It is generally well-known that in an IRA account you have a wide range of investment choices. These choices are typically only limited by the custodian’s available investment options. However, there are specific prohibited transactions that cannot be accomplished with IRA funds. Often these prohibited transactions can cause your IRA to be disqualified, which can result in significant tax and penalty, along with loss of the tax-favored status of the funds. What’s Not Allowed for IRA Accounts? Self-Dealing. You are not allowed, within your IRA, to make investments in property which benefits you or another disqualified person. A disqualified person includes your fiduciary advisor and any member of your family, whether an ancestor, spouse, lineal descendant (child) or spouse of a lineal descendant. It is important to note that this limit applies to both present and future use of a property. So if you purchased a condo and rented it […]
IRA
IRA or 529?
After my post last week (Higher Education Expenses Paid From an IRA) I received a question from a reader: “If it’s possible to pay QHEE from an IRA then why would it be beneficial to contribute to a 529 specifically?” In today’s post I’ll cover the reasons you might choose an IRA or 529 plan. These two types of account will help you prepare for the twin future requirements of retirement and college expenses. As covered in the prior post, an IRA plan can be used in part to pay for college expenses. This is allowed in the Internal Revenue code, §72(t)(2)(E). So why would you choose to place funds in an IRA or 529 plan? Specifically, why would the 529 plan ever be superior to an IRA for this saving activity? Segregation One reason a 529 plan might make sense is to specifically segregate your education saving activities from […]
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Rollover Risk
The idea of an IRA rollover, or a rollover IRA, isn’t necessarily a cosmic mystery – this happens all the time. You leave your job, and you rollover your 401(k) to an IRA. No problem, right? Unfortunately, there often are problems with the process of moving funds from one account to another – because there are a couple of very restrictive rules regarding how this process can and cannot be done. It’s not terribly complex, but you’d be surprised how easily these rules can trip you up. Rollover Risk Let’s start with a few definitions: A Rollover is when you take a distribution from one qualified plan or IRA custodian, in the form of a check made out to you, and then you re-deposit that check into another qualified plan or IRA account (at a different custodian). A Trustee-to-Trustee Transfer (TTT), even though it is often referred to as a […]
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How to Make Your Saving Automatic
Sometimes it can be difficult to save for emergencies or for retirement. While physically not demanding, the mental strain can be a hump that is hard to get over. In other words, we experience a little bit of “pain” or mental anguish if we have to physically hand over money or write a check. So how can we overcome this anguish? Automate. First, determine how much you need for an emergency. This can either be to start the fund or to replenish amounts that have been used. Generally, it’s a good idea to have 3 to 6 months of non-discretionary expenses (expenses that don’t go away if you lose your job or become disabled) set aside in an FDIC insured bank account. Some individuals may find it more comforting to have 6 to 9 months or 9 to 12 months. It’s up to you. For retirement, I recommend saving 15 […]
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Asset Location
Diversification and asset allocation are important components to any investment plan. Additionally, where assets such as stocks and bonds are held, also called asset location, should also be considered. Asset location refers to the type of account that asset classes are held. Such accounts are generally traditional and Roth IRAs, employer-sponsored plans such as 401ks, etc., and after-tax, non-qualified investment accounts. The reason asset location becomes important is to help make use of tax efficiency in an investment portfolio. For example, stocks held in after-tax, non-qualified accounts for longer than one year as well as qualified dividends are taxed at much more favorable rates. These favorable rates can range from as little as zero to 20%. Bond interest, however, is taxed as ordinary income, leaving an investor being taxed at potentially higher amount. As many readers know, amounts contributed to qualified, pre-tax accounts such as deductible IRAs, 401ks, etc., are […]
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Tax-Loss Harvesting: It’s Never Too Late
Tax-loss harvesting is a tax move that can help with your income tax burden when you’ve experienced a loss with your investments. Briefly, this is where you have a taxable account, holding stocks, bonds, or mutual funds and the market declines leaving your holdings in a loss situation. Once you sell the holding, you have realized the loss, which enables you to take advantage of the tax laws and deduct those losses, first against any gains in your account(s), and then at a rate of $3,000 per year against ordinary income. This is similar to the famous move that Mr. Trump (and I would be shocked if Mrs. Clinton never took a loss against future taxes) used to avoid future income taxes. This was recently discovered in Trump’s tax records and made out to be a fatcat loophole – at least by the media – when actually anyone can take advantage of […]
