting it wrong and missing a required distribution could land you a 50% penalty for the missed amount that you should have taken.

Once you’ve got your information in order, what next? Well, in general, if you have multiple company plans (i.e. 401(k)’s) and are subject to required minimum distributions (RMDs), an RMD must be calculated and taken separately for each plan.

Consider the following: During Bob’s life, he has worked for three different companies, all of which provided a 401(k) plan. He is now 75 years old and retired - and has left money with each plan. He must calculate the RMD for each plan separately and must take each RMD from the appropriate plan. He cannot take the total sum from just one plan.

For example, in 2010 Bob’s RMD from plan “A” is $4,000, his RMD from plan “B” is $10,000 and his RMD from plan “C” is $8,000. The total amount of Bob’s RMDs for 2010 is $22,000 - but remember, he cannot take this from just one account. If he takes the full $22,000 from plan “A,” the first $4,000 will be treated as his RMD and the remainder ($18,000) will be treated as a voluntary distribution. Since nothing came out of plans “B” or “C,” Bob will be subject to a 50% penalty, or $9,000 ($18,000 x 50%), on the missed RMDs he should have taken.

One exception to the general rule for company plans exists if you have multiple 403(b) accounts. If you have multiple 403(b)’s, you still need to calculate the RMD for each account separately, but the total sum can be taken from just one of the plans. Of course, since the exception only applies to 403(b) accounts, if you had two 403(b)’s and one 401(k), that would still mean you have to take at least two distributions (one from the 401(k) and one from at least one of the (403(b) accounts).

Confusing right? And we’re just getting started!! What about multiple IRAs??? What about inherited accounts? And what if you have IRAs and company plans? Check back next Friday to find out the answer.

Got more questions?? Want to see what other people are asking? Check out the Ed Slott and Company IRA Discussion Forum.

By IRA Technical Consultant Jeffrey Levine and Jared Trexler
Comment, Question, Discussion Topic on your mind? Click on the Blue Comment Link below and leave your thoughts then check back to see what other consumers and advisors think.

*Copyright 2010 Ed Slott and Company, LLC

Thursday, April 22, 2010

Slott Report Mailbag: April 22nd

It is time for another installment of The Slott Report Mailbag. Below are 3 questions and our answers.

Enjoy Spring...and as always, plan for your financial future!


How do I figure the tax liability if I make partial conversions from a traditional IRA into an established Roth IRA that has been in existence for almost 10 years? (There are Form 8606s on file because some of the traditional IRA money was made with after-tax money-non-deductible). What I would be doing in effect is dollar cost averaging, taking traditional IRA money and investing it in several mutual funds in the existing Roth. I know a lot of people convert into new Roth IRAs but I wanted to build up the amount I have in an existing Roth. I believe you have to use the total value of IRA assets on December 31 of the tax year you make the conversions(s) in. I'm confused! Can you help?

Thank you,

Harlan Handler

You will continue to figure your tax liability on Form 8606. You must consider all your IRAs including SEP and SIMPLE IRAs. Roth IRA balances are excluded. The IRA balances you will use for a 2010 conversion to calculate the "pro-rata rule" will be the 12/31/2010 balances. You will use your remaining after-tax balance (from prior year's filings of the form) and divide that amount by your year-end IRA balances to determine what will be taxable and not taxable on your 2010 converted amounts.


I just read an article on on bequeathing retirement savings that referenced you. This article says it's necessary to get a spouse's signature in order to leave an IRA to a non-spouse. This has given me cause for concern. For about five years, we funded an IRA for our son, our way of gifting off some of our estate and benefiting him in later years. He married last January. He knows nothing about this IRA (he was a minor when we opened it) and we didn't plan to change the beneficiary to his wife because if something happens to him, since we funded it, we want the money to stay in our family. Is this impossible now that he's married? If something happens to him, will the money automatically go to her, in the absence of her signature authorizing us as beneficiaries?

