equities in ira
L1: equities in iraAn earlier thread said by no means have eqities in ira72t. They were not refering to mutual funds like Vanguard Total Sock or other mutual funds I hope?2008-03-02 17:33, By: Ran, IP: [18.104.22.168]
L2: equities in iraI can”t see why not. I”m sure the profesional”s feel that some people have no business making decisions in an IRA that may put their 72t in jepordy. If you take losses trading your IRA, you could put your expected payout in jepordy. Having quality stocks in an IRA that pay a good dividend or selling covered calls for extra income is a viable plan to earn more than the going interest rate. It”s the people that THINK they are traders that are the danger. The pro money managers can”t give a blanket approval for this because many, if not most aren”t able to make rational trading decisions. The same would probably apply to Mutual Funds. In fact, it is somtimes harder to trade Funds than stocks. They also have fees that subtract from your income stream. Even a well diversified portfolio of stocks and bonds will have negative growth at times. Your payment schedule is never changing and unrelenting even in bad times. The correct answer is that you can have equities in your IRA, but should you? Are you willing to gamble that you will beat interest rates for 5 or more years? There are people that bought rental property for their IRA”s, but is their income stream reliable today, especially when their property value may be falling? Fixed income is just easier.2008-03-02 18:18, By: chuckles, IP: [22.214.171.124]
L2: equities in iraRan,
I assume that almost allof us do have equities (mutual funds in my case) as a good part ofour IRA that is funding a 72(t) plan. Perhaps the posting you refer to wasmentioningthe need to have some of those investmentsconverted to cash (when there is not already enough in the person”s cash or money market account) so that the payment being made to the participant can be covered. KEN2008-03-02 18:34, By: Ken, IP: [126.96.36.199]
L2: equities in iraThe questioon may be referring to my postings that I recommend that, whenever possible, once taxpayers reach 50 or older, that their investments in equities and stock mutual funds be outside of IRAs/Retirement Plans, and SEPP 72-T. SEPP 72-T”s require a cash flow to provide cash in order to satisfy the distribution requirements each year, but that can come from sale of stocks or mutual funds when the cash flow from income and capital gains is inadequate. Of course, some taxpayers, and even financial advisors, make the mistake of reinvesting dividends and capital gain distrributions, so that there is little or no cash available for distributions for the SEPP 72-T requirements.
But my rationale is because ALL DISTRIBUTIONS from IRAs and RETIREMENT PLANS are taxed at ORDINARY INCOME TAX RATES. This means that the Qualified Dividends within the IRAs and RETIREMENT PLANS will be taxed at 10% to 20% higher than if these same dividends were receivedcoutside of the IRA and Retirement plans. Similarly, ALL CAPITAL GAIN DIVIDENDS and ALL CAPITAL GAINS FROM THE SALE OF THE STOCKS AND MUTUAL FUNDS will be taxed at the higher ORDINARY INCOME TAX RATES when the DISTRIBUTIONS are PAID (i.e. 25%-35%), rather than at the special 15% tax rate. Why pay 10% -20% more on the same income, if you have a choice of having the fixed income part of your total portfolioi within your IRA and Retirement Plans, and SEPP 72-T, and kept your equity investments outside ?2008-03-02 19:58, By: dlzallestaxes, IP: [188.8.131.52]
L2: equities in iraOf course, if you do have equities in your SEPP IRA account and do not want to sell them when the market is depressed, you can have the shares tranferred to your taxable account as an IRA distribution. The only technical problem with that is that you will not know for sure how the custodian is going to compute the value of the shares at distribution, so you will have to determine that the next day and make the small adjustment out of cash to bring the annual distribution in compliance with the SEPP. The shares will have a basis in your taxable account equal to the value when distributed from the IRA. In order to manage this, you will obviously have to have some cash equivalents in the IRA.
You must make regular contributions toan IRA in cash, but distributions can be “in kind” rather than in cash if you prefer. The 1099R is going tolook the same either way. This may avoid a buy and sell commission.
2008-03-02 21:24, By: Alan S., IP: [184.108.40.206]
L2: equities in iraBut, Alan, you”ll need CASH to pay your taxes to the IRS for the distribution you take from your SEPP 72-T in either cash or “in kind”. Therefore, you will probably have to sell the securities either while they are in the SEPP 72-T, or after you take securities out.
I assume, and I may be wrong, that most people with SEPP 72-T plans had set them up because they needed the money to supplement a cash shortfall. Therefore, if that is so, then I don”t see the advantage of complicating the situation by taking one or more distributions in kind. If you do, I urge you to get the FAIR MARKET VALUE as of the Date of Distribution immediately so that you can make sure to make any adjustments necessary in order for your annual distribution to be exactly correct so as not to bust the plan. I would strongly suggest that “distributions in kind” never be taken in December because of the possibility/probability that these nuances could easily cause you to bust the plan because can”tget the information, make the calculations, or make the adjustments before 12/31.
I”ve used “distributions in kind” many times for clients over the years, but I would hesitate ever doing it for someone in a SEPP 72-T. Just my personal concerns.2008-03-02 22:33, By: dlzallestaxes, IP: [220.127.116.11]
L2: equities in iraI agree.
I would not do it unless there were compelling reasons for doing so, and those would be investment reasons, not saving a $20 commission. Adding complexity to a 72t plan should only be done with full knowledge of the risk reward trade off for adding that complexity. And the risk obviously increases as the term of the 72t plan advances due to the retroactive nature of the penalty and interest.2008-03-03 19:11, By: Alan S., IP: [18.104.22.168]