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SOSEPP & How a QDRO Affects It
In addition to the 72(t) exception available for folks with a QDRO (see this post), there is also the question of how a QDRO impacts an established Series of Substantially Equal Periodic Payments (SOSEPP) – which, as we know, once established can only be changed one time. Although not definitive, below are summaries of three Private Letter Rulings (PLRs) that seem to suggest first of all that making the distribution is not subject to the 10% penalty when a QDRO or divorce decree is involved, pursuant to the regulation in Code section 72(t)(4)(A)(ii). Private Letter Rulings for SOSEPP 1) The transfer to a taxpayer’s spouse pursuant to a divorce decree of 50% of each of three separate IRAs owned by the taxpayer from which the taxpayer had already begun receiving “substantially equal periodic payments” did not result in a modification where the taxpayer’s spouse was two years younger and would commence […]
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401(k) & Qualified Domestic Relations Orders (QDRO)
An exception to the 10% penalty on distributions from a qualified plan (but not an IRA, an IRA is split via a transfer incident to a divorce, which is not an automatic exception) Qualified Domestic Relations Order, or QDRO (cue-DRO). A QDRO is often put into place as part of a divorce settlement, especially when one spouse has a qualified retirement plan that is a significant asset. What happens in the case of a QDRO is that the court determines what amount (usually a percentage, although it could be a specific dollar amount) of the qualified retirement plan’s balance is to be presented to the non-owning spouse. Once that amount is determined and finalized by the court, a QDRO is drafted and provided to the non-owning spouse. This document allows the non-owning spouse to direct the retirement plan custodian to distribute the funds in the amount specified. In the case of a QDRO, the owning spouse will […]
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Missed Rollover Automatic Waivers
When you rollover funds from one retirement plan to another, a missed rollover occurs if you can’t complete the rollover within 60 days. A missed rollover results in a taxable distribution. However, there have always been certain specific situations that provide for exceptions to this rule, but any reasons outside that limited list required the taxpayer to request a Private Letter Ruling (PLR) from the IRS. The PLR request process could result in some significant costs for lawyers and fees. Rev Proc 2016-47: Missed Rollover Waivers Recently the IRS published a new procedure for handling an expanded list of exceptions for a missed rollover. This procedure, Rev. Proc. 2016-47, outlines eleven possible exceptions to the missed rollover rule. The eleven exceptions are: an error was committed by the financial institution receiving the contribution or making the distribution to which the contribution relates; the distribution, having been made in the form of a check, was […]
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Withdrawals from an IRA – death, disability, and 59 1/2
Three of the most common ways that you can withdraw funds from your IRA without penalty are: 1) reaching age 59½; 2) death; and 3) disability. Below is a brief review of each of these conditions for penalty-free withdrawal: Reaching Age 59½ When you reach age 59½, you can withdraw any amount from your IRA without penalty, for any reason. The only thing you have to remember is that you must pay ordinary income tax on the amount that you withdraw. This means that, once you have reached the date that is 6 months past your 59th birthday, you are free to make withdrawals from your IRA without penalty. You are not required to take distributions at this age (that happens at age 70½). Death Upon your death at any age, the beneficiaries of your account or your estate if you have not named a beneficiary, can take distributions from your IRA in […]
Sterling Raskie, MSFS, CFP®, ChFC®
The latest in our Owner’s Manual series, A 401(k) Owner’s Manual, was published in January 2020 and is available on 
A Medicare Owner’s Manual, is updated with 2020 facts and figures. This manual is available on 
Social Security for the Suddenly Single can be found on Amazon at 
Sterling’s first book, Lose Weight Save Money, can be 
An IRA Owner’s Manual, 2nd Edition is available for purchase on Amazon. Click the link to choose the 
Jim’s book – A Social Security Owner’s Manual, is now available on Amazon. Click this link for the 
And if you’ve come here to learn about queuing waterfowl, I apologize for the confusion. You may want to discuss your question with Lester, my loyal watchduck and self-proclaimed “advisor’s advisor”.