The Rebirth of Roth: A CPA's Ultimate Guide for Client Care

• Chapter 1 - Introduction to the Roth IRA
  • Introduction
  • Overview of the Roth IRA
    • Nonqualified Distributions
  • Conversion of a Traditional IRA to a Roth IRA
  • Converting Nondeductible Traditional IRAs to a Roth IRA
  • Ideas for Managing Income
    • Deferring Income
    • Maximizing Adjustments to Income (Reduce AGI)
    • Advanced Planning Opportunity—Reducing AGI
  • Potential Problems—Resolved
  • Basic Roth IRA Examples
  • Economics of Paying Income Tax on Conversions
    • Tax Payment From Other Assets - The Preferred Solution
    • Tax Payment From Inside the Roth IRA
    • Tax Payment From a Traditional IRA
    • Partial Conversions
  • Required Minimum Distributions
  • Required Distributions Upon the Death of the Roth IRA Owner
  • Additional Thoughts
  • Conclusion

• Chapter 2 - Rules and Regulations
  • Introduction
  • Changes Embodied in the Economic Growth and Tax Relief Reconciliation Act of 2001
    • Expansion of the Traditional Deductible IRA
  • The Pension Protection Act of 2006
    • Nonspousal Rollovers of Inherited Qualified Retirement Plans
    • Tax-Free Distributions from IRAs for Charitable Purposes
    • Direct Rollovers of Qualified Retirement Plans to Roth IRAs
    • Roth Conversions by Nonspouse Beneficiaries
  • Roth Conversions in the Year 2010—Choosing Whether to Convert
    • Benefits of Converting a Traditional IRA to a Roth IRA
    • Suspension of the Required Minimum Distribution Rules
    • The Four Types of Roth IRA Conversions
    • Factors in Deciding Whether to Convert
    • Mathematics For and Against Roth Conversions
    • Determining the Proper Amount to Convert
  • Conclusion
• Chapter 3 - Portfolio Management Considerations
  • Introduction
  • IRA Investments
    • Prohibited Transactions
    • Unrelated Business Taxable Income
    • Other Considerations Portfolio Management
  • Portfolio Management
    • Diversifying Investments
  • Increasing Wealth by Improving Tax Structures
    • Advantages of Investments Within the Qualified Plan, Traditional IRA, or Roth IRA
    • Advantages of a Roth IRA
    • Disadvantages of Investments Within a Qualified Plan or IRA
    • Disadvantages of a Roth IRA
    • Overall Portfolio Theory
    • Investment Allocation
  • Utilizing Tax-Deferred Funds to Manage Income Tax Brackets
    • Blending Theory With Practice
  • Conclusion

• Chapter 4 - Tax Planning Basics
  • Introduction
  • Tax Planning for the Roth IRA Funded With Annual Contributions
  • Penalty Tax
  • Conversion of Existing IRAs to Roth IRAs—Spinning Straw Into Gold
  • Tax Planning at the Death of the First Spouse
    • Tax Planning When the IRA Passes to the Spouse
    • Tax Planning When a Roth IRA Passes to a Nonspousal Beneficiary
    • Trust as a Beneficiary
    • Gifts to Charity
    • The Inherited-IRA Concept
    • Roth Conversions at First Death
  • Conclusion
  • Appendix A - Roth IRA Conversion Checklist

• Chapter 5 - Mathematics of Traditional Compared with Roth IRAs
  • Introduction
  • The Mathematics of the Traditional IRA Compared to the Nondeductible IRA and the Roth IRA
  • Taxpayers with Nondeductible IRAs
  • The Intricacies of Analyzing the Conversion, Revisited
  • Taxation of Social Security Benefits
  • The Impact of Future Estate Tax on the Conversion Decision
  • Conclusion

• Chapter 6 - Tax Planning Strategy
  • Introduction
  • Practice and Procedure
    • Excess Accumulation Excise Tax Waiver
    • Sixty Day Rollover Waiver
    • Late Roth Recharacterization
    • Private Letter Ruling Requests
  • Asset Protection
    • The Basics of Asset Protection in Bankruptcy - Exclusion Versus Inclusion
    • Analysis of the Federal Laws Providing Creditor Protection for Qualified Plans in Bankruptcy Situations
    • Protection Afforded IRAs in Bankruptcy Situations
    • Protection of Retirement Assets in Nonbankruptcy Situations
  • Roth Conversion Segregation Strategy
    • Roth Conversion Timetable
  • Conclusion
  • Appendix A - IRA Creditor Protection Against Claims of Parents’ Creditors and Beneficiaries’ Creditors

• Chapter 7 - Client Considerations
  • Introduction
  • The Roth IRA and the Younger Taxpayer
    • Why Would a Younger Taxpayer Contribute to a Roth IRA?
    • Income Limitations on Contributions
    • Withdrawals From the Roth IRA
    • The Benefit of Creating a Roth IRA Account Compared with a Traditional IRA or Nonqualified Account
    • The Benefit of a Roth IRA Compared to a 401(k) Plan
  • The Roth IRA and Your Client’s Retirement
    • Retirement Before Age 59½
    • Taxation of Social Security Benefits
    • Rollover of Qualified Plan Balance
    • Contributions After Retirement
    • IRA Distributions
    • Tax-Sensitive Withdrawals
    • Utilizing Tax-Deferred Funds to Prevent “Bracket Creep” and the RMD “Time Bomb”
  • Taxpayers at Their Required Beginning Date
    • Lifetime Distributions - Traditional IRAs
  • Conclusion

