IRAs - Common Problems Flashcards
Is it allowable to hold a personally owned business that pays the owner a salary, in an IRA?
According to Natalie Choate, this is a Prohibited Transaction, which the IRS is aggressively enforcing, and will lead to taxation.
What are the most common errors related to IRAs, and how can advisors help address them?
Improper Rollovers - Failure to properly plan for and execute a rollover from an IRA or employer plan can lead to unnecessary taxes or penalties, and failure to to properly reinvest cash into a new portfolio. Advisor assessed client situation and needs, including tax considerations, cash needs, and investments, and then plan and execute.
- Failure to complete, or properly complete beneficiary designation forms - Advisor can assess optimal beneficiary needs, and prepare and process the necessary paperwork. Note - Estate attorneys should do this but usually don’t, and clients usually don’t do it on their own.
- Failure to RMDs or execute them in a timely manner with the correct amounts from all related accounts- Advisor can identify all accounts subject to RMDs, calculate The amounts, and process the paperwork.
What is an alternative to having an IRA own one’s business (which is a PT)?
Create a company ESOP, fund it, and have the ESOP but the company’s stock.
Assuming there is a living spouse, what is the primary problem with naming a trust as the primary beneficiary of an IRA?
You lose the spousal stretched IRA. The best outcome is that the trust can distribute over the life time of the spouse starting immediately. This will accelerate draw down and payment of taxes. By contrast, a spousal IRA allows the spouse to delay distribution until age 70 1/2, and to pass on IRA to heirs. Therefore, unless there are special issues, name the spouse as the primary beneficiary, and the trust as a secondary beneficiary.
