Stories that ran previously:
The IRS announced that an April 17, 2007 deadline would apply to federal individual income tax return filing for 2006 returns and for tax-year 2006 contributions to a Roth IRA or traditional IRA. Previously, the deadline had been April 16th, but April 16th is a legal holiday in the District of Columbia. (IRS News Release IR-2007-15, 1/24/2007).
On August 17, 2006, President Bush signed into law the Pension Protection Act of 2006. This law made permanent increased contribution limits to IRAs (including Roth IRAs) that would otherwise have expired after 2010. It also made permanent the Roth 401(k), which would otherwise not have been available after 2010. For additional information, see the Roth 401(k) Web Site.
On May 17, 2006, President Bush signed the Tax Increase Prevention and Reconciliation Act of 2005 into law. This tax bill included a provision dealing with conversions of traditional IRAs to Roth IRAs. Starting in 2010, the existing $100,000 income test for converting a traditional IRA to a Roth IRA will no longer apply. Conversions that occur in 2010 will be able to have half of the taxable converted amount taxed in 2011 and the other half taxed in 2012.
A proposed pension bill by Rep. Ben
Cardin (Democrat-MD), H.R. 1961, would eliminate Roth 401(k)'s which will
otherwise go into effect on 1/1/2006. A similar pension bill by Rep. Rob
Portman (Republican-OH), H.R. 1960, would not eliminate Roth 401(k)'s.
Portman's bill would also rename Roth IRAs as Retirement Savings Accounts (RSAs)
and would make them available to Americans at all income levels. (5/18/05).
The Bush administration has proposed expanded savings accounts that would greatly expand Roth IRAs
(renaming them as Retirement Savings Accounts or RSAs) and introduce a new
Lifetime Savings Account with features similar to (and superior to) Roth
IRAs. Both accounts would offer tax-free withdrawals with contribution
limits of $5,000 each with contributions to both allowed, for a total of
$10,000. Also, income limitations on conversions and setting up Roth IRAs
would be eliminated. If enacted, RSAs would be effective starting in 2006. Also, Roth 401(k)s, which are
currently scheduled to be available on 1/1/06, would be renamed as Roth ERSAs. Our sister site,
LifetimeSavingsAccount.com, includes detailed information on the
proposed Lifetime Savings Account. (2/7/05).
Former Senator William Roth, the architect of the Roth IRA, died on 12/13/03. (12/15/03).
Portman-Cardin introduced the Pension Preservation and Savings Expansion Act of 2003 on 4/11/03. A modified bill was marked up in the House Ways and Means Committee (with details available at the Committee's web site) on 7/18/03. Contribution limits to Roth IRAs would have been changed to $5,000 ($6,000 if age 50 or over) starting in 2004. Direct rollovers from retirement plans to Roth IRAs would have been permitted. This bill appears dead for 2003 and prospects for passage in 2004 appear to be poor. (4/14/03, 11/26/03).
House Democratic Leader Gephardt introduced a bill on 4/18/02, H.R. 4482, that would eliminate Roth IRAs. H.R. 4482 would replace all existing types of IRAs and Roth IRAs with a Universal Retirement Savings Account from which all distributions would be taxable. H.R. 4482 seems to have little chance of passage at this time. (5/6/02).
The final regulations for required minimum distributions from retirement plans were published on 4/17/02 in Treasury Decision 8987. The new regs include updated life expectancy tables that allow distributions to be taken out over longer periods. The new rules affect all IRAs and Roth IRAs as well as other pension plans. The new regs and life expectancy tables may be found at NewRMD.com. (4/17/02). A Consumer's Guide to the Retirement Distribution Rules is available for $19.95 at GuidetoRules.com. (4/23/02).
President Bush signed into law on 6/7/01 the tax bill that Congress passed on 5/26/01. The new law includes major pension changes. Provisions include phased-in contribution limits for IRAs and Roth IRAs: $3,000 in 2002, $4,000 in 2005, $5,000 in 2008 with limits indexed in future years. IRA catch-up provisions will increase those limits for those 50 and older by $500 in 2002 and by $1,000 starting in 2006. Roth 401(k)'s are provided for starting in 2006. Details are in the following pdf files at a House web site: x-50-01.pdf and x-51-01.pdf. The legislative language is now available as a 186 page file, legtext.pdf, and the explanation is available as a 258 page file, statemgrs.pdf. (5/26/01, updated 5/29/01 and 6/7/01).
Congress is considering bankruptcy legislation that would place a $1 million limit on the amount of assets in IRAs and Roth IRAs that would be protected from creditors. (3/6/01).
It has been reported that speeding up higher limits on IRA and 401(k) retirement investments is being considered for a tax cut bill to help the economy according to an article by Deborah Orin in the New York Post. (10/2/01). Note: The mark-up for the House version of the tax bill does not have these provisions. (10/12/01).
With apparent agreement on the size of a Tax Cut bill, it is expected that the House and Senate will reconcile their bills in May. It now appears that the Pension Bill will not likely be included as part of the tax bill and will have to pass on its own or with other legislation later in the year. Although the likelihood of a Pension Bill being enacted seems high, it is unclear when this will occur. (5/2/01).
The Retirement Security and Savings Act of 2001 was introduced into the Senate as S. 742 on 4/6/2001. Unlike the House version, it does include the proposal to increase the AGI limit to $200,000 for Roth conversions by married couples. The bill may be viewed by searching for S.742 at Thomas or by downloading a S. 742 pdf file. (4/12/01). The chances of enactment as part of a tax bill seem very high with the pension provisions going into effect starting in 2002.
