IRA

Describes motivation process for creativity with emphasis on intrinsic motivation by Corey K Katir

 A caller was concerned that his IRA funds held as his bank’s brokerage department are not protected against an outstanding judgment because of a “set off” provision of the bank’s depositor agreement. The agreement states that “to the extent permitted by applicable law” the lender has a right to set off all of the borrower’s accounts. Set off pertains to debts owed to the bank where the deposits are held. Set off does not mean that the bank can remove exemptions against debts owed to other creditors. The set off provision of this agreement means that the bank can take money from the caller’s accounts to pay a debt owed to this same bank, but it does not state that the bank can take the depositors money to pay someone else. .

The Donation Rule expired at the end of 2011 and Congress has not given any indication that it will be renewed. Under the previous rule, An IRA owner over 70 ½ could directly transfer IRA funds to a choice charity…

As I tell my clients and audiences during presentations, one should never name one’s estate as beneficiary of an IRA or other retirement account.  If the estate is the beneficiary, whether from a purposeful designation, failure to name a beneficiary, or failure update when a named beneficiary dies, the account must go through probate and stretching is unavailable.  The result is more fees and more taxes.

However, in some cases, the IRS will allow a surviving spouse who is the sole beneficiary of the decedent’s estate to effectuate a rollover.  In Private Letter Ruling 201211034, the IRS stated that the surviving spouse and sole beneficiary of decedent’s estate may either:

(1) by means of a trustee-to-trustee transfer, transfer the proceeds from the original IRA into an new IRA established and maintained in the spouse’s name; or

(2) take a distribution of the proceeds of the original IRA and rollover the proceeds into a new IRA established and maintained in the spouse’s name as long as the rollover transaction occurs no later than the 60th day from the date said proceeds of the original IRA are distributed.

The IRS further ruled that in either case, the proceeds in the trustee-to-trustee transfer or the timely rollover will be exempt from the withholding requirements under section 3405(c)(2) of the Code.

Adam Bergman, a tax attorney with the IRA Financial Group featured on CBS News, Fort Myers, FL on the topic of using retirement funds to buy real estate.

(PRWeb May 18, 2012)

Read the full story at http://www.prweb.com/releases/Adam-Bergman/IRA-Financial-Group/prweb9521489.htm

Sean McKay, Senior Vice President at American IRA-a National Provider of Self Directed IRAs, invites all to a free Webinar…

(PRWeb May 17, 2012)

Read the full story at http://www.prweb.com/releases/2012/5/prweb9468099.htm

Raising Private Capital Webinar coming June 1st. American IRA, LLC announces…

(PRWeb May 17, 2012)

Read the full story at http://www.prweb.com/releases/2012/5/prweb9492562.htm

Free Self-Directed Roth IRA Webinar is part of a series of free webinars offered by IRA Financial Group

(PRWeb May 17, 2012)

Read the full story at http://www.prweb.com/releases/self-directed-Roth-IRA/IRA-Financial-Group/prweb9517765.htm

A bishop has condemned the theft of a memorial to two children killed by an IRA bomb as “senseless vandalism”.

A police hunt is under way after a memorial to two children killed by an IRA bomb was stolen from a town centre by suspected metal thieves.

Withdrawals to pay education expenses from your employer’s retirement plan before you turn age 59 1/2 are NOT subject to the 10% early withdrawal penalty. Withdrawals for the same reason before age 59 1/2 ARE subject to the 10% additional tax when taken out of your IRA which you funded with a rollover from your employer’s retirement plan.

On May 9, 2012, the Seventh Circuit Court of Appeals in the case of Young Kim vs. Commissioner of Internal Revenue ruled in favor of the IRS that the taxpayer owes the 10% tax and, because he had not paid it, also owes a penalty for substantial underpayment of taxes.

Here’s the opinion in its entirety:

At age 56, Young Kim left his position as a partner in a law firm and enrolled in the London School of Economics. Employees who depart at age 55 and up may withdraw money from the employeras retirement plan. They must pay income tax (retirement plans contain pre-tax dollars), but they do not owe the 10% additional tax that the Internal Revenue Code imposes on most withdrawals before age 59A1/2. 26 U.S.C. ASS72(t)(1), (2)(A)(v). During 2005 Kim moved the funds from the law firmas retirement plan to an individual retirement account. A rollover is not a taxable event. 26 U.S.C. ASS402(c); 26 C.F.R. ASS1.402(c)a2. During 2006 Kim withdrew about $240,000 from the IRA. He paid the income tax but not the 10% additional tax. The Commissioner of Internal Revenue concluded that he owes the 10% tax and, because he had not paid it, also owes a penalty for substantial underpayment of taxes. 26 U.S.C. ASS6662.

Kim sought review by the Tax Court, which held a trial. The parties reduced the scope of the dispute because the money spent on tuition and other education expenses attending the London School of Economicsa and the amount Kim paid for his daughteras tuition and other education expenses at Bryn Mawr Collegeais not subject to the 10% tax. See 26 U.S.C. ASS72(t)(2)(E).

The Tax Court held that Kim owes the 10% tax on the withdrawn money that he had put to other uses and also owes the penalty for a substantially inaccurate return. The parties agreed that, if the Tax Courtas decision is correct, Kim owes $20,456.50 under ASS72(t)(1) and $4,091.30 under ASS6662. Judgment was entered to that effect. Kim asks us to hold that he owes nothingaor at least that he does not owe the accuracy-related penalty under ASS6662.

Kim relies on ASS72(t)(2)(A)(v), which provides that the 10% additional tax does not apply to a distribution from a pension plan amade to an employee after separation from service after attainment of age 55a. His immediate problem is that the distribution from the IRA was not amade to an employeea; he was not an employee of the IRAas custodian. He had been an employee of the law firm and therefore could have taken a distribution from its pension plan, but thatas not what happened.

