IRA Rules

Archive for May, 2005

Question: Do I need to fill out an 8606 if I do an immediate conversion?

Since I don’t qualify to be able to contribute to a Roth because of my income, if I fund a non-deductible IRA and immediately convert it to a Roth to get around the rule, do I still have to file an 8606 next year? This seems like a really stupid bureaucratic step. Why don’t they just get rid of the income limit?
The main question is about needing to file the 8606, not about the pointlessness of it if I do have to…

Answer: the rules were set in place for a reason
if you are not eligible to fund an IRA because you did not have earnings it was designed so people with earnings could have some small advantage, not to allow those who have more than enough they don’t need the small advantages

How to Convert IRA Real Estate to a Roth

Question: Are you allowed to sell a stock in a tax advantaged account and immediately buy it back in a regular account?

I want to sell some stock in my Roth and recognize some capital gains. I also want to immediately buy the stock back in a regular brokerage account. Are there any rules against this? If not, seems like a great idea to lock in those gains in an account where you don’t pay any capital gains tax.

If you are allowed to do this, it seems like you can abuse it. Example: in illquid stocks with a wide bid-ask spread, one can sell and buy at the same time using one’s own tax-advantaged account and regular brokerage account-recognizing the gains in the IRA and the losses in the regular one.

Answer: There shouldn’t be any tax problem.

But why would you buy a stock EXPECTING a capital loss?

If you really expect the stock to go down don’t buy it. If you expect a down-turn in the market [in that stock or in the general market], go into cash or short term bonds that won’t get hit with capital losses.

Rule#4: Diversify! Diversify! Diversify!

Question: RMD’s – does someone 75 years old need to take rmd’s out of a 401K?

I know they have to take it out of the tax-deductible IRA starting at age 70 1/2 or so.
But not out of the ROTH.

But can you let money sit in a 401K until whatever age you want to take it out?
Or does that also follow RMD rules.

Excuse me, I’m young, and just learning.
I love to learn.
Why the government forces you to take money out – baffles me.

Answer: Yes, unless you’re still working for the company, in which case RMDs may be delayed until April 1 of the year after you retire. Check with the Plan Administrator to find out if the Plan allows it.

Otherwise, 401(k)s follow the same RMD rules applicable to IRAs.

Incidentally, while Roth IRA owners need not take RMDs, Roth beneficiaries do!

Hope that helps.

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DISCLAIMER: While the information in this response was obtained from sources believed to be reliable, its accuracy and completeness cannot be guaranteed. The opinion voiced in this answer is for general information only and it shall not be construed as tax, legal, or investment advice for any individual, nor shall it be considered a solicitation for business. Questioners are urged to consult with their professional advisers before making any decisions regarding their finances.

Bradley Mann, CFP®, EA, BCE, CFS, AAMS
Certified Financial Planner™ Practitioner
Enrolled Agent | Admitted to Practice before the IRS
Board Certified in Estate Planning

IRA GALLEN AGE 16 AUDIO 1967 at 5:45 AM BKLYN NY MARINE PARK