The Comprehensive Retirement Security and Pension Reform Act of 2001 was introduced into the House as H.R. 10 on 3/14/01. Its provisions are largely the same as the bills introduced during the last two years although its chances of enactment seem much higher this year. Proposed changes include increased contribution limits for traditional and Roth IRAs, catch-up contributions for those 50 and older, and a new Roth 401(k). However, the former proposal to increase the AGI limit requirement for Roth conversions by married couples is not found in the current bill. (Links: H.R. 10 PDF file, Bill Summary, Detailed Bill Summary). The House Ways and Means Committee approved the chairman's mark of H.R. 10 by a vote of 35 to 6 on 4/25/01. The Joint Committee on Taxation has issued an explanation of the mark-up (JCX-25-01). The House passed the bill by a vote of 407 to 24 on 5/2/01. (3/16/01, updated 4/26/01 and 5/2/01).
The Roth IRA Web Site has a new sister site, NewRMD.Com, which has information on the new Required Minimum Distributions rules which the IRS released on 1/11/01. NewRMD.Com also includes an online Required Minimum Distributions Calculator. (2/6/01, 2/28/01).
An article titled Retirement Savings Leads Tax-Cut Initiatives by David Rogers was in the 1/26/2001 issue of The Wall Street Journal (p. A16). (1/26/01). Previously, the Tax Report column on the front page of the 1/17/2001 issue of The Wall St. Journal indicated a bill similar to last year's pension bill will soon be introduced in Congress and that its chances of passage seem good. (1/19/01).
The IRS has issued new proposed regulations (1/11/01) for required minimum distributions from pension plans. The effect of the new rules on Roth IRAs is minimal although the new rule that the designated beneficiary is determined as of December 31 of the year following the plan owner's death results in some planning advantages. To some degree, the new rules make traditional IRAs more attractive than previously thereby reducing some of the advantage that a Roth IRA has over a traditional IRA. The new regulations are REG-130477-00 and REG-130481-00. (1/16/01).
The Tax Report column on the front page of the 1/3/2001 issue of The Wall Street Journal noted that many lawmakers in the new Congress favor retirement savings incentives such as raising the contribution limit to $5,000 or more. (1/3/2001).
Since the lame duck Congressional session did not result in the passage of the tax bill (which included pension changes), action on pension changes is deferred to the 2001 Congressional session. (12/16/00).
The House included pension provisions in its Taxpayer Relief Act of 2000 which passed 237-174 on 10/26/00. A lame duck Congressional session is now scheduled to start December 5th. This still leaves the possibility of a pension bill being passed and enacted in 2000 although a statement from a congressional staffer that was noted in The Wall Street Journal (11/14/00, p. A1) suggests that this is not likely. A summary of the tax bill provisions is available as document JCX-110-00 at http://www.house.gov/jct/pubs00.html (11/1/00, updated 11/14/00).
The Wall Street Journal's 9/28/00 issue had an excellent article by Lynn Asinof, For Problems in Retirement-Plan Distributions, Congress Proposes the Chance for a Fresh Start. The article discussed a little known provision in the Pension Bill that would allow pension plans already making required minimum distributions a chance to change beneficiaries and distribution methods. The article also noted that the Senate version of the Pension Bill is likely on hold until at least the week of October 2nd. (9/28/00). (10/13/00).
The Senate version of the Pension Bill may provide for a later effective date (1/1/2002) for the updating of the minimum distribution rules (with a new life expectancy table) and the fresh start provision (allowing existing pension plans already making distributions to select new beneficiaries and distribution methods). Most other provisions would be effective 1/1/2001. The Senate version also provides for increasing the phaseout range for married couples for contributions to a Roth IRA to $190,000 to $220,000 from the current $150,000 to $160,000. (9/26/00).
The House passed H.R. 5203 on 9/19/00 by a 401-20 vote. This reconciliation bill included the same Pension Bill that the House passed back in July. The Senate is expected to vote on a similar Pension Bill the week of 9/25/00. It appears likely a Pension Bill will be signed into law in October. (9/20/00).
The Senate Bill includes an increase in the income limit from $100,000 to $200,000 for married taxpayers for conversions of traditional IRAs to Roth IRAs. The House and Senate Pension Bills include a provision for a Roth 401(k) which would have attributes similar to contributions to a Roth IRA. They would be nondeductible, but later distributions (after 5 years and after age 59½) would be income tax-free. Other changes would increase the contribution limit to IRAs and Roth IRAs from the current $2,000 to $3,000 in 2001, $4,000 in 2002, and $5,000 in 2003 with the limit indexed in $500 increments in 2004 and later. Required minimum distribution rules would be changed with new life expectancy tables to be adopted for such distributions. Plans that have already started distributions would be permitted to be recalculated under the new rules. Summaries and detailed descriptions of the bills may be found in PDF files (House: JCX-68-00 and JCX-69-00; Senate: JCX-89-00 and JCX-92-00) at http://www.house.gov/jct/pubs00.html. (updated 9/7/00).
The Roth IRA Web Site (rothira.com) announces a sister web site, the Roth 401(k) Web Site at roth401k.com. We are currently soliciting articles for publication at that site. If you have an interest in publishing such an article, contact us at info@rothira.com. (9/6/00, updated 9/23/00).
The House passed H.R. 5203 on 9/19/00 by a 401-20 vote. This reconciliation bill included the same Pension Bill that the House passed back in July. The Senate is expected to vote on a similar Pension Bill the week of 9/25/00. It appears likely a Pension Bill will be signed into law in October. (9/20/00).