Just in case this point was unclear, the Internal Revenue Code adds: aSubparagraphs (A)(v) and (C) of paragraph (2) shall not apply to distributions from an individual retirement plan.a 26 U.S.C. ASS72(t)(3)(A). Kim withdrew money from an IRA, an individual plan; subparagraph 72(t)(2)(A)(v) therefore ashall not applya.

Kim calls his account a aSEP IRAa (asimplified employee pensiona, see 26 U.S.C. ASS408(k)) as opposed to a atraditional IRA,a but ASS72(t)(3)(A) does not distinguish among flavors of individual retirement plans. Before reaching 59A1/2, Kim withdrew money from an individual retirement plan, rather than from his former employeras plan, and therefore must pay the 10% additional tax. Kim insists that this makes no sense. He could have taken the money from the law firmas pension plan without the 10% additional tax; why should it matter that the money went from the law firmas plan to an IRA before being withdrawn? The answer is that the Internal Revenue Code says that it matters, and Kim does not contend that ASS72(t)(3)(A) violates the Constitution.

Many parts of the tax code are compromises, and all parts reflect the need for lines that canat be deduced from first principles. Why can an employee withdraw money from an employeras plan without the 10% addition at age 55 but not age 54? Why does the 10% additional tax apply to withdrawals at age 59 and 181 days, but not 59 and 183 days? These questions cannot be answered by logical analysis. The Codeas lines are arbitrary. The law firmas pension plan put Kim to a choice between taking the money and moving part or all of it to an IRA. He chose to roll over the whole balance, because he did not want to pay any income tax immediately.

The Code allowed Kim to extend the tax deferral at the cost of the 10% additional tax if he later took some of the money before age 59A1/2. Money deposited in pension plans and many IRAs is not subject to income tax until the funds (including interest and capital appreciation) are withdrawn. Tax deferral is expensive to the Treasury, so the Code makes resort to some tax-deferral opportunities costly. Hence someone who puts money in an IRA canat take it out freely before age 59A1/2; the prospect of the 10% additional tax on early withdrawal makes IRAs less attractive (and the 10% tax also compensates the Treasury for some of the revenue foregone from deferred payment of the income tax on sheltered funds). Subsection 72(t)(2)(A)(v) offers an opportunity for avoiding the 10% tax on withdrawals between age 55 and age 59A1/2, but that opportunity is limited by the ato an employeea language and the proviso in ASS72(t)(3)(A), lest it effectively reduce the age of free withdrawal from 59A1/2 to 55. The interaction of these provisions is bound to seem irrational to many affected persons, but Congress has concluded that some lines of this kind are appropriate. The judiciary is not authorized to redraw the boundaries. Fidelity Investments, which administers Kimas IRA, sent him a statement in 2006 informing him that he owed both income tax and the 10% additional tax. But the accountant who prepared his tax return omitted the 10% additional tax, which, coupled with the fact that the deficiency exceeded $5,000, led to the substantial-understatement penalty.

Section 6662 excuses the taxpayer if athere is or was substantial authority for [the tax returnas] treatmenta (ASS6662(d)(2)(B)(i)) or all relevant facts were disclosed on the return and athere is a reasonable basis for the tax treatment of such item by the taxpayera (ASS6662(d)(2)(B)(ii)(II)). Kim contends that there was asubstantial authoritya for his returnas treatment of the withdrawal, but there was and is no authority at all for it. Kim does not contend that any court has accepted his argument that an IRA (SEP flavor or otherwise) is the same as an employeras plan under ASS72(t)(2)(A)(v).

The Tax Court treats the areasonable basisa exception in ASS6662(d)(2)(B)(ii)(II) as applicable when the taxpayer furnishes accurate information to, and then relies in good faith on, the opinion of a competent tax adviser. See Neonatology Associates, P.A. v. CIR, 115 T.C. 43, 98a99 (2000), affirmed, 299 F.3d 221, 233a35 (3d Cir. 2002); 26 C.F.R. ASS1.6664a4(c). See also United States v. Boyle, 469 U.S. 241, 251 (1985). The record does not show what information Kim furnished to his accountant or whether the accountant competently analyzed the situation under ASS72(t). The Tax Court accordingly concluded that Kim could not take advantage of ASS6662(d)(2)(B)(ii)(II).

Kim observes that the Tax Court lacked any evidence from the accountant, but the shortfall is Kimas own responsibility. After the deadline for submitting expert evidence had passed, Kim filed a motion for a continuance, which the Tax Court denied. That decision was not an abuse of discretion. Kim might have asked the Commissioner to stipulate to what the accountant would have testified, but he did not make such a request. Nor did he make an offer of proof. So we have no idea what evidence the accountant would have provided. Kim testified at the trial but did not tell the Tax Court what information he had furnished to the accountant. With respect to the facts relevant under Neonatology Associates, the record is essentially empty. There is no warrant for upsetting the Tax Courtas decision. Finally, Kim asks us to order the Commissioner to abate interest on his underpayments. That subject was not before the Tax Court and therefore is not before us. CIR v. McCoy, 484 U.S. 3 (1987). Kim must ask for this relief from the Commissioner, and if he is dissatisfied with the Commissioneras decision he can file a separate petition in the Tax Court. See 26 U.S.C. ASS6404(e)(1); Bourekis v. CIR, 110 T.C. 20, 25a26 (1998). AFFIRMED

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The Employee Benefit Research Institute recently released its 2012 Retirement Confidence Survey (pdf download). It’s not a pretty picture. The survey covers a lot of retirement issues, including confidence you’ll have enough to retire (most aren’t so confident), what age you think you’ll retire (in 1991 11% said 65; in 2012 it jumped to 37%), [...]

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