Cathy Bein
Silvis, IL

I have several concerns about the scenario you have laid out in your question. You say you have contributed to an IRA for your son and that you opened this IRA when he was a minor. Contributions to an IRA can only be made based on the account owner's earned income. Assuming this account is in your son's name and not in the name of you or your husband; did your son have any earned income in the years you made contributions to the account? If he did not, then you have excess contributions in the account which are subject to a penalty of 6% per year for every year they remain in the IRA. Again, assuming the account is in your son's name, he is the only one who can name a beneficiary for these funds. You cannot direct where the funds will go as you have gifted the funds to your son. You may need to consult with an IRA expert to figure all of this out and to be sure you have followed all of the IRA rules correctly. You should also consider informing your son of this account of it is held in his name.


I read somewhere indicating that a Roth IRA can be used for children's education such as tuition, etc. Is this true? Also, I am not able to verify this in the IRS rule or other guidance.

Is there a source that lists the items that a Roth IRA can be used for?



Yes, money from a Roth IRA can be used to pay for higher education expenses for you, your child or grandchild, without a possible 10% penalty. A 10% penalty generally applies for withdrawals from converted amounts that have been held for less than 5 years and you are under age 59 1/2. Higher education expenses are an exception to the 10% penalty. IRS Publication 590 describes the general guidelines for Roth IRA distributions.

By IRA Technical Consultant Marvin Rotenberg and Jared Trexler
Comment, Question, Discussion Topic on your mind? Click on the Blue Comment Link below and leave your thoughts then check back to see what other consumers and advisors think.

*Copyright 2010 Ed Slott and Company, LLC

Wednesday, April 21, 2010

Recharacterization Time

Now that tax season is over, many individuals who did a Roth conversion or contribution last year are faced with the necessity of doing a recharacterization. Why? Either they made too much money last year to do a conversion ($100,000 MAGI) or they made too much money to make a contribution (see IRS Publication 590 for limits). Or, they could be unhappy with the tax bill and want to undo the transaction.

Here are the basic rules.

The Roth funds must be recharacterized to an traditional IRA even if they came from an employer plan. As long as the return is timely filed or the taxes are timely paid and the return is on extension, you have until October 15, 2010 to recharacterize a 2009 conversion or contribution.

The recharacterization must be done as a trustee-to-trustee transfer. You must notify both custodians (Roth and IRA), in writing, of the recharacterization. This generally means you must fill out the appropriate forms for both accounts.

You must request a recharacterization of the original amount of the conversion or contribution that you want to move back to the traditional IRA. Then a gain or loss calculation is done on the total Roth account and a portion of that gain or loss is attributed to the amount being recharacterized. The net amount is then moved back to the traditional IRA. This net income calculation should be done by the Roth custodian but you can find the instructions in IRS Publication 590.

IRS Publication 590 can be found on the IRS website, On the left hand side of the screen, click on Forms and Publications.

Next week - how the tax reporting works on a recharacterization.

By IRA Technical Consultant Beverly DeVeny and Jared Trexler
Comment, Question, Discussion Topic on your mind? Click on the Blue Comment Link below and leave your thoughts then check back to see what other consumers and advisors think.

*Copyright 2010 Ed Slott and Company, LLC

Tuesday, April 20, 2010

Ed Slott and Company's eSeminar Series

Ed Slott and Company concludes another round of our eSeminar Series this afternoon at 3 p.m. with the session titled, "Key Rollover Decisions and Early Distributions."

Yet, as always, the eSeminar Series never stops! We pick back up with our IRA Basics session in two weeks on May 4th.

Each session lasts 90 minutes and includes Q&A with our IRA Technical Consultants. Also, you can take all 8 sessions as a prerequisite to join Ed Slott's Elite IRA Advisor Group.

CLICK HERE for more information and to register!

If you have any questions, please call 215-557-7022.

Monday, April 19, 2010

Tax Freedom Day

Each year, the Tax Foundation reports the date when Americans have, on average, worked enough to cover their federal income taxes. For 2010, Tax Freedom Day was April 9th, the 99th day of the year.

Tax Freedom Day this year occurred two weeks earlier than in 2008. This happened for three principal reasons. First, the recession that began in 2008 has reduced income tax revenues. Second, temporary tax cuts in 2009 and 2010 left more money in take home pay. Third, in 2010 the partial loss of itemized deductions and the exemption phase out for higher-income taxpayers have both been eliminated.