The Senate Finance Committee unanimously approved the Pension Bill on 9/7/00. A modification to the Chairman's Mark, which includes an increase in the income limit from $100,000 to $200,000 for married taxpayers for conversions of traditional IRAs to Roth IRAs, is available as a PDF file called JCX-92-00 at http://www.house.gov/jct/pubs00.html. It appears likely the full Senate will pass the bill by a wide margin as early as next week with it to go to the President for his signature later in the month. It seems likely that the Pension Bill will not be vetoed and will be enacted into law. (9/7/00).
The Joint Committee on Taxation has released a Description of the Chairman's Mark of the "Retirement Security and Savings Act of 2000." This bill has most of the same provisions as in the House's Pension Bill, including Roth 401(k)'s and changes to the minimum distribution rules. It is available as a 79 page pdf file called JCX-89-00 at http://www.house.gov/jct/pubs00.html. (9/6/00).
The Roth IRA Web Site (rothira.com) announces a sister web site, the Roth 401(k) Web Site, which will be available soon at roth401k.com. We are currently soliciting articles for publication at that site. If you have an interest in publishing such an article, contact us at info@rothira.com. (9/6/00).
In the 8/28/00 issue of The Wall Street Journal, it was noted that the Republicans will be focusing on two tax cut bills, one being the Pension Bill. It was also noted that the Senate version of the bill might expand upon Roth IRAs. It was noted that Clinton was likely to sign a Pension Bill. (See House Republicans Shift Their Strategy In Effort to Push Two Popular Tax Cuts, by Jim VandeHei, The Wall Street Journal, 8/28/00, p. A20). (8/28/00).
It appears that the Pension Bill may be marked-up by the Senate in early September. And, so far, there is no threatened veto by the Clinton administration. (8/22/00).
The Pension Bill was overwhelmingly approved on July 19th by the House (401-25) despite Clinton Administration opposition. It now goes to the Senate where it is unclear whether it will be brought up this year. Clinton Administration opposition appears to be mainly based on the fact the bill does not include welfare-like proposals for government-subsidized retirement savings accounts for lower-income taxpayers. (7/20/00).
The Pension Bill being considered by the House Ways and Means Committee includes a provision for a Roth 401(k); however, it is not called a Roth 401(k). It is referred to as a "qualified plus contribution program" that would allow 401(k) contribution amounts to be "designated plus contributions." Such contribution amounts would have attributes similar to contributions to a Roth IRA. They would be nondeductible, but later distributions (after 5 years and after age 59½) would be income tax-free. A Pension Bill would seem likely to easily pass in the House and would then go to the Senate for consideration. The Pension Bill does not contain any provision that would increase the current $100,000 AGI limitation on eligibility to convert an IRA to a Roth IRA. A concerted effort seems to have been made to keep the Pension Bill (the "Comprehensive Retirement Security and Pension Reform Act") as noncontroversial as possible. (7/13/00).
The House Ways and Means Committee is expected to consider on July 13th a major pension bill. The bill contains many of the changes that were included in the pension section of last year's vetoed tax bill. Changes would include increase the contribution limit to IRAs and Roth IRAs from the current $2,000 to $3,000 in 2001, $4,000 in 2002, and $5,000 in 2003 with the limit indexed in $500 increments in 2004 and later. Required minimum distribution rules would be changed with new life expectancy tables to be adopted for such distributions. Plans that have already started distributions would be permitted to be recalculated under the new rules. A summary and detailed description of the bill may be found in PDF files (JCX-68-00 and JCX-69-00) at http://www.house.gov/jct/pubs00.html. (7/12/00, updated 7/20/00).
The Pension Bill approved by the House Ways and Means Committee goes to
the full House on July 20th. It has 181 cosponsors including 90 Democrats.
(7/18/00).
The possibility of required minimum distribution changes (new life
expectancy tables) seems to be increasing for required distributions from Roth IRAs,
traditionals IRAs, and Qualified Plans. Changes seem likely starting in 2001. This would
be good news since life expectancies would be higher resulting in smaller required
distributions. This could occur either by legislation or by IRS rulings. (1/24/00).
The 5/9/2000 issue of The Wall Street Journal includes an excellent
article by Jonathan Clements, Reasons to Take the Roth IRA Plunge (p. C1).
The article notes that: "The tax savings are just the beginning. The Roth IRA also
eliminates a fistful of accounting headaches, while offering some great financial
flexibility." (5/9/00).
The 3/9/2000 issue of The Wall Street Journal reported that House
Republicans plan to propose in April an increase in the $2,000 IRA contribution limit,
phasing in an increase to $5,000. Separately, a minimum wage increase bill would
also make many pension changes including changes to the minimum distribution rules.
President Clinton has threatened to veto that bill. (3/9/00).
The 2/28/2000 issue of The Wall Street Journal includes an excellent article by Karen Hube, Older Investors' Switch to Roth IRAs Helps Heirs (pp. C1, C25). The article notes that: "IRA Owners can do heirs a big favor by converting assets they won't need in their lifetimes to a Roth IRA." This is because assets in a Roth IRA compound tax-free, the IRA owner is not required to make withdrawals, and the heirs can withdraw the assets free of income taxes. (2/28/00).
The 12/8/99 issue of The Wall Street Journal Tax Report column noted that a 12/31/99 deadline loomed for Roth IRA investors. The deadline refers to undoing 1998 conversions or contributions. This was particularly important if one made an improper conversion or contribution. The article noted that the IRS says 20,000 taxpayers improperly converted in 1998 (not being eligible due to having AGI over $100,000 or having married filing separate status with any level of AGI). (12/8/99).
