February 19, 2005 08:45 PM
Avoiding Confusion With IRA Rollovers
Excerpt: A botched rollover of your individual retirement account can mean the difference between retiring in comfort or retiring a few years later than you'd planned.
A botched rollover of your individual retirement account can mean the difference between retiring in comfort or retiring a few years later than you'd planned.
Forgetting to reinvest the savings after a rollover or having multiple IRAs can complicate matters. Even something as minor as waiting too long to deposit a check into your IRA can result in steep taxes and penalties.
But rollovers don't have to be problematic. In this column, I offer some advice on dealing with common IRA missteps.
Under the so-called 60-day rule, distributions from retirement accounts such as 401(k)s and IRAs are subject to income tax, and a 10% penalty for workers aged 59½ or younger, if the money from one retirement account isn't redeposited into another within 60 days.
Congress gave the Internal Revenue Service the authority to grant exceptions to the 60-day rule as part of the Economic Growth and Tax Relief Reconciliation Act of 2001. The rule change greatly expanded the circumstances under which a waiver could be granted and has paved the way for taxpayer requests for relief.
With a private letter ruling, taxpayers can request a clarification or explanation on how tax code would apply in their individual circumstances. Prior to the rule change, exemptions were granted only in the cases of military combat duty or for a disaster declaration from the president. Just a year ago, an article in the Wall Street Journal detailed how taxpayers were saving thousands in taxes and penalties by receiving waivers from the IRS through private letter rulings.
But the tide may be turning, says Ed Slott, a certified public accountant and publisher of an IRA newsletter that tracks letter rulings as they are issued by the IRS. Out of the 205 private letter rulings issued on waivers to date, there have been just 16 denials. However the pace of these waiver rejections has been picking up recently. "In 2003 there was just one denial, there were 12 in 2004 and in January 2005 alone there are three already," Mr. Slott says.
Recent rulings where denials were issued also suggest the IRS is getting tougher with individuals who try to use the waiver loophole for their own personal gain, Mr. Slott says.
For example, this ruling issued by the IRS in early November rejected a waiver request from a woman who had taken an IRA distribution, unaware of the 60-day rule, and had used some of the assets to pay for health-care and personal expenses. In the ruling, the IRS said that the request didn't qualify for a waiver because the funds were used to pay for "personal financial obligations" before being deposited into another IRA.
"When waivers were first introduced, it seemed that all you had to do to receive a waiver was ask, but now it looks like that may no longer be the case," Mr. Slott says.
The IRS doesn't comment on private letter rulings because, well, they're private, says spokesman John Lipold. And the agency's Web site notes that pursuant to Internal Revenue Code these rulings can't be used or cited as precedent. Still, accountants and tax specialists look to private letter rulings to glean the IRS's mind-set on a topic or issue.
