IRA Rules

Archive for the ‘IRA Rules’ Category

Question: Where can I find information about latest Roth IRA rules?

Answer: This section of the IRS Publication 590 describes the latest information on Roth IRAs:

http://www.irs.gov/publications/p590/ch02.html#en_US_publink1000230961

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: What are the tax implications for holding ADR stock in a Roth IRA?

I own stock of BP (British Petro) , AIB (Allied Irish Banks), and looking to pick up some E (Eni) which are/will be held in a U.S. Roth IRA account.

Answer: There aren’t any.

Fist off, ADRs — American Depository Receipts — are not foreign stocks, they are US securities issued to cover an equivalent number of foreign securities held by a registered broker. Therefore there are no US implications on holding foreign securities.

US persons and entities, other than registered securities brokers, are generally prohibited from directly holding foreign securities. An American living in Europe for example, must certify that they are not US persons or entities in order to purchase securities from a European dealer. It’s a boilerplate clause in all European securities contracts and nobody checks up on it.

In reality it’s all done with a nod and a wink — I’ve owned foreign shares while living in Europe. I reported the gains on my US returns and paid any taxes due, and took credit for the foreign taxes paid using Form 1116. Thankfully the IRS isn’t permitted to report securities irregularities as long as the taxes are paid. That’s a moot point in your case because ADRs are not foreign securities and because you are holding them in an IRA.

If there are any foreign taxes on the underlying securities those are usually withheld at the source and you receive the net. Otherwise the foreign tax would be paid by the dealer and you again receive the net. However since these are held in a tax deferred account in your case, you cannot claim any credit for the foreign taxes paid. That’s negated by the fact that you receive the net gain after the foreign taxes so it’s largely a moot point.

Since these are US securities held within your IRA there are no tax consequences any more than with any other US security.

The IRA Tax Time Bomb