What To Do About the Coming Retirement Crisis: Self-Directed IRA Investors Hold the Key

Self-Directed IRA InvestorsAs a team that administers accounts for Self-Directed IRA investors, we’re very excited about the forthcoming publication of Falling Short: The Coming Retirement Crisis and What to Do About It (set for a January 2nd publication). The authors are Charles D. Ellis, Alicia H. Munnell and Andrew Eschtruth, and all of them are true heavy hitters when it comes to retirement investment theory.

Alicia Munnell currently heads Boston College’s Center for Retirement Research. According to her team, as many as 53 percent of Americans are at serious risk of not having enough money to maintain living standards in retirement.

While we’re waiting for the publication of the book, though, we did find a sneak preview of some of the team’s findings in this CRR working paper: Are Retirees Falling Short? Reconciling the Conflicting Evidence.

Among their key findings:

  • Households retiring in the future will be less prepared than they were in past generations.
  • Families tend to accept that they will be sharply reducing expenditures after children leave home, and therefore make retirement investing decisions on that basis.
  • Other studies find that consumption does not decline in later years. Families banking on a significant decline in expenditures after the children leave the nest will be severely stressed, and unable to maintain their desired or expected retirement lifestyles.
  • Most households are, indeed, falling short in retirement preparedness.
  • Policymakers considering Social Security reforms should bear in mind the unpleasant realities.
  • Government should seek ways to encourage more private saving, such as requiring 401(k)s to adopt auto-enrollment and auto-escalation polices, and to apply these policies to current hires.

All that is well and good, but it’s tinkering around the edges. It all comes down, in the end, to finding ways to substantially increase savings not just in 401(k)s, which apply to people who are W-2 employees, in the main, but also to encouraging people outside the system to become fully engaged in the problem of managing their own retirement preparations. It’s not just about 401(k)s for corporate employees: The solution must include massive improvements in the retirement preparation of independent contractors, small business owners just trying to keep their doors open, part-time and marginal workers, and everyone else struggling at the fringes of the economy.

“I think saving for retirement is really a hard thing to do,” said Alicia Munnell in a recent interview in Forbes. A lot of middle-income people are under enormous financial pressure because wages haven’t grown much.”

Only half of Americans even participate in retirement plans, for starters, Munnell argues, and even those trying to use IRAs and other individually-owned rather than corporate-sponsored retirement plans are struggling with stagnant wages and increasingly unstable employment.

Furthermore, despite current record highs in the stock market, actual returns on investment in diversified portfolios and income-based portfolios have been pretty lackluster, compared to past decades, thanks to stubbornly low interest rates, thanks, in part, to a Federal Reserve Board that is determined to boost current consumption at the expense of savers.

Among other measures, Munnell and the other authors argue that 401(k) plans shouldn’t just cover full-time workers – they should cover part-timers, as well.

They also argue that we should not allow people to take 401(k) distributions when moving from one job to another, and that we should do away with 401(k) loan provisions.

Self-Directed IRA Investors

Most of our clients are doing quite well. Self-Directed IRA investors in the first place tend to have been at least somewhat financially successful, and they have developed some expertise in some area of investing that they hope to leverage via the use of Self-Directed IRAs, 401(k)s and other retirement accounts.

If this describes you, you are at a big advantage over most people because you can declare independence from the stock market and to some degree, even prevailing interest rates. You are free to choose investments that don’t correlate to the stock and bond markets or to prevailing interest rates, and can therefore get an increased return on your investment at a given level of risk compared to most.

For those of you who have employees with less sophistication than you, however, you can probably make a substantial difference in their lives by adopting automatic enrollment and by making low-cost index funds available to them within your company –sponsored 401(k) plan or SIMPLE IRA.

You can do this without giving up full control of your self-directed assets, even within the same 401(k) or SIMPLE IRA plan you offer to your employees, since joining the ranks of Self-Directed IRA investors is obviously an option, not a requirement.

