Table of Contents Introduction... 1 What are the benefits of an IRA?... 2 Crunching the numbers... 2 Bankruptcy protection... 3 Starting an IRA... 7 Setting up the account... 7 What is an IRA?... 7 Types of IRAs... 7 myra accounts... 8 Funding options... 9 Employer involvement... 10 California conformity... 10 Roth versus traditional... 10 Basic considerations... 11 Roth versus traditional an in-depth look at the math... 12 Nondeductible IRAs... 15 The Saver s Credit... 15 Likely candidates... 17 Don t overlook seniors... 17 Contributing to an IRA... 19 Basic rules... 19 Due date of contributions... 19 Cash only... 19 Maximum amount... 19 Taxable compensation for purposes of the maximum contribution amount... 20 Spousal IRA... 21 Active participation at employment... 22 Defined benefit plan... 22 Defined contribution plan... 22 Tax Court case highlights active participation rules... 23 Taxpayer could have suspended benefits... 23 No IRA allowed even with minimal employer contributions... 23 No IRA deduction even when employee didn t realize he was part of a plan... 23 AGI phaseout ranges... 23 How modified AGI is computed... 25 Getting out of the plan... 26 Excess contributions... 27 Withdraw excess by due date of return... 27 2016 i Spidell Publishing, Inc.
Withdraw excess after due date of return... 28 Carryover excess... 29 Planning for the penalties... 29 Specific contribution rules for each of the three types of IRAs... 30 The traditional deductible IRA... 30 The nondeductible IRA... 31 The Roth IRA... 33 Investing... 35 Smart investing in an IRA... 35 Annuities in the IRA... 36 Negatives for annuities... 36 Benefits of annuities... 37 Lifetime income stream... 37 Longevity contracts?... 37 Annuity benefits today... 37 A closer look by the government... 38 Prohibited investments and transactions... 38 Pledging the IRA... 38 Collectibles... 39 Buying a home... 39 Prohibited transactions... 39 Nontraditional investments in general advantages and disadvantages... 43 Investing in real estate... 43 How it works... 44 Hurdles... 44 Getting over the hurdles... 45 Other considerations... 45 IRA LLCs... 46 How the LLC comes into play... 46 IRA LLC structure advantages and disadvantages... 46 Summary and recommendations... 47 Rollovers for business strategies ROBS... 47 Oversight... 47 Consequences of invalid transaction... 47 Prohibited transaction cases... 48 Other ROBS noncompliance traps... 48 ROBS successes... 48 Investing in gold... 49 Wash sale rules and IRAs... 49 Spidell Publishing, Inc. ii 2016
Unrelated business taxable income... 50 When does tax apply?... 50 Investments that may generate UBTI... 50 Taxable income... 50 Excludable income... 51 Exceptions... 51 Tax rates... 51 Filing... 52 Paying tax... 52 Resident or nonresident?... 52 Paying investment fees... 53 Traditional IRAs... 54 Roth IRAs... 54 Rolling Over (Into and Out of an IRA)... 55 Early withdrawal penalty/additional tax... 55 IRS may question 1099... 55 IRA-to-IRA rollovers... 56 Only one rollover is allowed per year... 56 Partial rollovers... 57 Rollover from an IRA to a qualified plan... 58 Rollover from a qualified plan to an IRA... 58 Choosing the rollover option... 58 Qualified rollovers... 60 Substantially equal periodic payments... 60 Required minimum distributions... 60 Comparison chart of allowable rollovers... 62 When not to roll over from a qualified plan... 63 Participant 55 or older... 63 Net unrealized appreciation... 64 The 60-day requirement... 66 Under what circumstances will the IRS grant relief?... 67 Applying for waiver... 67 Taxpayer granted waiver of 60-day rollover period for promissory note... 71 Taxpayer is disabled and not subject to 10% penalty... 71 No exception to early withdrawal penalty for prior-year medical expenses... 72 Gambling addict steals from his wife s IRA... 72 Converting, Recharacterizing, and Reconverting... 73 Why do it?... 73 Converting... 73 AGI limitations... 73 2016 iii Spidell Publishing, Inc.
Five-year rule... 74 Income recognition... 74 Valuing an annuity for conversion purposes... 74 Partial conversions... 75 Timing... 76 Converting from other retirement plans... 76 Reporting requirements... 77 Conversions post-2009... 77 De facto elimination of Roth contribution AGI limitations?... 78 Roth conversion checklist... 79 Recharacterizing... 81 Requirements... 81 Trustee-to-trustee transfer... 81 Transfer contribution plus allocable income... 82 Making a timely election... 84 Amended returns... 85 Reporting recharacterizations... 85 Nonautomatic extensions Letter Rulings... 86 Reconverting... 87 Planning, generally... 88 Why not? You get a mulligan!... 89 NOL opportunity... 90 Using charitable contributions... 90 AGI and passive losses... 91 Social Security taxability... 91 Medicare... 91 2016 Medicare Parts B and D Premium Surcharge... 92 Estate planning issues... 93 Recharacterizing a high-value conversion to a Roth... 93 Distributing... 95 Spending isn t so simple... 95 General rules on distributions... 95 Traditional IRAs... 95 Nondeductible contributions... 96 Roth IRAs... 96 Transfers incident to divorce... 96 Nondeductible IRA distributions... 96 Computing the tax-free portion (basis) of the distribution... 96 Documenting the tax-free portion of the distribution... 97 Spidell Publishing, Inc. iv 2016
Roth IRAs... 98 The five-year rule... 98 Roth distribution ordering rules... 99 Premature distributions the 10% penalty... 100 Exception for medical purposes... 100 Exception for educational purposes... 101 Exception for first-time homebuyers... 101 Taxpayer did not qualify for first-time homebuyer 10% penalty exception... 102 Substantially equal periodic payments... 103 Payment methods... 104 No modifications allowed... 104 Exceptions to modification rules... 105 Other modifications... 106 Special tax-free distributions... 108 Distributions to fund a health savings account... 108 Qualified charitable distributions... 108 Required minimum distributions... 110 How is RMD calculated?... 111 Notes regarding the RMD calculation... 112 When must RMD begin?... 112 Penalty for failure to take RMD... 112 Distribution planning ideas... 112 Taking a deduction for IRA losses... 112 RMD in a market decline... 113 Pushing forward the RMD... 114 QLAC requirements... 114 Taking distributions early... 115 Leaving Behind And Inheriting... 116 Who gets the IRA?... 116 Beneficiary designation trumps divorce decree, but estate may sue... 116 Estate tax... 117 Treatment of an inherited IRA... 117 Taxability... 119 Roth IRAs... 119 Surviving spouse as beneficiary... 119 Beneficiary nonspouse individual... 121 Trust as IRA beneficiary... 122 Partial disclaimer of IRA proceeds does not change beneficiary s RMD IRAs... 124 Failure to take required distributions... 125 Rollovers from qualified plans... 126 2016 v Spidell Publishing, Inc.