IRA Rules

Archive for September, 2010

Question: What is considered the ownership time on inherited mutual funds?

I inherited a mutual fund and it was in my mothers IRA for 10 years. I have to take it out within 5 years according to IRS rules. I know I have to pay taxes on it, so I am staggering the amounts so I don’t have to report it all as income in one year.I went online to sell some of it and it says that the mutual funds has a declining sliding scale charge of 5,4,3,2,or 1% if it is sold during the first 5 years. I have my account at the same place my mother did, and they changed the title to me as beneficiary of her IRA, and are using my social security number and gave me a new account number. Do I still have to pay the sliding scale fee since it was inherited, or do they do it based on the time that it was transferred to my name?

Answer: First, the contingent deferred sales charge (CDSC) (industry-speak for declining redemption charge) is usually waived at death. Moreover, it sounds like your Mom owned it for more than five years anyway, and the schedule does not begin again when you inherit it.

Next, if reducing your taxable income and allowing the account to grow tax-deferred are your goals, in most circumstances, RMDs (required minimum distributions) can be taken over your lifetime, not just five years. Withdrawals must begin the year after the IRA owner’s death, based on the Life Expectancy of the beneficiary reduced, simply, by “1″ each year. Of course, you can always withdraw more. The early withdrawal penalty is waived for benes.

KEVIN, feel free to email me with questions.

Hope that answers your question and earns your Best Answer vote!

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. Questioners are urged to consult with their professional advisers before making any decisions regarding their finances.

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Question: IRA Roth Question ?!?!?

I am an 18 year old college male. I have a Roth IRA as business is what I study. I’m not asking about what to invest in, but rather what is the maximum I can put in my ROTH this year? I thought I knew the rules, but I logged in my Ameritrade, and it said the Roth IRA’s changes, so does anyone here hear of a change? Thank You

Answer: There has been NO change to the amount that you can contribute to your Roth IRA. It is still a maximum of up to USD $5000.00 of your earned income. And as far as I know, there are no changes impending for 2010, either. I hope this helps!

Question: Traditinoal IRA First-time home buyer tax treatment?

Hi,

My wife and I are looking to purchase our first home in the next couple of months and want to clarify this questions before ‘game day’.

I understand the surface rules of the IRS Traditional IRA penalty waiver for First-Time home buyers. The IRS basically allows a $10,000 distribution penalty free for the purchase of your first home.

The question I have goes a little deeper and doesn’t seem to be covered on the IRS’s website:
If I am the only one (between my spouse and I) who owns a Traditional IRA, AM I ABLE TO TAKE OUT $10,000 FOR THE BOTH OF US OUT OF MY IRA?

The IRS’s website states:
“If both you and your spouse are first-time home buyers, each of you can receive distributions up to $10,000 for a first home without having to pay the 10% additional tax.”
What if she doesn’t have an IRA, and we are utilizing my IRA…would I be able to pull $20,000 for the both of us out of MY IRA?

Thank you in advance for any help.

Answer: You would each have to have IRA’s to be able to take out $10,000 for each of you. So you would only be able to take $10,000 out of your IRA for the first-time home buyers without the 10% penalty.

Laura H – H&R Block – Senior Tax Advisor 5
**This advice was prepared based on our understanding of the tax law in effect at the time it was written as it applies to the facts that you provided.

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