Want to learn more? Call American IRA, LLC today at 866-7500-472(IRA), or visit us online at www.americanira.com. We can walk you through your options, take a look at your existing plan, and work with your current team of advisors to give you the most freedom of action and independence possible, while still honoring your fiduciary responsibilities to your plan participants.




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Supremes: Inherited IRAs Fair Game for Creditors

Inherited IRAIf you were relying on the substantial creditor protections IRAs enjoy to shield inherited money from your creditors, it’s time to rethink that strategy. A Supreme Court ruling held that inherited IRAs do not enjoy the same bankruptcy protection as IRAs you funded with your own money.

This is going to be a big deal as aging baby boomers reach their will maturity dates, and their IRAs pass to their adult children and grandchildren.

The case arose from a claim against one Heidi Heffron-Clark, had inherited an IRA worth about who inherited an IRA worth over $450,000 from her mother in 2001.

She and her husband had started a pizza shop, which went under – like a lot of small businesses – in 2009. The restaurant’s closure resulted in a broken lease, and the landlord had a claim of $74,000. As a result of the business failure, the family declared bankruptcy in 2010.

Normally, IRAs are shielded against attachment by creditors – up to balances of $1.3 million under federal law. Some states provide even more protection. However, when Heffron-Clark’s creditors learned that she and her spouse had inherited a substantial IRA from her mother, they pounced.

Heffron-Clark’s attorneys argued that the law provided creditor protection to her IRA, and that the reason generally cited for these protections was equally valid for inherited IRAs and non-inherited IRAs alike: Society has a vested interest in enabling workers to provide for their own retirement security after their working years.

The bankruptcy trustee, on behalf of her creditors, countered by arguing that an inherited IRA did not qualify as “retirement funds,” under the meaning of the original statute. Indeed, they argued that if that were the intent behind the law they would place the same spending restrictions on inherited IRAs that they do with self-funded accounts. They do not. Indeed, the creditors pointed out that the law allowed them access to the money immediately, and the Heffron-Clark family had already spent $150,000 of the $450,000 they had inherited (possibly trying to keep the business afloat).

The 7th Circuit Court of Appeals held for the creditors. Heffron-Clark appealed and the case went to the Supreme Court, which voted unanimously to uphold.

Sonia Sotomayor, writing the court’s decision, held that “The text and purpose of the Bankruptcy Code make clear that funds held in inherited IRAs are not “retirement funds” within the meaning of § 522(b)(3)(C)’s bankruptcy exemption.” Further, explaining the Court’s reasoning, Sotomayor writes: “if an individual is allowed to exempt an inherited IRA from her bankruptcy estate, nothing about the inherited IRA’s legal characteristics would prevent (or even discourage) the individual from using the entire balance of the account on a vacation home or sports car immediately after her bankruptcy proceedings are complete. Allowing that kind of exemption would convert the Bankruptcy Code’s purposes of preserving debtors’ ability to meet their basic needs and ensuring that they have a “fresh start,” Rousey, 544 U. S., at 325, into a “free pass,” Schwab, 560 U. S., at 791. We decline to read the retirement funds provision in that manner.”

You can read the full decision here.

So what does that mean? If you have spendthrift kids, or kids with severe debt troubles (this could include failed businesses that just didn’t get lucky), don’t leave them an IRA directly. Their creditors could come after it just like their other assets.

Instead, consider transferring the IRA proceeds to a trust, which limits their control of the money. Furthermore, the creditor claim is generally not going to be against the trust, which is a separate entity that generally has nothing to do with whatever created the debt in the first place, and so creditors will have no recourse against assets held in a properly-constructed trust.

It’s probably not going to be enough for the beneficiaries of the inherited IRA to create a trust and then transfer the funds after the fact: Case law tends to frown on “self-settled trusts” and provide much less in the way of creditor protections to trusts funded in this way.

American IRA, LLC does not provide legal advice.

Naturally, if you are in some debt trouble – or have some risk of liability even if you don’t have an immediate debt crisis or bankruptcy in process, you may want to have this conversation with your parents… and an experienced, qualified attorney.