READ FULL STORY ...Greenspan Sees Medicare Crunch - Feb 17, 2005
Bush Seeking Help For Overhaul - Feb 13, 2005
Social Security Plan Hinges on the Peg - Feb 13, 2005
Americans Worry About Saving - Feb 10, 2005
Online Calculators Test Social Security Scenarios - Feb 10, 2005
Retirement Turns Into a Rest Stop as Benefits Dwindle - Feb 10, 2005
Automatic 401(k) Enrollments May Lasso Lackadaisical Savers - Feb 04, 2005
Taking the Wheel Before a Pension Runs Into Trouble - Jan 31, 2005
Taking Time Off - Jan 25, 2005
Planning Your Retirement Online - Jan 23, 2005
A Hole In Krispy Kreme's Balance Sheet? - Jan 15, 2005
Five Keepers - Jan 15, 2005
Are Spendthrift Americans Really the Problem? - Jan 09, 2005
White House Memo Argues for Social Security Cuts - Jan 05, 2005
The Other Retirement Crisis - Dec 29, 2004
If You Didn't Save 10% of Your Income This Year, You're Spending Too Much - Dec 27, 2004
Model Reveals Social Insecurity - Dec 27, 2004
Want to Retire Early, It May Take Some Work - Dec 27, 2004
What You Need To Know About Personal Savings Accounts - Dec 27, 2004
Going The Distance - Dec 26, 2004
Future Retirees To Lose Health Coverage - Dec 26, 2004
The Gift Of Financial Stability - Dec 26, 2004
Model Reveals Social Insecurity - Dec 21, 2004
Banks Stay Calm On Social Security - Dec 21, 2004
Six Ways to Sleep Better in Retirement - Dec 19, 2004
Social Security: Five Burning Questions - Dec 19, 2004
Bush: Start Bow On Social Security - Dec 18, 2004
Bush Says Social Security Plan Would Reassure Markets - Dec 17, 2004
Are You Ready To Retire? - Dec 13, 2004
Last-Minute Retirement Planning - Dec 12, 2004
Small Change Adds Up To Big Savings - Dec 09, 2004
Bush To Borrow To Fix Social Security - Dec 07, 2004
Moving Smoothly Into Retirement - Dec 07, 2004
Get Healthy, Get Wealthy - Dec 06, 2004
Five Books to Retire By - Dec 05, 2004
Tax Policy Promotes Early Retirement - Dec 02, 2004
Fidelity Analyzes Pension Performance - Dec 02, 2004
Social Security COLA Increase Looks Puny - Dec 02, 2004
No More IRA Leniency - Nov 29, 2004
To Yield A Good Retirement, Get Real, And Work It Out - Nov 28, 2004
Social Security Reforms On The Way? - Nov 26, 2004
Some New Ways To Preserve Your Retirement - Nov 23, 2004
Living Trust Offers: How to Make Sure They're Trust-Worthy - Nov 22, 2004
How to Forecast a Lifespan - Nov 21, 2004
Be Happy, And Put Retirement Fears to Rest - Nov 21, 2004
Seven Ways to Stop Saying 'Oops!' - Nov 21, 2004
Retirees Don't Have to Be So Frugal: A Case for Withdrawing Up to 6% a Year - Nov 17, 2004
How to Avoid Living Like a Poor Student at Age 70 - Nov 09, 2004
What Social Security Might Look Like - Nov 09, 2004
Are You Retirement Ready -- Or Not? - Nov 03, 2004
• Structured Settlements
www.setcap.com - cash for structured settlements, sell annuity, lottery winnings, and more.
• Personal Finance: Finance News Today provides money saving tips, news, and articles on personal finance issues like insurance, real estate, college planning and much more.
• Compare all our 0% Credit Card UK against our 0% balance transfers and cash back deals.
• Browse through our Credit Cards deals and apply online.
• financial tip - financial tips article and more.
• Arizona llc - incorporate a arizona llc. they offer solutions for limited liability company asset protection in arizona and california. incorporation services are provided online with 24 hour filings and expedited approvals. www.paralegal-plus.com for cpa lawyers.
• Credit Repair
repairmycreditnow.com/Credit_Repair_Advice.htm - repair my credit now credit services offers credit repair, restoration and education through our exclusive "v" phase process â„¢.
• Citibank Home Equity Lines of Credit: Rates as low as Prime - 0.50% variable APR for Life, currently 5.50% variable APR.
• Day Trading - day trading signals for active stock and options traders.
• Ken Langone - ken langone: make my day
• Credit Repair - repair my credit now credit services offers credit repair, restoration and education through our exclusive "v" phase process â„¢
• Online Option Trading - oexoptions is an oex online stock option trading company offering a free 15-day trial for all new customers.
• fix bad credit
Want to See Your Ads Here? Claim Your Ad Space at Personal Finance Weblog by Writing to Webmaster. Starting at $25/month, see your text ads in more than 2,000 indexed pages at PFBlog, the Best Personal Finance Blog, or MM Money, MM's Daily Personal Finance Readings. Full Rate Card Available Here.