The IRS has released Announcement 99-104 which extends the time to recharacterize 1998 Roth IRAs back to traditional IRAs to 12/31/99. See the article by Barry Picker, And Even More Time to Recharacterize, for more information. (10/15/99).
The tax billed vetoed by the President included provisions to to simplify and update the minimum distribution rules. It also included provisions to increase traditional and Roth IRA contribution limits in $1,000 increments between 2001 and 2006 reaching $5,000 in 2006. The $100,000 AGI eligibility limit for Roth IRA conversions would have increased to $200,000 for married couples starting in 2003. Roth 401(k)'s would have been allowed. There seems to be a reasonable chance that such pension changes may yet find their way into another bill in early 2000. (10/9/99).
The House tax bill, the Financial Freedom Act, includes proposals to simplify and update the minimum distribution rules starting in 2001. Proposed changes include a new life expectancy table and revised minimum distribution methods (using distributions that do not decrease over time). A Fresh Start provision would permit existing plans to choose a new designated beneficiary and elect a new method for distributions. (7/14/99).
The IRS has released Announcement 99-57 which notes that taxpayers who filed their returns by 4/15/99 have until 10/15/99 to recharacterize Roth IRAs back to traditional IRAs. An amended return must also be properly filed by 4/15/2002. See the article by Barry Picker, There's Still Time to Recharacterize, for more information. (5/27/99).
Senator Roth announced the Senate's version of proposed tax cuts. It includes Roth 401(k) and 403(b) plans, increasing the IRA contribution limit from $2,000 to $5,000 with cost-of-living increases, eliminating income limits on IRA and Roth IRA contributions, and more. Democrats are expected to oppose most, if not all, of these proposals with the argument that they favor the rich. For more details, see the Committee on Finance Press Release #106-174. (7/10/99).
Sources tell us the IRS is likely to extend the recharacterization deadline to 10/15/99 (currently 4/15/99 for those who have filed returns already without extension). An IRS notice on this topic should be published soon. (5/24/99).
Numerous proposals have been made in Congress that would make changes to both traditional and Roth IRAs. There seems to be substantial support for raising the $2,000 contribution limit, probably to $5,000. One intriguing proposal would raise the age for required minimum distributions from a traditional IRA from 70½ to 75 and exempt $300,000 from minimum distributions. (3/10/99).
The 1/15/99 issue of The New York Times included the article, Senator Plans Bill to Expand 401(k) Plans, by David Cay Johnston (Business Day section, pp. C1-C2). This article discussses a proposal by Senator Roth for a Roth 401(k) as well as proposals to increase IRA contribution limits to $5,000 from $2,000 and to $7,500 for those 50 and older. Income limits for Roth conversions would be raised from $100,000 to $1 million. Unfortunately, the Clinton administration is expected to oppose these proposals just as they have opposed the Roth IRA. The article is no longer available online at The New York Times web site. (1/15/99). More details may be found online in the Committee on Finance press release. (1/16/99).
Final Roth IRA Regulations were issued by the IRS. (2/4/99). The 2/5/99 issue of The Wall Street Journal discussed them in an article, U.S. Tightens the Rules on Conversions Between Roth IRAs, Traditional Ones, by Karen Hube (p. C11). Also, see Barry Picker's IRS Issues Final Roth Regulations. (2/13/99).
The IRS issued a news release noting that taxpayers have until the filing deadline (including extensions) for their 1998 return to correct improper Roth IRA conversions (Example: You had 1998 income over $100,000). Unless you get a filing extension, this means you would have to recharacterize (change back to a traditional IRA) by 4/15/99. (4/8/99).
The 2/25/99 issue of The Wall Street Journal includes the article, In Roth IRA Switches, Tax Pitfalls Lurk, by Karen Hube (pp. C1, C17). The article notes that the increased taxable income caused by a conversion to a Roth IRA has the same consequences as any other addition to income and can affect income tax rates, itemized deductions, etc. (2/25/99).
The 2/3/99 issue of The Wall Street Journal includes the article, The Bubble Won't Burst, by Wayne D. Angell on the editorial page (p. A22). It was suggested by the author that one way to boost savings and growth would be to provide an unlimited and universal Roth IRA. (2/3/99).
The 1/25/99 issue of Business Week includes the article, Commentary: Why the Roth Needs a Revamp, by Mike McNamee. This article suggests that the four year spreadout of income for a conversion should be extended and that income limits should be increased since more time is needed to better explain the benefits of Roth IRAs. The article is available online. (1/27/99).
The 1/14/99 issue of The Wall Street Journal includes the article, A Roth Switch Could Still Make Sense, by Karen Hube (pp. C1, C21). This excellent article deals with reasons why conversions may make sense in 1999 and later even though the four year spreadout of tax on the conversion is no longer available. The article makes the comment that converted amounts withdrawn before five years are subject to a 10% penalty. It should be further noted that there is no penalty for withdrawals of converted amounts if one is older than 59½, whether within five years or not. (1/14/99).
The 12/29/98 issue of The Washington Post includes the article, Tax Break Deadline Spurs Roth IRA Rush, by Albert B. Crenshaw (p. A01). The article noted that many 1998 conversions are occurring in the last few days of the year. (12/29/98).
