In This Update:

Fronting Money For Your IRA? Bad Idea!
Ruling to Remember: On the 60th Day...What Happens if We Rest?
Q of the Month: Can I Contribute to a Roth IRA?

Resources

Expert Professional
Assistance

Ed Slott and Company’s Beverly DeVeny at Advisors MoneyShow

To Roth Or Not To Roth?" on November 18th. Click image for more info.

?? Question of the Month: Can I Contribute to a Roth?

Q: I have read that an individual can’t contribute to a Roth IRA if he or she has a workplace retirement plan. My income does not exceed the limits for a Roth contribution. Does the SEP IRA contribution keep me from being able to contribute to a Roth? Secondly, the SEP contribution is less than $5,000 so if I can’t contribute the entire amount to a Roth, can I contribute the difference between the SEP contribution and the limit on contributions to a Roth?

A: Your Roth IRA contribution is completely separate from your SEP IRA contribution. If you are age 50 or older on 12/31 of this year and you have earned income of at least $6,000 then you can contribute up to $6,000 to a Roth IRA for 2010. If you are younger than age 50, the maximum you can contribute is $5,000. There are income limits for contributions to Roth IRAs. If you are filing a joint return, the phase out limit is $167,000-$177,000. That means if your joint income is over $177,000 for 2010, you can NOT contribute to a Roth IRA. If you are single, the phase out limit is $105,000-$120,000.

PREPARE NOW FOR ALL TAX RULES IN 2011...AND BEYOND!

DON'T FORGET ABOUT GROUP DISCOUNTS! CALL 215-557-7022 FOR PRICING.

NEW ROTH 401(K) CONVERSION OPPORTUNITIES

The November issue of Ed Slott’s IRA Advisor Newsletter highlights the Small Business Jobs Act of 2010, which was signed into law by the President on September 27, 2010.

This new act involves a provision that allows certain 401(k) and 403(b) plan participants to convert their plan funds to a Roth 401(k) or Roth 403(b) within the plan.

LEARN MORE ABOUT THE ACT IN ED SLOTT'S IRA ADVISOR NEWSLETTER

Inside Ed Slott's IRA Advisor Newsletter

New Roth 401(k) Conversion Opportunities

The Small Business Jobs Act 2010
Certain Retirement Plan Funds may be Converted to Designated Roth Accounts at the Plan"
Three Hurdles
1. Does the Plan Offer a Roth Option?
2. Will the Plan Allow In-Plan Conversions?
3. Is Your Client Eligible for a Distribution?
Why the Roth IRA is Better
Why the Roth 401(k) is Better
Governmental 457(b) Plans Can Add a Roth Option in 2011
Reduced Penalties for Listed Transactions
Advisor Action Plan

Guest IRA Expert

Joseph R. Brooks, ChFC
Fairhaven Financial Advisory Corp.
East Lansing, Michigan

Creative Ways to Find Cash for Year-End Roth IRA Conversions

If you are not already an Ed Slott's IRA Advisor Newsletter subscriber, you can preview past issues before subscribing.

November Key Focus

FRONTING MONEY FOR YOUR IRA

Can you front money for your IRA?

Here’s the scenario. Year end is fast approaching. You want to make an investment in your IRA, or do a Roth conversion of your existing IRA, or just move your IRA, but it must be done before year end. The problem is your current IRA cannot be liquidated or moved quickly enough to meet the deadline. You have outside money just hanging around so you decide to take the outside money and move it to the new IRA or Roth IRA now, so you can meet the year-end deadline. Then, when the IRA is finally liquidated, you will simply replace the outside funds. No big deal, right? After all, it is all your money.

WRONG! This is self-dealing between you (your personal assets) and your IRA. It is a prohibited transaction. The funds that went into the new IRA or Roth IRA are not IRA eligible funds. You have an excess contribution which must be properly removed or you will have a 6% penalty for each year they remain in the retirement account.

You can put outside money into an IRA, but only up to the contribution limits each year as long as you qualify to make a contribution.

We are entering the season of temptations. Lots of food, lots of parties, lots of gifts. But this one temptation you are going to have to resist.

Ruling to Remember

Private Letter Ruling 201039041

"John" was the owner of an IRA. He received a distribution from his IRA and deposited it into a non-IRA account with his bank. However, he was laid off unexpectedly shortly thereafter (four days before the expiration of the 60-day rollover period, which ended on a weekend, during which the company that housed his IRA was closed).

"John" attempted to rollover the distribution amount into a rollover IRA on the next business day, but he was notified that the company would not accept the rollover because the 60-day rollover period had expired. "John" was irate, but more importantly, confused at the decision.

Because of the bank's action, the distribution amount remained intact. "John" requested in a private letter ruling to only rollover a portion of the distribution, as he intended to make use of some of the funds due to his sudden unemployment. He submitted his request to the IRS and hoped for a fast decision...after all, he needed some of that money!

The IRS granted his request, waived the 60-day rollover requirement and gave him 60 days from the ruling date to contribute his intended amount into a Rollover IRA.

LESSONS TO LEARN:

1. The lesson to learn is a simple one, yet NOT one that many individuals or institutions may realize. If the last day of a 60-day rollover period falls on a weekend, you CAN still complete the rollover on the first business day following the weekend period.

2. However, you can avoid this issue altogether. HOW? You can do a direct transfer of funds to avoid the Saturday-Sunday confusion. After all, weekends are for relaxation, NOT a time to be worrying about rollovers of distributions.

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