However, if the $1.3 trillion deficit is considered, the picture changes substantially. If the federal government were to collect sufficient revenue to balance the budget, then Tax Freedom Day would be May 17, 2010 instead.

Now that April 9th has come and gone, and you have stopped working for the federal government and are now working for yourself and your family, think about funding your IRA if you haven’t already done so. Also make sure you are contributing enough to any employer-sponsored plan in which you are eligible to participate in order to be entitled to a company matching contribution, if there is one. You don’t want to miss out on that source of “free money.”

By IRA Technical Consultant Marvin Rotenberg and Jared Trexler
Comment, Question, Discussion Topic on your mind? Click on the Blue Comment Link below and leave your thoughts then check back to see what other consumers and advisors think.

*Copyright 2010 Ed Slott and Company, LLC

Friday, April 16, 2010

US News & World Report: How to Keep Nest Egg After Layoff

Layoffs are a topic effecting our nation in these trying economic times.

US News & World Report tackled this subject in terms of how an individual can keep their nest egg intact and survive a layoff.

Here are a few of the steps to take to ensure your nest egg is secure:
  • Find out if you are vested
  • Make your move: transfer funds to another employer 401(k) when you get a new job, keep the money in the old employer plan or roll it into an another tax-deferred account such as an IRA.
  • Avoid transfer penalties by having your employer move the funds. As Ed Slott said in the article: "Have the check made out to the institution where it is going instead of having it made out to you."
CLICK HERE to read the entire article and discover all of the necessary steps.

Thursday, April 15, 2010

Slott Report Mailbag: April 15th

Below is another edition of The Slott Report Mailbag with 3 questions and answers from our IRA Technical Consultants.



I have purchased the Ed Slott "Stay Rich for Life!" series. I would like to know if at the age of 69 and 74, we are too old to convert to a Roth IRA?

We would need funds from this Roth IRA and cannot wait for 5 years before withdrawing any money.

Thanks for your answer!

Gisela and Bob Weinland

There is not a specific age at which you would rule out a Roth conversion. Obviously, the older you are the mathematical pay back period may be at a very advanced age. You need to examine the reason you want to convert. There are some non-mathematical reasons to convert. One of the major benefits, and there are many, of the Roth IRA is that there are no required minimum distributions even at age 70 1/2 and older. This allows the Roth IRA to continue to grow tax free. However, if you are going to need to use the Roth IRA to live on, a Roth IRA conversion might not be right for you. On the other hand, distributions from the Roth would be tax free and could keep your overall taxable income lower in retirement.

You do not have to wait 5 years before withdrawing the amount you convert. It can be withdrawn at any time. Since you are over the age of 59 1/2 there will be no early distribution penalty on the amount withdrawn. Distributions are considered to come first from regular contributions, then from conversions and lastly from gains in the account. If you withdraw any of the gains before 5 years are up, then you will have to pay income tax on the amount of the gain withdrawn.


My husband and I have established trusts and split ownership of our assets between each of us to try to maximize use of the estate tax exclusion to our non-spouse beneficiaries. So our first goal is to maximize full use of the estate tax exclusion. Our second goal is to maximize use of the deferred stretch opportunity to our beneficiaries (nieces/nephews, no children are involved). Currently all of our taxable assets are in the name of our trust, but our IRAs are not in the name of the trust, but have primary beneficiaries of spouse, contingent beneficiaries of nephews/nieces. (We realize the estate tax exclusion amount is pending repeal this year.)

The issue is to meet the maximum estate tax exclusion (whatever it ends up being), and are our only options these below?
  • Have our IRA primary beneficiary be our trust (negative could be stretch provisions, I think)
  • Have our IRA primary beneficiary be our nieces/nephews (negative is surviving spouse is no longer beneficiary?
Any clarification is appreciated.

Thank you!