The 12/23/98 issue of The Wall Street Journal includes the article, Finding Backdoor Ways Into Roth IRAs, by Ellen E. Schultz (p. C23). The article correctly notes that one way to do a 1998 conversion is by taking a distribution from a traditional IRA by 12/31/98 and then rolling over the money into a Roth IRA within 60 days. (Roth IRA Web Site Editor's Note: We have heard of a case where a major brokerage house has advised that you must first roll over to a traditional IRA within 60 days before converting to the Roth. Rolling over to a traditional IRA first is bad advice and would disqualify the 1998 conversion if that rollover within 60 days occurs in 1999. The rollover within 60 days, which may be in 1999, must be directly to a Roth IRA following a distribution from the traditional IRA in 1998 in order to qualify as a 1998 conversion.) (12/23/98).
The 12/16/98 issue of The Wall Street Journal includes the article, Stuck for a Gift Idea for a Favorite Child? A Surprising Choice May Be a Roth IRA, by Lynn Asinof (pp. C1, C15). If a child or grandchild has some earned income, setting up a Roth IRA for them can make a lot of sense. (12/16/98).
Under the tax law, you have until 12/31/98 to convert to a Roth for 1998; but some brokers and mutual funds are using earlier conversion deadlines (as early as Dec. 15th) to guarantee a conversion in time. See the San Jose Mercury News article by Mark Schwanhausser, Early Converts. (12/10/98).
The 12/8/98 issue of The Wall Street Journal includes the article, How to Avoid Tax Penalty on a Roth Conversion, by Ellen E. Schultz (pp. C1, C23). This article reviews the estimated tax payments due for income tax liability caused by Roth IRA conversions and concludes that penalties in most cases are unlikely to exceed a few hundred dollars even if estimated tax payments were not made. The article discusses how to make payments so that there are no penalties. (12/8/98).
The 12/3/98 issue of The Wall Street Journal includes the
article, Concern Over Future Tax Laws Slows Conversion to Roth IRAs, by Karen
Hube (pp. C1, C17). We disagree with the assertion that a conversion typically doesn't
make sense if taxes are paid from the IRA because it still makes economic sense in many
such cases, but the main topic of the article is dealt with in a well-balanced discussion.
(12/3/98).
As expected, the IRS announced limits on recharacterizations in IRS Notice 98-50. See the article, IRS Limits Availability of Reconversions, by Barry
Picker at this site. This issue was also discussed in The Wall Street Journal
article (10/21/98, pp. C-1, C-15) by Karen Hube, IRS Rule to Close Loophole in Roth
IRA. (10/21/98).
The Roth IRA Web Site was selected as CNBC's Power Lunch's 'cool' site of the day on 10/27/98. Previously selected on 3/6/98, this is the first time that any site has been selected more than once. (11/12/98).
The 11/12/98 issue of The Wall Street Journal includes the article, Roth Conversion '98: Um, Yeah, Maybe, by Karen Hube (pp. C1, C23). The article suggests that there have been fewer conversions than expected. There is an excellent discussion of the many reasons why a conversion may be a good idea. (11/12/98).
The 10/30/98 issue of The Wall Street Journal includes the article, Roth IRAs Prompt the Wealthy to 'Earn' Less, by Karen Hube and Bridget O'Brian (pp. C1, C19). It discusses many income-reducing strategies to meet the $100,000 AGI test to qualify for a conversion. This otherwise excellent article has one error in suggesting that postponing a required minimum distribution from an existing IRA (in this case, by deferring the first required distribution, the one for the age 70½ year, to the following year as is allowed if distributed by April 1st of the following year) will help meet the test. This is prohibited by Proposed Regulation §1.408A-4, Q-6 and A-6. For more details on this issue, also see the Comment Letter sent to the IRS by a CPA criticizing the IRS interpretation. (10/30/98).
The proposed change that would have increased the $100,000 AGI limit for conversions for married couples (increasing it to $150,000 over 5 years) has been dropped due to opposition from the Clinton administration. (10/20/98).
The 9/21/98 issue of Forbes includes an article by Laura Saunders, Roth, optimized (p. 272). The article deals with cases where a partial conversion is superior to a 100% conversion to a Roth IRA. Click here to access the article. The Forbes web site published the first on-line Optimum Roth IRA Conversion Calculator. (9/9/98).
The IRS has released Proposed Roth IRA Regulations. (9/1/98).
According to information provided by Gary Lesser, the IRS will very soon announce limitations on the number of recharacterizations (i.e., unconversions followed by new conversions) that taxpayers may perform. (10/20/98).
In the 9/25/98 issue of The Wall Street Journal, there is an article by Ellen E. Schultz, Watch That Retirement-Plan Exit: A Little-Known Strategy May Help Lower Your Taxes On Company Stock in a 401(k) (pp. C1, C10). This article discusses "net unrealized appreciation" stock and how moving it into a traditional IRA can be a mistake. However, moving it into a Roth IRA will be beneficial in some cases. (Note: we are interested in NUA stock articles for a new web site. E-mail us with "NUA Stock" in the subject heading if you are interested in submitting such an article.) (9/25/98).
In the 9/21/98 issue of The Wall Street Journal, there is an article by Karen Hube, Back-and-Forth IRA Moves Can Cut Tax (p. C20). This article discusses how unconverting a Roth IRA and then reconverting can cut income taxes substantially. It amazes us how a small minority of fund companies are refusing to provide a feature the tax law clearly allows. Fortunately, most mutual fund companies are more customer-oriented. (9/21/98).
House and Senate negotiators have reached agreement on a Medicare home health care bill that would be partially funded by gradually (over five years) raising the existing $100,000 AGI limit for conversions to as high as $150,000 for married couples. Unless vetoed by the President, this change would become law. (10/16/98, updated 10/17/98).
