IRA Insights: Issues for the Creative Practitioner

Shanney-Saborsky, Regina
August 1998
Journal of Financial Planning;Aug1998, Vol. 11 Issue 4, p24
Academic Journal
This paper addresses issues facing financial planners with regards to individual retirement accounts (IRA). For example, an area that may raise concern is the involuntary acceleration of IRA withdrawals following the death of the IRA owner. In addition, one of the greatest pitfalls for the practitioner is that the uncomplicated IRA transactions often present issues that are troublesome from the planning perspective. To evaluate the potential tax liability associated with an early withdrawal from a Roth IRA, first establish whether it would be considered a qualified distribution. If the withdrawal is not qualified, penalty or income taxes may apply. In determining the potential tax exposure for a nonqualified distribution, keep in mind that the amount of the distribution will be first applied to contributions and then earnings. The standard for a tax-free distribution is two-pronged--the holding period and either age or the type of distribution, such as death, disability or home purchase. Another concept that appears simple but has hidden issues is the IRA-to-IRA rollover. A common technique to accommodate these issues is for the IRA owner to take an immediate distribution of the IRA, with the intent to use the 60-day window to redeposit the funds into a new IRA without resulting in any tax liability. The subsequent contribution of securities purchased with the cash to an IRA will not qualify as a tax-free rollover.


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