It is very difficult to provide a definitive answer to your question. There are many factors involved including your assets and the unified estate tax credit. You should seek the help of a qualified professional having knowledge in this area of the law. You can name a trust as beneficiary but it must be done with extreme care. For example, you might want to have a special trust created to be the beneficiary of an IRA. You can look at our web site,, click on the "Find an Advisor" button and it will guide you to find a highly trained advisor in your area that can help.



I'm currently retired and over 65. Can I roll over only my after tax money in a 401(k) directly to a Roth IRA and not owe any taxes? About 10% of the money in the 401(k) are my after-tax contributions. Can I then roll over the remaining 401(k) to an IRA and later roll over some of the IRA to a Roth IRA?

You will be limited in some ways by what your plan will allow you to do. They may only be willing to do one direct rollover for you and may insist on sending the rest of the funds directly to you. When taxable funds are distributed directly to you, the employer must do 20% income tax withholding. You can replace the 20% withheld with personal funds in order to do a complete rollover of your account balance.

In addition, IRS has issued conflicting guidance on whether or not you can do a rollover of after-tax funds only to a Roth IRA income tax-free. However, many plan administrators continue to advise their plan participants that this can be done.

Once your 401(k) funds are in an IRA, you can do any further Roth conversions that you wish at any later time.

By IRA Technical Consultant Marvin Rotenberg and Jared Trexler
Comment, Question, Discussion Topic on your mind? Click on the Blue Comment Link below and leave your thoughts then check back to see what other consumers and advisors think.

*Copyright 2010 Ed Slott and Company, LLC

Wednesday, April 14, 2010

Language of Retirement Plans

Every profession has its own language. In computers it is bits and bytes, RAM and ROM. In accounting it’s AMT, AGI and NOL. And, here in the land of retirement planning, we also have our own language. Here is your guide to the language - actually the acronyms - of retirement planning.

IRA - individual retirement arrangement

TIRA - traditional IRA

RIRA - Roth IRA or Rollover IRA - be careful of this one, they mean two completely different things

RMD (or MRD) - required minimum distributions, those distributions you generally must take at age 70 ½

RBD - required beginning date, the date by which you must take your first distribution

NUA - net unrealized appreciation, a tax break available on lump sum distributions from employer plans that hold highly appreciated employer stock as a plan asset

IRD - income in respect of a decedent, income earned by the deceased that was never taxed (such as an IRA) where the beneficiary will have to pay the tax

FBO (or f/b/o) - for benefit of, used in inherited account titles as in John Smith deceased fbo Mary Jones

QDRO - qualified domestic relations order, an order issued as part of a divorce or separation that awards part of an employer plan to the ex-spouse of the plan participant

SPD - summary plan description, a summarization, in plain English, of the terms of an employer plan that is given to every employee participating in the plan

PLR - private letter ruling, used when you make a mistake and have to go to IRS to ask for forgiveness (the fees are very steep to do this)

By IRA Technical Consultant Beverly DeVeny and Jared Trexler
Comment, Question, Discussion Topic on your mind? Click on the Blue Comment Link below and leave your thoughts then check back to see what other consumers and advisors think.

*Copyright 2010 Ed Slott and Company, LLC

Retirement Fears: A Discussion in Finances

It is time to sit around the expert table and have a discussion in finances.

This edition of Retirement Fears lays out a common scenario for a young, full-time worker and student who has a Roth IRA opened initially by his parents.

IRA Technical Consultants Beverly DeVeny and Marvin Rotenberg provide answers to common questions. Without the correct answers, "Jared" may quickly experience Retirement Fears.


Tuesday, April 13, 2010 How to Get to $2 Million in 10 Years

Sounds like a lot of savings...because it is. However, that does not mean you can't set your own retirement savings goal and put aside a certain amount of money each month to meet that number.

The following video details several calculators you can use to find out the monthly savings you need to reach certain goals over time.

This video is a great tool for consumers looking to start a retirement savings "budget" and prepare for a prosperous financial future.

The Early Bird...Catches New Business!

Spring is here...and summer is right around the corner. Soon you will be going on vacations with family and spending weekends at the beach. Now is the time to proactively plan for November!

You need to know everything about 2010 Roth Conversion Planning prior to year-end so you can take the steps necessary to help existing clients and generate new business before the clock strikes 2011.