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Preserving Benefits for Inherited IRA

Inherited IRAOne of the primary benefits of saving in an IRA is the tax-deferred growth on earnings, which provides the compound effect of earnings-on-earnings.  You can benefit even more with a Roth IRA because these earnings can be tax-free.  Unfortunately, this tax benefit is often severely diminished by beneficiaries who make mistakes when handling inherited IRAs. Avoid these errors by taking some simple steps with any IRA that you inherit.

Avoid Unintended Distributions

One of the most common and costly mistakes made with inherited IRAs occurs when a beneficiary requests a distribution when the intent was to transfer the assets. This often occurs when the beneficiary completes the wrong type of paperwork or mistakenly believes that the amount can be rolled over. If you make an unintended distribution, the amount would be included in your ordinary income for the year and therefore would no longer be eligible for tax-deferred (or tax-free in the case of a Roth IRA) growth. The amount could also put you in a higher tax bracket, which may subject your other income amounts to a higher tax rate.

Solution:  When moving assets to your inherited IRA, ensure that the paperwork is for a transfer and not a distribution. Once the assets are distributed from the IRA, they are no longer eligible to be held in an IRA or other tax-deferred retirement account. An exception applies if you are a surviving spouse, as spouse beneficiaries can rollover these amounts to their own IRAs.

Take RMD Amounts

If the IRA owner died on or after reaching the required beginning date (RBD), a required minimum distribution (RMD) must be taken from the IRA for the year that he died. If he did not take this RMD amount, then you must withdraw that amount by the end of the year.  You may also be required to take your own “beneficiary” RMD for IRAs that you have inherited. Failure to take these RMD amounts by the applicable deadline will result in you owing the IRS a 50% excess accumulation penalty.

Solution: Ensure that all RMD amounts are withdrawn before the deadline. If you are unsure about whether you need to take an RMD, contact our offices as soon as possible.  If you missed the deadline due to reasonable causes, the IRS may waive the excess accumulation penalty.

Split Timely for Multiple Beneficiaries

Generally, multiple beneficiaries of an IRA are required to use the life expectancy of the oldest beneficiary when computing beneficiary RMD amounts. This can severely reduce the tax-deferred benefit for the younger beneficiaries, when the oldest beneficiary is much older or the beneficiaries include a non-person such as an estate or charity. For instance, a 45-year-old beneficiary’s distribution period can be reduced from 38 years to five years, if he is one of multiple beneficiaries of an IRA owner who died before the RBD, and one of those beneficiaries is the decedent’s estate.

Solution:  If you are one of multiple beneficiaries, segregate your share into a separate account by September 30 of the year that follows the year in which the IRA owner dies if one of the beneficiaries is a nonperson such as an estate or charity. The deadline is extended to December 31 of the year that follows the year in which the IRA owner dies if there are no non-person beneficiaries.

Work With an Advisor Who Understands IRAs

The rules by which IRAs are governed are many, varied, and often complicated. The assistance of a financial professional who is knowledgeable about IRA rules and regulations can help you to avoid irreversible errors and maximize your tax benefits.

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Self-Directed IRA and Traditional Retirement Savings for Your Children

Self-Directed IRARecent studies show that a large percentage of Americans feel they need to work past age 70 to be able to continue covering their living expenses. This underscores the need for individuals to improve their Self-Directed IRA and retirement-saving habits…for many this means starting to save at an early age. You can help your children by encouraging them to begin funding their retirement accounts as soon as they start earning eligible income. Consider the following when funding retirement accounts for your children.

The Child Must Have Earned Income

The required income rules that apply to adults also apply to children. A contribution cannot be made to a child’s IRA unless that child receives eligible income of at least the dollar amount of the contribution made for the year. For this purpose, eligible income includes wages, salary, and commission.