A possible increase in the $100,000 AGI limit for conversions is still being considered in Congress as the House and Senate work on a compromise to their Medicare home health care bills. A decision should be made today. This issue is mentioned briefly in the 10/16/98 issue of The Wall Street Journal in an article by Greg Hitt, Clinton, GOP Leaders Agree on Tax Plan That Provides Help to Business, Farmers (p. A16). (10/16/98).
The House has voted 412-2 for a Medicare Home Health Bill (H.R. 4567) that would be funded by increasing the $100,000 AGI limit for converting a traditional IRA to a Roth IRA. The new limits would be $145,000 for individuals and $290,000 for couples. The Roth features, however, are not in the Senate version of the bill. Also, there is some question whether a bill will pass before Congress adjourns in a few days. Update: Our sources tell us this proposed change is not going to happen. (10/14/98).
Two books on Roth IRAs were published in July, Roth to Riches: The Ordinary to Roth IRA Handbook ($19.95) by John D. Bledsoe and Roth IRA Book: An Investor's Guide ($34.95) by Gobind Daryanani. Both works are exceptionally well done. Click here for a review of Roth to Riches. (7/8/98).
The IRS Restructuring Bill (which includes Roth IRA technical corrections) was signed into law by the President on 7/22/98. (7/23/98).
In the 8/27/98 issue of The Wall Street Journal, there is an article by Karen Hube, A Roth IRA Conversion Has Advantages (pp. C1, C17). The article notes that converting to a Roth IRA when the market is down can lead to tax savings. (8/27/98).
Release of Roth IRA Regulations is expected to occur very soon. With the recent large drops in the stock market, there is great interest in how unconverting a Roth IRA and possibly later converting back to a Roth will work. We have been told the IRS will refer to the act of unconverting as a recharacterization. (8/31/98).
We have heard that Roth IRA regulations will likely be issued by the IRS by the end of August. (8/6/98).
The Senate passed the IRS Restructuring Bill (which includes the Roth IRA technical corrections) by 96-2 on 7/9/98 (the House previously passed it 402-8). The bill now goes to the President who who has indicated that he will sign it. (7/9/98).
The Senate is expected to pass the IRS Restructuring Bill (which includes the Roth IRA technical corrections) within the next few days. The bill then goes to the President who is expected to sign it. (7/8/98).
The New York Times' 6/28/98 issue contains an excellent article by Virginia Munger Kahn, In Estate Planning, A Roth I.R.A. Shines which highlights the many advantages of Roth IRAs for estate planning purposes. (Article available online) (6/29/98).
The House and Senate Conferees (see House and Senate press release) reached final agreement on the IRS Restructuring Bill on June 24th. The Senate version of the Roth IRA technical corrections was adopted. These changes are expected to be signed into law in July. (6/24/98).
The House is tentatively scheduled to vote on the IRS Restructuring Bill on June 25th with the Senate not likely to vote until after the Independence Day break. (6/23/98).
The Senate and House negotiators reached a tentative agreement on the IRS Restructuring Bill (which includes Roth IRA technical corrections) on June 19th with completion by the conferees expected the week of June 22nd. It seems increasingly unlikely that there will be time for both the House and Senate to vote on the final bills before recessing for the Independence Day break at the end of the week. (6/22/98).
The Senate and House Conferees for the IRS Restructuring Bill are attempting to complete their work by June 19th. If accomplished, a bill could go to the President's desk the week of June 22nd. (6/15/98).
The New York Times' 6/7/98 issue contains a David Cay Johnston article, Converting to a Roth I.R.A.? First, Check the Calculator, which compares three major calculators. We cannot agree with some of the points made in the article. Click on this link to see why. (6/11/98).
The Senate and House Conferees' June 10th meeting on the IRS Restructuring Bill (which includes Roth IRA technical corrections) suggests that it might take some time before agreement is reached. If all goes well, an agreement will be reached before Congress adjourns on June 27th for the Independence Day break. It now appears that a final bill will likely not be enacted until July. (6/11/98).
The Treasury Dept., in a letter to the House Ways and Means Committee, recommended that Conferees for the IRS Restructuring Bill delete the provision that would exclude minimum distributions starting in 2005 from the $100,000 AGI limit for conversions of IRAs. One reason given was the very odd statement that the provision "does not promote retirement savings."?! (6/11/98).
Newsweek's 6/15/98 issue contains a Jane Bryant Quinn article, Which IRA Do You Want?, which deals with a number of Roth IRA issues. (6/10/98).
Senate and House Conferees on the IRS Restructuring Bill (which includes Roth IRA technical corrections) are meeting on June 10th. Apparently, most issues have already been agreed upon although there are some outstanding issues to be resolved. (6/10/98).
Congressional leaders have decided not to include the contentious education IRA proposals in the IRS Restructuring Bill. As for a completion date (when the bill would go to the President), best case is June 15th and worst case is June 26th (which would mean enactment some time in July). (6/5/98).
The House and Senate Conferees for the IRS Restructuring Bill are not likely to meet until the week of June 8th although staff members have begun work. There is discussion of including proposed education IRA changes which might lead to a veto of the bill. Senator Roth is reportedly opposed to such tactics. (6/2/98).
House Conferees for the IRS Restructuring Bill (which includes Roth IRA Technical Corrections) were named May 22nd (Senate conferees were named May 11th). The conferees will not be meeting until June with staff members beginning some preliminary discussions the last few days in May. The Roth IRA Technical Corrections will not become law until the conferees agree on a bill, then it is passed by the House and Senate, and unless it is not vetoed by the President. (5/26/98).
House Conferees for the IRS Restructuring Bill may not be named until May 22nd. With Congress recessing soon for Memorial Day, it now appears that the bill, with its Roth IRA Technical Corrections, will not be enacted until sometime in June. (5/20/98).