2011?! Yes, time flies and you can mark your calendar for 2 full days with America's IRA Expert RIGHT NOW! And as an incentive, you will SAVE $300 on the full tuition price of Ed Slott's 2-Day IRA Workshop on November 4-5 in La Jolla, CA if you register by May 31st!


If you have any questions, please give us a call at 215-557-7022.

Monday, April 12, 2010

Direct Deposit of Income Tax Refunds into IRAs

Beginning with the 2006 tax year, the federal government has allowed individuals to directly deposit their income tax refunds into Traditional IRAs, Roth IRAs, and SEP-IRAs. Previously, tax refunds could only be directly deposited to savings and checking accounts. In addition to IRAs, tax refunds may now also be deposited to health savings accounts and Coverdell education savings accounts.

The direct deposit of an income tax refund into an eligible account has many advantages over the old fashioned method of receiving a refund by mail, including safety and speed of delivery. If you are married and file your taxes jointly, you can direct that your refund go to an account owned jointly by you and your spouse (such as a savings account) or to an IRA or other account owned by either one of you. In fact, your refund can be split and directly deposited into as many as three different accounts. However, you are responsible for ensuring the money ends up in the right account. The IRS assumes no responsibility for taxpayer or preparer error.

Using the direct deposit option to fund your IRA is not without issues. First, the financial institution administering your IRA must accept direct deposits. Second, you must make sure to have already established an IRA and that it is ready to accept your refund deposit. Third, you will need to tell your IRA custodian or trustee the year for which the contribution is to be credited. You have until April 15 of this year to fund an IRA for 2009 and, of course, you can fund your 2010 IRA at anytime this year, up to April 15, 2011.

Having your federal tax refund directly deposited into an IRA is always challenging because you can never be 100% certain as to when the refund, and hence your contribution, will actually be made. If it is after April 15, then it can’t be considered a contribution for the prior year. Another problem can occur if the IRS makes a correction or disallows a deduction. In these cases, you may not know if you’ve fully funded your annual contribution or perhaps even over-funded it. If it turns out you’ve over-funded it, you will be subject to a 6% excise tax on the excess amount unless you withdraw it, along with any earnings, by your tax filing deadline, including extensions. Make sure you closely monitor your tax refund if it is going into your IRA.

Brand new for 2009, taxpayers can purchase, in increments of $50, up to $5,000 of inflation-adjusted (Series-I) US Savings Bonds directly with their refund proceeds. In the case of joint filers, bonds may be purchased for either person or for both. However, bonds will not be purchased in situations where the taxpayer makes an error figuring the refund or if the bond request is not a multiple of $50 or the refund is offset for any reason. In these cases, the requested purchase will be cancelled and the entire refund mailed to the taxpayer in the form of a check.

Many Americans need to shore up their finances and retirement savings with a financial boost, and a helpful first step is saving or investing those income tax refunds.

By IRA Technical Consultant Marvin Rotenberg and Jared Trexler
Comment, Question, Discussion Topic on your mind? Click on the Blue Comment Link below and leave your thoughts then check back to see what other consumers and advisors think.

*Copyright 2010 Ed Slott and Company, LLC

InvestmentNews: What can't be converted to a Roth

Ed Slott wrote an April column for InvestmentNews detailing what can't be converted to a Roth.

Income restrictions have been lifted on Roth IRA conversions in 2010, but that DOES NOT mean anyone can convert anything.

The tax code, as Slott writes, allows eligible rollover distributions to be converted to Roth individual retirement accounts. That means that the following CAN NOT be converted:
  • 72(t) payments
  • Hardship distributions
  • Corrective distributions of excess deferrals
  • Deemed distributions (i.e., defaulted plan loans)
  • Dividends from employer securities
CLICK HERE to read the entire article.

MarketWatch: Avoid these Roth IRA conversion mistakes

Robert Powell wrote an April 8th piece for about the many mistakes people are making when converting to a Roth IRA.