Eligibility Rules Apply

A child is subject to the same eligibility rules that apply to adults. This includes:

  1. The child’s contribution to IRAs for the year cannot exceed a total of $6,500 or 100% of eligible income, whichever is less.
  2. The child must have income within the limits for funding a Roth IRA, which means a Roth IRA contribution cannot be made for that child if his or her modified adjusted gross income (MAGI) exceeds:
  • $129,000 if single
  • $191,000 if married, and
  • $10,000 if married, filing separately
  1. If the child received benefits or contribution under an employer sponsored retirement plan, he or she might be considered an active participant and would be able to claim a tax deduction for traditional IRA contributions only if his or her MAGI does not exceed:
  • $70,000 if single
  • $116,000 if married filing jointly, or
  • $10,000 if married, filing separately

If the child is not an active participant but is married to someone who is, the MAGI limit is $191,000,

Most children will not have this issue of high income. But for those who might, it is important to pay attention to these limits to prevent tax filing and/or contribution errors.

You Can Pay Your Child a Salary – But Be Careful

If you own and operate your own business, you can pay your child a salary so that he or she is eligible to contribute to an IRA. Of course, such salaries must be done on a legitimate basis and be able to pass any IRS scrutiny. For instance, if you pay your child for providing administrative services such as filing and answering the telephone, that child must be of age to do so and you must have payroll records that satisfy statutory requirements.

Availability May Be Limited

Not all financial institution allow IRAs to be opened on behalf of children and, for those that do, the parent or legal guardian is usually required to be the authorized signatory on the IRA until the child reaches the age of majority as defined by the state of domicile. If you are the authorized signatory, you would be responsible for approving transactions such as distributions and investments. Once the child reaches the age of majority, then he or she would become eligible to be the authorized signatory on the account.

It Adds Up

Helping your child to start saving at an early age not only encourages good savings habit, it could lead to significant retirement savings. Consider that a savings of $1,000 per year for 40 years at a 4% return per year would amount to about $100,000. If the account is a Roth IRA, the entire accumulated savings would be tax-free when the child reaches age 59 ½, or sooner if it has been at least five years since the first Roth IRA was funded and he or she is withdrawing up to $10,000 for a first-time home purchase, he or she is disabled, or if the amount is being withdrawn by a beneficiary in the event of his or her death.

Professionals Can Help

Professionals can help you discover practical solutions for your child’s saving and retirement planning needs. It is never too early to start saving, but when you do, you want to start with the right type of account.


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Schedule Your Required Minimum Distributions (RMDs) Early

Required Minimum DistributionIf you are at least age 70½ this year, you must take required minimum distributions (RMD) from any Traditional IRA, SEP IRA, SIMPLE IRA, and Self-Directed IRA that you own. You may also need to take RMDs from any IRA or other retirement account that you inherited, and from amounts you hold under an employer-sponsored retirement plan. While your RMD for the year must generally be withdrawn by the end of the year, scheduling it in advance can help to make sure you meet the deadline by which it must be withdrawn.

Your Required Minimum Distribution (RMD) Deadline 

Generally, your first RMD must be taken by your required beginning date (RBD), which is April 1 of the year that follows the year in which you reach age 70½. This means that if you reach age 70½ in 2013, your first RMD must be taken by April 1, 2014. All other RMDs must be taken by December 31 of the year to which the RMD applies. As such, if 2013 is not your fist year for RMDs, or if you need to take an RMD from an inherited IRA, that amount must be distributed by December 31, 2013.

Note: If you have funds in an account under an employer plan, such as a 401(k), 403(b), governmental 457(b), or pension plan, and you are still working for the company which offers the plan, you may be allowed to delay starting your RMD past age 70½, until after you retire. Check with the plan administrator to determine the RMD rules that apply to the plan.

If you miss your RMD deadline, the RMD amount not withdrawn by the deadline is subject to an IRS assessed excess accumulation penalty of 50 percent. For instance, if your RMD for the year is $10,000 and you took only $2,000 by the deadline, you will owe the IRS a penalty of $4,000 on the $8,000 which was not taken by the deadline.

Calculating Your Required Minimum Distribution (RMD)

Your 2013 RMD amount is determined by dividing your December 31, 2012 fair market value (FMV) by your life-expectancy factor which is obtained from IRS provided Life expectancy tables. Your FMV must be adjusted by adding any outstanding rollovers, outstanding recharacterizations and outstanding transfers.