Senate Conferees have been appointed (May 11th) for the IRS Restructuring Bill. However, it is currently looking like the conferees will not be able to finish their review of the differences in the House and Senate bills until after Memorial Day. (5/16/98).
The Senate passed by a 97-0 vote on 5/7/98 the IRS Restructuring bill which contains Roth IRA technical corrections. Now it is up to the House and Senate conferees to iron out the differences between the Senate bill and last year's House bill. After that, a final bill will be passed and sent to the President. (5/8/98).
Senator Roth has proposed a revenue offset for the IRS Restructuring bill that would modify minimum distribution requirements to determine AGI for Roth IRA conversions. The proposal would exclude required minimum distributions from consideration in the $100,000 AGI test used to qualify for a Roth IRA conversion. The required minimum distribution itself could not be converted. Furthermore, the proposal would only apply to taxable years beginning after 2004. In the opinion of the editor of the Roth IRA Web Site, this proposal is both overly complex and too restrictive. (5/6/98). The proposal was passed by the Senate on 5/6/98. (5/7/98).
Debate in the Senate on the IRS Restructuring bill started 5/4/98. The Senate is not expected to vote on the bill (which contains Roth IRA technical corrections) before May 7th at best. When the bill passes, a Conference Committee will need to work out differences with a previously passed House bill. (5/5/98).
The statutory language for the Roth IRA provisions in the Technical Corrections section of the IRS Restructuring bill has been released. (4/23/98).
According to Senator Trent Lott, the Senate will vote on the IRS Restructuring bill the first week of May. The legislative language for the bill is expected to be released later the week of April 20th. The IRS Restructuring bill includes Roth IRA technical corrections. The proposed technical corrections correct some of the deficiencies of the version passed by the House last year. For more information, see our latest article and the Joint Committee explanation. (4/21/98).
We are aware of two books on Roth IRAs that are expected to be published in May and June. Both are aimed at the mass market. We expect to have prepublication information soon and will have more details at this site. (4/17/98).With the Senate back in session the week of April 20th, we will hopefully see action on the IRS Restructuring Bill with its Roth IRA technical corrections. The proposed technical corrections correct some of the deficiencies of the version passed by the House last year. For more information, see our latest article and the Joint Committee explanation. (4/17/98).
The new proposed technical corrections have some important planning implications. For example, there would be only one 5-year holding period. Conversions would not have separate 5-year periods. This would make it important to make a 1998 Roth IRA contribution if there is any possibility of doing a conversion in the future. This would start the 5-year holding period running and get it over with as soon as possible. This proposed change may also remove the necessity of having separate Roth IRAs for contributions and conversions. It seems likely these changes will be enacted. (4/2/98).
The Joint Committee on Taxation has reported on proposed technical corrections with a March 31st mark-up scheduled. The technical corrections include Roth IRA changes which are somewhat different from those passed by the House last year. These include making the four-year spreadout of taxable income for 1998 conversions an elective feature and adds new rules for distributions within five years when you have taken advantage of the spreadout. (3/30/98).
We have heard that the Technical Corrections Bill with its Roth IRA changes may yet be part of the IRS Restructuring bill likely to be passed in late April or, if not, may be acted upon shortly thereafter. (3/25/98).
The Investment News 4/6/98 issue had an article by Steve Daniels, Advisers not winning Roth converts, which notes that a lot of conversions are being seen by mutual funds and brokers, but not by financial planners. This is not surprising since many financial planners' clients would have much larger tax liabilities for conversions. Such clients are likely taking a wait-and-see approach until the technical corrections bill has passed and IRS guidance is released this year as well as considering what level the stock market may be at later this year. As such, we suspect that most owners of large IRAs will delay their conversion decisions until late in the year. The article was only available on the Web through 4/12/98. (4/8/98).
The Wall Street Journal 4/9/98 issue (pp. C1, C21) has an article by Laura Saunders Egodigwe, Funds' IRA Push Turns to a Shove, which is about the large amount of Roth IRA advertising. (4/9/98).
The Forbes 4/20/98 issue has an article by Laura Saunders, In Roth we trust, which deals with the advantages of Roth IRA trusts. The Business Week 4/13/98 issue has an article by Amy Dunkin, College Cash From Your Retirement Stash, which covers using 401(k)'s and Roth IRAs to help pay children's college costs. (4/6/98).
Our sources tell us that the IRS is prepared to take a overly restrictive view of how required minimum distributions from an ordinary IRA or qualified plan should be taken into account for purposes of the $100,000 AGI test for qualifying for a conversion. Even though a reasonable reading of IRC §408A (which defines a conversion as a distribution) would suggest that a conversion by itself should satisfy required minimum distributions (if one converted the entire balance), the IRS is apparently not going to take that position. Worse, they are apparently prepared to say that you cannot even hold back part of a required minimum distribution (even by paying a 50% penalty on a portion that you should have distributed) to meet the $100,000 AGI test. The result--if required minimum distributions are large enough so that you fail the AGI test, you are out of luck. If you are likely to have such a problem, your only option would be to convert before the year in which you turn 70½ (which is when required minimum distributions start). Hopefully, cooler heads will prevail at the IRS and they won't go ahead with this age-discriminatory rule or Congress will act in the upcoming Technical Corrections Bill to fix this. (1/29/98).
Accounting Today has picked the Roth IRA Web Site as its Featured Web Cite in the March 16-April 5, 1998 issue. (3/20/98).