Some of those mistakes include:
  • Paying tax unnecessarily
  • NOT taking advantage of various strategies that assist in doing a Roth conversion at the lowest cost
  • Approaching a Roth IRA conversion as an all-or-nothing proposition
  • Custodians who are reluctant to do conversions of employer plan assets
Ed Slott and Company IRA Technical Consultant Beverly DeVeny said about the confused custodians:
"They want the assets in an IRA first and then will do a Roth conversion. For the record, plan participants can do a Roth conversion from their employer's plan. The other problem that's occurring out in the real world with custodians has to do with the conversion of after-tax amounts."

CLICK HERE to read the entire article.

Friday, April 9, 2010

Finding a Financial Advisor That's Right For You

Financial service firms are dying to get their hands on your money. With the first wave of baby boomers turning age 64 this year, financial professionals with titles ranging from "advisor" to "wealth manager" are eager to capture their share of the trillions of dollars in retirement savings that new retirees will roll over into IRAs.

There's no shortage of so-called "experts" willing to provide assistance, but not all advisors are created equal. While there's no magic formula for finding a competent professional, you should start your search for an investment advisor by looking for one of these professional designations: broker, Registered Investment Advisor or Certified Financial Planner. Your choice will depend on the level of advice you want and your investment style. Brokers and investment advisors are registered with state or federal regulators, and certified planners undergo a rigorous education program and continuing education requirements. Each plays a different role.

Financial planners can be paid in a variety of ways, including: fee-only, commission only and a combination fee/commission. The fee-only planner is compensated entirely from fees for financial advice and investment management. These fees may be charged on an hourly or project basis depending on your needs, or as a percentage of assets under management. Under the commission-only format there is no charge for the planner's advice or preparation of a financial plan. Compensation is received solely from the sale of financial products the planner recommends and that you agree to purchase in order to implement the plan. The combination fee/commission planner charges a fee for consultation, advice and financial plan preparation on a hourly or project basis. This planner also receives commissions from the sale of recommended products that are used to implement your financial plan.

If you are retired or thinking about retirement, you will also need to seek out expert advice for your IRAs and qualified retirement plans. This is a very specialized area of expertise and not everyone will have the proper training to help you. At Ed Slott and Company, we train brokers and advisors on all details and regulations specific to IRAs and qualified retirement plans. To assist you in your search for a financial professional knowledgeable about retirement plan issues, we have developed a web tool listing of all the financial professionals in you area who have received this training and have passed several exams designed by us.

Gain access to these highly-trained professionals by going to and clicking on the "Find an Advisor" tab in the middle-right of the screen. Also, you can just CLICK HERE to enter the Find an Advisor page.

Thursday, April 8, 2010

Slott Report Mailbag: April 8th

Another installment of The Slott Report Mailbag is below with 3 consumer questions and our answers. If you are interested in asking a question to our IRA Technical Consultants, please e-mail your question (and include name and location) to [email protected].


In September 2009, I took a distribution of $3,000 from my IRA, bringing the total for the year to $70,000. Thirty days later, I returned the $3,000 to my account as a rollover. My total withdrawals for the year were thus reduced to $67,000.

When I received the 1099-R from the custodian of the account (Vanguard), the distribution for 2009 was given as $70,000. The $3,000 rollover was not accounted for.

Where on Form 1040 can I account for the $3,000 rollover and thus avoid taxes on it?


S. Friedman

This is a question we receive frequently. On your tax return, Form 1040, on line 15a (offset to the left) you would enter $70,000. On line 15b you would enter $67,000 with the letter "R." Letter "R" stands for rollover.


If an IRA is worth over $100,000 and has a named beneficiary (person), does it have to go through probate when the owner dies because it is worth over $100,000? Thanks.

No, your $100,000 IRA will not have to go through probate because you have a designated beneficiary named. This is one of the reasons we always recommend that individuals not name their estate as beneficiary. If your estate was named as beneficiary, the IRA would have to go through probate. We also recommend that you have a primary and a contingent (secondary) beneficiary named.


Can I take my required distribution "in kind," pay the income tax due from outside the IRA and take the "in kind" assets and roll them into a new Roth IRA? If so, is there a dollar limit on the asset amount that can be rolled into the Roth?