  • Outstanding rollovers are distributions taken from an IRA during one year and rolled-over to the same or another IRA during the following year.  For instance, a distribution taken in December of one year, and rolled over in January or February of the following year. These rollovers are required to be completed within 60-days of receipt.
  • An outstanding recharacterization is a Roth conversion that is recharacterized in the year that follows the year in which the conversion was done. For example: A conversion that is done in 2012 and recharacterized in 2013 is an outstanding recharacterization for your December 21, 2012 FMV.  Recharacterizations are required to be completed by your tax filing deadline, including extensions. If you file your tax return by the due date, you receive an automatic six-month extension, bringing the deadline to October 15 if you file on a calendar year.
  • An outstanding transfer occurs when assets are being transferred between two IRAs and the assets leave the delivering IRA in one year and are credited to the receiving IRA in the following year.

The Custodian that held your IRA as of December 31 of 2012 is required to provide you with an RMD statement for 2013, which must include your calculated RMD amount or an offer to calculate the RMD upon request. The RMD statement requirement does not apply to Inherited IRAs.

Even if your Custodian calculates your RMD amount, you should have a professional double check the calculation, as your Custodian is allowed to make certain assumptions that could result in inaccurate results.

Schedule Your Required Minimum Distribution (RMD) Now

Even if you do not want to take your RMD now, you may still consider making arrangements to ensure it is distributed by the deadline. This can be accomplished by providing instructions to your IRA custodian now, to schedule your distributions for a future date. Alternatively, you may schedule amounts to be withdrawn periodically throughout the year. In such cases, care must be taken to ensure sufficient cash is available to cover scheduled distribution amounts.


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What to Do if You Missed Your Required Minimum Distribution (RMD) Deadline

Required Minimum DistributionIf you are subject to the required minimum distribution (RMD) for 2013 and do not take your RMD amount by the deadline, you will owe the IRS an excess accumulation penalty of 50% of the RMD shortfall. The good news is that the penalty can be waived if the right steps are taken. The following highlights the RMD rules and the steps that can be taken if you missed your RMD deadline due to reasonable cause.

When is the Deadline for Taking an RMD?

Let’s start by determining the deadline by which an RMD must be taken from a retirement account.

If you are the Retirement Account Owner

The deadline for taking a required minimum distribution (RMD) is usually December 31 of the year to which the RMD applies. However, there are two exceptions:

  • If you reached age 70½ during 2013, the deadline for taking your 2013 RMD is April 1, 2014. All subsequent RMDs must be withdrawn by December 31 of the year to which the RMD applies.
  • If you are older than age 70½ in 2013, and have assets in a retirement plan that allows RMDs to be deferred past age 70½ until you retire, your first RMD for those assets is due by April 1 of the year following the year that you retire. This option can apply only to qualified plans, 403(b) plans and 457(b) plans, and cannot be made available to individuals who own more than five percent of the business that sponsors the plan (5% owners).

If You are a Beneficiary

If you own an inherited retirement account, you are required to withdraw beneficiary-RMD amounts by the end of 2013, if any of the following applies:

  • You are subject to the life expectancy rule and the retirement account owner died before 2013.
  • You are subject to the five year rule and the five year period expires at the end of 2013.

Under the five year rule, distributions are optional until the end of the fifth year, at which time the entire balance must be withdrawn from the account.

What to do if You Missed Your RMD Deadline

If you missed your RMD deadline, you owe the IRS an excess accumulation penalty of 50% of the shortfall. For instance, if the RMD for 2013 is $10,000 and only $2,000 is withdrawn by the deadline, you will owe the IRS an excess accumulation penalty of $4,000 ($8,000 x 50%). In such cases, you have two choices:

  1. Pay the IRS the penalty. This is calculated on IRS Form 5329 (under the section labeled “Additional Tax on Excess Accumulation in Qualified Retirement Plans (Including IRAs)” and reported in the ‘other taxes’ section of your tax return (Form 1040). Important note: You cannot file Form 1040A or 1040EZ if you file Firm 5329. Instead, you must file Form 1040.
  2. Ask the IRS to waive the penalty. The IRS will waive the penalty, if you can show ‘reasonable cause’ for not taking the RMD. If you feel that you qualify for a waiver, you should File Form 5329 and attach a letter of explanation to the IRS.