It appears you cannot assume that your Roth IRA includes an automatic spousal rollover. According to information provided by Seymour Goldberg, several major brokerage houses are using Roth IRA documents that do not provide for an automatic spousal rollover (unlike the IRS Model Agreement in IRS Forms 5305-R [see Article V, Clause 3] and 5305-RA). This means that there would be no spousal rollover (which would make the surviving spouse the new owner) unless the surviving spouse takes some affirmative action. Possible scenarios would be that the surviving spouse could end up being the beneficiary (and would have to make required distributions that would otherwise not have to be made) and the child would not become the beneficiary if the spouse were to die without taking action (meaning the benefits of tax-free compounding and distributions would disappear with the death of the spouse and would not be available to the child or other beneficiary). Many organizations are either using the IRS Model Agreement as is or are including the full IRS Model Agreement within a longer document. At the same time, there are reasons for not wanting an automatic spousal rollover in some cases (such as a surviving spouse who is pre-59½ and wishes to take early distributions without possibly being subject to the 10% penalty). And, even with an automatic spousal rollover provison, you would still need to have an immediate beneficiary designation in place. We invite comment on the pros and cons of this issue for possible publication at this site. Please send comments to info@rothira.com with a subject heading of Spousal Rollovers. (3/13/98).
The IRS has released its 1998 business plan which lists 179 guidance priority projects (34 projects in the employee benefits area). Shown as #12 on the Retirement Benefits list is Question-and-answer guidance under section 408A regarding Roth IRAs. (3/4/98).
The Wall Street Journal ran an article, Paying More in Taxes? For Investors, That's Sometimes a Winning Strategy by Jonathan Clements (3/3/98, p. C1). It is suggested that skipping a tax-deductible IRA in favor of a Roth IRA could boost your taxes, yet sometimes still result in more money in your pocket. (3/3/98).
The Roth IRA Web Site published the latest installment of a column by Gobind Daryanani. The 3/3/98 installment offers a review of Vanguard's Roth IRA Conversion Calculator. (3/3/98).
The Wall Street Journal ran an article, Putting a Chill on Federal Tax Breaks: Some States May Delay or Ignore Them by Lynn Asinof (2/27/98, pp. C1, C17). Discussed was the fact that some states currently may tax Roth IRA annual earnings. Also, some states may tax 1998 conversions to a Roth IRA in full in 1998 rather than allowing a four year spread out of the taxable income. (2/27/98).
The Wall Street Journal ran an article, Strategies to Try During Roth IRA Rush by Vanessa O'Connell (2/26/98, pp. C1, C27). The article notes that Roth IRAs are selling like hotcakes with contributions being made much earlier than to IRAs in the past. Most of the article deals with how to select a mutual fund for a Roth IRA. (2/26/98).
The IRS has released 1998 versions of Form 1099-R (Distributions from Pensions...) and Form 5498 (IRA Contribution Information) with both updated to include Roth IRAs. Form instructions note that if you converted or rolled over a traditional IRA or SEP to a Roth in 1998, 1/4th of the taxable amount must be included in income each year for 4 years (1998 through 2001) with Form 8606 used to figure the taxable amount. (2/19/98).
On 2/16/98, the Roth IRA Web Site published an installment of a new column by Gobind Daryanani. The 2/16/98 installment offers a review of Strong Funds' Roth IRA Calculator (for Conversions). Future columns will review other online calculators. (2/16/98).
In Forbes magazine (2/23/98 issue, p. 27), the Fact and Comment editorial page by Steve Forbes refers to two Roth IRA issues under the heading of UH-OH!: the fact that many states do not yet make Roth IRAs free of income tax and that some states do not yet provide protection from creditors. (2/11/98).
House Ways and Means Committee member Richard Neal (Democrat) introduced H.R. 3102 which would index the traditional IRA (but not the Roth IRA) contribution limit for inflation in $500 increments. The bill would also increase the 10% penalty for early withdrawals (pre-59½) to 25% for the first two years after a rollover. (2/5/98).
Sources tell us that Senate provisions in a Technical Corrections Bill may differ considerably from those that were in the House bill. We believe this is very good news since it will likely allow consideration to be given to fixing some of the flaws in the House bill and possibly preclude the IRS from coming out with some of the overly restrictive positions they are now considering. Also, there is no timetable right now for either the Technical Corrections Bill or IRS guidance on Roth IRAs. (1/30/98).
The Roth Trust with a child or grandchild as the beneficiary will soon be receiving a lot of attention in the media. New IRS Regulations now allow one to set up a trust with a beneficiary that is treated as a proper designated beneficiary. This type of trust could keep the beneficiary from taking out the funds prematurely and thus allow full advantage to be taken of the tax-free growth over a long period of time. (1/22/98).
Senator Roth announced on 1/21/98 the Senate Finance Committee Agenda for 1998 which includes a proposal for increasing the Roth IRA contribution cap of $2,000 per year. (1/22/98).
We have heard that the Senate will start hearings on IRS matters including the Technical Corrections Bill in February. We have heard a rumor from several sources that consideration may be given to allowing payment of the income tax on conversion to the Roth IRA from the IRA itself without penalties. This would be an exception to the general penalty provisions of the Technical Corrections Bill. (1/22/98).
A letter to the editor in Newsweek's 1/26/98 issue corrects the 1/19/98 Newsweek article, IRAs: Should You Roth It? by Jane Bryant Quinn, noting that spouses and heirs inheriting a Roth pay no income tax if the IRA had been held for five years. The article had suggested that distributions to heirs such as a child were taxable. (1/22/98).
The Wall Street Journal 1/22/98 issue ran a story titled Fees for Roth IRAs Can Vary Greatly. (1/22/98).