• Chapter 8 - Beneficiary Considerations
  • Introduction
  • The Importance of Having a Designated Beneficiary
  • Distributions After the Death of the Owner Without a Designated Beneficiary
  • Distributions After the Death of the Owner With a Designated Beneficiary
  • Trusts as Designated Beneficiary of an IRA
  • Nontax Benefits of Utilizing a Trust
    • Creditor Protection
    • Divorce Protection
    • Spendthrift Protection
    • Investment Management
    • Keeping Wealth in the Family
    • Disabled Beneficiaries
    • Special Needs Trust
  • Preparing IRA Beneficiary Designation Forms
    • Community Property Issues
    • Reviewing the Plan or IRA Document
    • Drafting in Anticipation of Disclaimer
    • Creating Separate Shares at Death
    • Coordination With Revocable Trust
    • Funding the Credit Shelter Trust
  • Conclusion
  • Appendix A - Roth IRA Distribution Flowchart
  • Appendix B - Distributions to Beneficiary Under IRC Section 104(a)(9) - Roth IRAs

• Chapter 9 - Estate Planning for the Roth IRA
  • Introduction
  • The Effect on Estate Tax Liability
  • Analyzing the Interrelationship of Income Tax and Estate Tax
  • The IRC Section 691(c) Deduction Compared to Paying Income Tax First
  • The Estate Tax Marital Deduction
  • The Estate Charitable Deduction
  • Revocable Trust
  • Source of Payment of Estate Tax
  • The Generation-Skipping Transfer Tax
  • Creating Wealth with the Roth IRA
  • Taxation of Traditional IRAs at Death
    • IRC Section 691(c) Deduction (IRD)
    • Additional Planning Points
    • Prior Estate Tax Exemptions
  • Disclaimer Provision and Beneficiary Designations
    • The Importance of Having a Designated Beneficiary
    • Distributions After the Death of the Owner Without a Designated Beneficiary
    • Death Before Required Beginning Date
    • Death After the Required Beginning Date
    • Drafting the Disclaimer
  • Distributions After Death
    • Postmortem Distributions From a Roth IRA
    • The Inherited IRA Concept
  • Conversion to Roth From Qualified Plan
    • Nonspousal Beneficiary Roth Conversions
  • State-of-the-Art Recommendations for the Traditional IRA
  • Funding the Bypass Trust With the Roth IRA
  • Naming the Children Beneficiaries
  • Creditor Protection
  • Conclusion

• Chapter 10 - The Roth Legacy Trust
  • Introduction
  • Required Beginning Date Planning
  • A Technical Perspective
  • Designing the Roth Legacy Trust Plan
    • Single-Generation Trust
    • Multiple-Generation Trust
    • Generation-Skipping Transfer Tax Aspects
    • Flow Charts of Roth Legacy Trusts
  • Conclusion
• Appendix 1 - Taxpayer Relief Act of 1997
• Appendix 2 - Conference Committee Explanation
• Appendix 3 - 1998 Roth IRA Amendments - Committee Report
• Appendix 4 - Economic Growth and Tax Relief Reconciliation Act of 2001 - Text
• Appendix 5 - Economic Growth and Tax Relief Reconciliation Act of 2001 - Committee Report
• Appendix 6 - Select Text of Pension Protection Act of 2006
• Appendix 7 - Sample Client Letter

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Preface

Important changes have taken place since Congress created the Roth IRA in 1997. The Treasury Department finalized Roth IRA regulations and regula­tions governing qualified plans and all IRAs. The Economic Growth and Tax Relief Reconciliation Act of 2001 (2001 Tax Act), changed the landscape of estate planning, creating qualified Roth contri­bution programs, increasing annual IRA contribution limitations, and allowing additional makeup contributions for many taxpayers.

Perhaps equally important, the bull market of the 1990’s finally ended, producing sharp drops in the price of many stocks. These low stock prices, make this the ideal time to make a Roth IRA conversion and should encourage those who have already made a Roth conversion to recharacterize, eliminating the tax paid on the earlier conversion and allowing them to subsequently reconvert while the value of the IRA assets is low.

Since inception, Roth conversions have been limited to those taxpayers whose AGI is under $100,000. However, due to legislation changes made in May 2006, a new door of opportunity has been opened for those interested in the Roth IRA. Beginning January 1, 2010, taxpayers will be able to convert to a Roth IRA without regard to their MAGI or filing status. Additionally, any taxable income resulting from a 2010 conversion may be spread over tax years 2011 and 2012, with 50 percent of the taxable income included in each of those two tax years.

These developments have made it necessary to reexamine our clients’ existing Roth IRA planning. The Rebirth of Roth: A CPA’s Ultimate Guide for Client Care, based on and expanded from The Professional’s Guide to Roth IRAs: Implementing the 2001 Tax Act, brings you, the planner, up to date and offers suggestions for planning in today’s changed legal and economic environment.

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