You can take a required minimum distribution (RMD) in kind if you custodian allows it. You will pay income tax on the fair market value at the time of distribution. You cannot rollover an RMD into another IRA, including a Roth IRA. In addition, all IRA contributions must be in cash unless you are moving assets eligible for rollover from one IRA to another.

Remember, you should always work with a competent, educated financial advisor. CLICK HERE to find an Ed Slott-trained advisor that lives in your area.

By IRA Technical Consultant Marvin Rotenberg and Jared Trexler
Comment, Question, Discussion Topic on your mind? Click on the Blue Comment Link below and leave your thoughts then check back to see what other consumers and advisors think.

*Copyright 2010 Ed Slott and Company, LLC

Wednesday, April 7, 2010


Since April 15th is right around the corner, now is the time when we get lots of questions on contributions. So here are the basics.

You must have compensation from wages or personal services to make any IRA contribution. Children who have compensation can also make IRA contributions. Contributions can be made up to April 15, 2010 for 2009. If you are contributing to an employer plan (including a SEP or a SIMPLE), you can still contribute the maximum amount to an IRA. A contribution cannot be made to a traditional IRA or Roth IRA after an individual is deceased (there are some exceptions for SEP and SIMPLE IRA contributions).

You can contribute a maximum of $5,000 to a traditional IRA or Roth IRA (or any combination of the two) for both 2009 and 2010 as long as you have at least that much in compensation. If you turn age 50 or older during the year, you can contribute an additional $1,000 each year. If only one spouse has compensation, a contribution can also be made for the non-working spouse.

IRA Contributions: There are no income limits on making a traditional IRA contribution. However, you may not be able to deduct the contribution as there are limits on deductibility. Once you reach the year you will be 70 ½, you can no longer contribute, even if you have earned income.

Roth Contributions: There are income limits for making Roth contributions. You can continue to make Roth contributions after age 70 ½ as long as you have compensation.

For information on the deductibility and income limits, see IRS Publication 590 at, on the left hand side of the screen click on Forms and Publications.

By IRA Technical Consultant Beverly DeVeny and Jared Trexler
Comment, Question, Discussion Topic on your mind? Click on the Blue Comment Link below and leave your thoughts then check back to see what other consumers and advisors think.

*Copyright 2010 Ed Slott and Company, LLC

Ed Slott on the Road: Week of April 5th

Ed Slott and Company began its busy week yesterday when Ed Slott spoke to North Coast Financial Group in Westbury, New York yesterday.

Below are two more speaking events for Ed Slott and Company this week:
  • IRA Technical Consultant Jeffrey Levine will hold a teleconference with Loring Ward from 2 pm - 3 pm on Tuesday, April 6th.
  • Ed Slott will speak to Nationwide at Citizens Bank Park in Philadelphia on Wednesday, April 8th.
CLICK HERE to view the entire speaking schedule.

Contact Laurin Levine at 516-536-8282 if you are interested in bringing Ed Slott or one of our IRA Technical Consultants in to speak to your company.

Thursday, April 1, 2010

Slott Report Mailbag: April 1st

Below is another Slott Report Mailbag -- NO April Fools, we promise. We received many questions from consumers desperate for sound financial advice.

Here is a snapshot of their concerns in 3 questions and our answers.


I am new to your web page and do have a question about rolling my retirement into an IRA. I will be retiring in approximately two-and-a-half-years at age 65. After reading an article in our local newspaper, I am wondering how much it would cost me to roll my retirement plan into a Roth IRA. Is this possible? I also have a 401(k) account that I would like to do this with.

Thank you,

Steve Spalsbury

Welcome to our web site. I hope you will continue to enjoy reading the vast amount of information there. It is generally possible to roll your retirement plans such as IRAs, 401(k)s, and pension plans into a Roth IRA, directly from the plan, as long as you are eligible to take a distribution from the plan. In the year you roll your retirement plan assets into a Roth IRA, the pre-taxed dollars you are rolling over will be included in your income for that year. This could put you in a higher tax bracket and you could lose deductions, exemptions, credits, phase-outs or become subject to alternative minimum tax (AMT). For rollovers in 2010, you have two options (only for conversions in 2010).

