Bonds in IRA’s
L1: Bonds in IRA’sI have three accounts with municipal bonds and I’m planning on receiving SEPP’s from all three.
Can I move bonds with equal face values (10k) between the accounts without busting the SEPP plan?
Thank you.2009-09-10 21:09, By: johnnyg, IP: [18.104.22.168]
L2: Bonds in IRA’sYour post suggests that you plan to have ONE SEPP plan using 3 different IRA accounts as your SEPP universe.
You can make direct transfers between the 3 IRA accounts that are included in this SEPP plan. If you do any indirect rollovers, you are limited for 12 months in doing any further indirect rolloversfrom either the source IRA account or the receiving IRA account. You also will have spent the one rollover recommended for saving to use in emergency purposes to correct a distribution error.
Note that the IRS has busted a couple SEPP plans in the last two years for partial transfers. While these rulings are likely an aberration, you should still be aware that they exist. I would avoid even direct unreported transfers between your SEPP accounts unless there is a considerable benefits derived from doing so.
Note that it has historically been inadvisable to hold munis in IRA accounts because of the tax equivalent yield benefit of holding them in taxable accounts instead. I realize that during the financial crisis, the perceived safety of munis temporarily increased the actual yields above those of many taxable investments. However, this is unlikely to continue once full stability returns unless the entity carries default risks. 2009-09-10 21:59, By: Alan S., IP: [22.214.171.124]
L2: Bonds in IRA’sPlease tell us why you have municipal bonds in an IRA. As Alan responded, it is highly unusual because municipal bonds traditionally pay lower interest rates than taxable bonds, and every distribution from retirement accounts/IRAs is taxed at regular tax rates, even though the interest might have come from tax-exempt bonds.
Did you make this investment yourself or upon the advice of a broker, despite the tax implications ?
Or are these a unique investment called “federally taxable municipal bonds” which practitioners, other than myself because I had a client with them, have rarely heard of ?2009-09-10 23:44, By: dlzallestaxes, IP: [126.96.36.199]
L3: Bonds in IRA’sThese are not “federally taxable municipal bonds” but rather standard municipal bonds.
My reasons for investing in these are based upon a desire to maintain capital while receiving enough interest to fund my SEPP in the three IRA’s.
If you have another investment strategy or type of investment to add to my IRA I would be happy to hear it, thank you.
2009-09-15 14:29, By: johnnyg, IP: [188.8.131.52]
L4: Bonds in IRA’sCDs, Corporate Bonds, U S Government Bonds, Preferred Stocks, Bond Mutual Funds (preferably short to intermediate term no longer than 5 years in the current interest rate environment).
By the way, there is no problem if your income earned is less than the annual distribution limit. You are allowed to use some of the principal towards the distribution. Remember that it is merely going from 1 pocket to another ( IRA to you). Some people even have IRAs invested in stocks or equity mutual funds which may pay 2% or less, but go up in value, and then they sell some to provide the additional cash needed for the distribution.
By the way, some traditional IRAs are invested in stocks and equity mutual funds, and for Required Minimum Distributions, or even just voluntary distributions for lower taxes between 59 1/2 and 70 1/2 they take “Distributions In Kind” because they want to keep the same investments rather than selling them to provide cash.2009-09-15 14:53, By: dlzallestaxes, IP: [184.108.40.206]