Articles From the February 1995 Unification News



Question: Can an IRA contribution be made in stock?

Answer: No. The tax rule is that a regular IRA or SEP contribution must be made in cash. A rollover contribution can be made in securities if those securities were the same assets as received from the distributing plan.

Question: What happens if I contribute more than $2,000 to an IRA for any one year?

Answer: If the excess contribution (that is, the amount above $2,000) is not removed by the tax filing due date plus any extensions, you will owe a 6% excise tax for each year the excess contribution remains in the account.

Question: I have an extension to file my tax return. Does that extend the date for an IRA contribution?

Answer: Your IRA contribution must be in by April 15. No extensions are allowed. However, SEP and qualified plan contributions can be made until the tax filing due date plus extensions. Note that plans subject to a minimum funding standard, such as defined benefit pension, money purchase pension and target benefit plans, should be funded within 8 1/2 months after the end of the year to avoid the penalty for failure to meet the minimum funding standard.

Question: I want to withdraw my IRA from my bank. Will the bank have to withhold 20% of the distribution?

Answer: No. The 20% mandatory withholding rule applies only to distributions from company qualified plans and Section 403(b) plans. It does not apply to distributions from IRAs or SEP-IRAs.

Question: I received a distribution from a company pension plan and rolled it over into a bank IRA. Now I would like to roll it over to my brokerage account. Does that violate the one rollover a year rule?

Answer: No. The one rollover a year rule applies only to IRA-to-IRA rollovers, not to the plan-to-IRA rollover. So, if you took a distribution from the IRA at the bank and rolled it over to your brokerage account, you could not roll any distributions from either account to another IRA if those distributions were taken within 12 months of the original distribution from the bank. However, if you wanted to move IRA money from either of those IRAs to another IRA within the 12-month period, the funds could be moved through a custodian-to-custodian or trustee-to-trustee transfer. There is no limitation on the number of IRA transfers, just rollovers.

Question: I would like to consolidate all of my IRAs by rolling them over to one account this year. Can I do this?

Answer: Yes. You can roll over each of those IRAs to one account (it's one rollover per IRA within a 12-month period). However, new distributions taken from the new IRA, or any of those IRAs that were rolled over, may not be rolled over to any IRA if those distributions were taken within 12 months of the original IRA distributions.

Question: I have just reached age 70 1/2 and need to withdraw funds from my IRA. According to the IRS life expectancy tables, the applicable figure is "16". Does that mean I must take 16% of my account's value?

Answer: No. The applicable figure is a life expectancy figure. It is a divisor, not a multiplier. Divide the end of the prior year account balance by the life expectancy to determine the minimum distribution. Another way to determine the distribution: Divide "1" by the life expectancy. Then multiply the account value by that percentage to determine the minimum distribution.

Question: Must a single or widowed individual use single-life expectancy to determine required distributions from an IRA?

Answer: No, as long as an individual is named the beneficiary, the account owner can choose to use a joint life expectancy to determine the minimum distributions, and thus take a smaller minimum (subject to certain maximum age differentials). This choice must be made in the first year of distribution. If no election is made, the provisions of the plan dictate the method to use.

Question: Am I able to take an IRA distribution in stock, or must I liquidate the assets and take cash?

Answer: IRA distributions can be taken in kind; they need not be in the form of cash.

Question: Can I roll over to an IRA a distribution that I will receive from my company's retirement plan after age 70 1/2?

Answer: Generally, yes. However, you cannot roll over the portion of the distribution that represents the required minimum distribution. Only the excess above the required minimum distribution amount can be rolled over.

Question: I contribute $2,000 to IRAs every year. I keep my deductible IRAs separate from my IRAs with non-deductible contributions. Do I need to do this?

Answer: Not for tax purposes. When individuals eventually pull money from any of their IRAs, the total will be aggregated so that part of each distribution will be taxable and part will be considered a recovery of non-deductible contributions. This calculation is done on IRS Form 8606. It does not matter from which IRA the distribution is taken. An individual may want to keep an IRA separate only in the IRA contains funds that were rolled over from company qualified plans and were not commingled with regular IRA contributions. By keeping those funds separate, the individual retains the right to roll them over to a new employer's qualified plan.

Question: Can a trust become the owner of an IRA?

Answer: Only an individual can own an IRA. A transfer of ownership will give rise to a distribution. However, a trust can be the beneficiary of an IRA.

Question: What happens if an IRA is used as collateral for a loan?

Answer: The amount of the IRA pledged is considered to be distributed.

Question: Can I sell stock that I am holding to my IRA?

Answer: If you sell stock to your IRA, then you have engaged in a prohibited transaction. As a result, your IRA will be considered to have distributed all of its assets as of January 1 of the year of the sale.

This article is offered for information only. Neither the contributor nor Dean Witter is a tax advisor. Investors should consult their personal tax advisors before making tax-related investment decisions.


Download entire page and pages related to it in ZIP format
Table of Contents
Copyright Information