1. Include the amount in your 2010 income and pay the income tax on your 2010 return
2. Spread the converted amount over years 2011 and 2010, one half each year.

If you hold your company's stock in your 401(k) plan there is a tax benefit if your cost basis of your company stock is much lower than the market value at the time of distribution (Net Unrealized Appreciation). If you do own your company stock in your 401(k) you might want to look into this.

When rolling over to a Roth IRA, you want to do what they call a trustee-to-trustee transfer. You would notify your corporate plan provider and the institution where you are establishing the Roth IRA and they will do the transfer.


Ed and Company,

I have a hypothetical question. I am a 75-year-old man with a Roth IRA worth 10k, a Roth IRA worth 20k, a traditional IRA worth 30K and a traditional IRA worth 40k. My 72-year-old wife is my primary beneficiary and my 55-year-old daughter is my secondary beneficiary. I pass away. Can my wife refuse to accept the 10k Roth IRA and the 30k traditional IRA, which would then pass on to my daughter? Is this possible?
  1. Which table would my wife use to determine the minimum required distribution on the inherited 30K Roth IRA and the inherited 40K traditional IRA and how much would the minimum required distribution be?
  2. Which table would my daughter use to determine the minimum required distribution on the inherited 10K Roth IRA and the inherited 20K traditional IRA and how much would the minimum required distribution be?
In order to have your wife disclaim as primary beneficiary you want to make sure your daughter is the contingent or secondary beneficiary. Within nine months after your death, your wife, as primary beneficiary, could disclaim any of your IRAs or all of them and by operation of law your daughter would become the primary beneficiary on the disclaimed accounts. Your wife as your primary beneficiary could make your IRA her own, assuming she does not disclaim, and use the Uniform Lifetime Table to determine her RMDs. They would be based on her attained age each year she has to take a distribution.

Your daughter would use the Single Life Table on any disclaimed accounts that she inherits. Both tables are found in the IRA Publication 590. Her life expectancy is based on her attained age the year after your death. Each year thereafter she would reduce that factor by one until all of the money is depleted.


We have a self-directed IRA which has a net negative value -- the asset, a condo, has an appraised value less than the outstanding mortgage.

We think this is an ideal time to move the IRA to a Roth as there should be no value to be taxed. Our custodian says they will report the appraised asset value on the 1099, not the net value, which is in fact negative. How do we convey to the IRS that the net value of the transferred asset is negative and we have no tax burden?

Is this a sound idea?

Richard Modie

This is a difficult issue. You might want to have an appraisal of the condo from a disinterested third party appraiser to bolster your position. The appraisal must be one that will stand up to the scrutiny of the IRS. Because you have a mortgage, your Roth account really owns only a portion of the appraised value, not the full value of the condo. Example: Your IRA had a balance of $150,000. You use $100,000 as a down payment on a piece of real estate worth $300,000. The value of your account is not immediately increased by $200,000; it remains at $150,000.

Please check with your IRA custodian again on how they and you will report to the IRS. You should also take a look at the instructions for IRS Form 990-T as you would most likely have to consider the transfer of the property from one IRA trust to another as a sale of the property in the traditional IRA. You would then have to file this form to calculate the unrelated debt finance income that could potentially be taxed on this transaction.

By IRA Technical Consultant Marvin Rotenberg and Jared Trexler
Comment, Question, Discussion Topic on your mind? Click on the Blue Comment Link below and leave your thoughts then check back to see what other consumers and advisors think.

*Copyright 2010 Ed Slott and Company, LLC

Early Bird Catches...New Business!

Ed Slott and Company's next 2-Day IRA Workshop -- and the last workshop to learn NEW 2010 Roth Conversion Planning in the calendar year -- will take place in La Jolla, California on November 4-5.

We understand that your calendar fills up fast, so if you make the commitment to your IRA education by May 31st, we will give you $300 OFF the full tuition price.

CLICK HERE for more information and to register.

If you have any questions, call 215-557-7022 or e-mail [email protected]