When applying for the waiver, you need to take the missed required minimum distribution (RMD) amount as soon as possible.

Professionals Can Help

If you need help with your RMD, you should consult with a professional who is proficient in the area of distribution-planning for retirement accounts.  While the calculation of your RMD might seem simple, there are factors that must be taken into account to ensure the calculation is correct. Professionals will help to ensure that these are not overlooked when handling your case.


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The Savers Credit Reduce Retirement Funding Cost for Some!

Tax Credit for Contributions to Your Retirement Accounts

If your adjusted gross income (AGI) is below a certain amount, you may be eligible to receive a nonrefundable tax credit for contributions to your retirement accounts, thereby lessening the cost of making the contributions. This nonrefundable credit is referred to as the saver’s tax credit (saver’s credit), and can reduce your federal income tax on a dollar-for-dollar basis.

Eligibility Requirements

In order to be eligible for the saver’s credit, you must meet a few requirements. These include the following:

  • You must be at least 18 years of age,
  • You should not be a full-time student, and
  • You must not be claimed as a dependent on someone else’s return.

In addition to these requirements, your AGI must not exceed certain amounts, and the amount of credit for which you are eligible is also subject to AGI limits. The saver’s credit can be claimed by:

  • Married couples filing jointly with incomes up to $59,000 in 2013 or $60,000 in 2014;
  • Heads of Household with incomes up to $44,250 in 2013 or $45,000 in 2014; and
  • Married individuals filing separately and singles with incomes up to $29,500 in 2013 or $30,000 in 2014.

The dollar amount of credit is limited to $1,000 per individual, $2,000 for married couples.

Eligible Contributions

You may claim the credit for the following types of contributions:

  • Pre-tax salary deferral contributions to 401(k), 403(b) annuity, eligible deferred compensation plan of a state or local government [457(b) or governmental 457 plan], SIMPLE IRAs and salary reduction SEPs (SARSEPs).
  • Voluntary after-tax employee contributions to a qualified retirement plan or section 403(b) annuity. and
  • Contributions to traditional IRAs and Roth IRAs.

You can split the contribution among more than one of these accounts, or deposit the entire amount to one account.

Distributions Can Reduce the Saver’s Credit

Certain distributions can reduce the contribution eligible for the saver’s credit. These include any taxable distributions from a retirement plan or IRA:

  • That is received during the year that the credit is claimed
  • During the two preceding years, or
  • During the period after the end of the year for which the credit is claimed and before the due date for filing your tax return for that year.

A distribution from a Roth IRA that is not rolled over is taken into account for this reduction, even if the distribution is not taxable.

How to Claim the Credit

The saver’s credit is claimed by Filing IRS Form 8880 and following the instructions provided on the form. These include instructions on how to indicate the correct amount on Form 1040.

Form 8880 must be attached to Form 1040 in order for the IRS to approve the claim.

Other Features and Benefits

Other features of the saver’s credit include the following:

  • It may be claimed for the same year that you claim a deduction for a traditional IRA contribution. For those eligible for the deduction, this means double benefits,
  • It will not change the amount of your  refundable tax credits, such as  the earned-income-credit or the refundable amount of the child-tax-credit,
  • The saver’s credit for any year cannot exceed the amount of tax that you would otherwise pay (not counting any refundable credits or the adoption credit) in any year,
  • Your tax liability is reduced to zero because of other nonrefundable credits, such as the Hope Scholarship Credit, you will not be entitled to the saver’s credit , and

You can also use the saver’s credit to offset both an alternative minimum tax liability and a regular income tax liability.

Individual Retirement Accounts in the News

US News and World Report

Yahoo Finance



Center for Retirement Research: Boston College


Americans Health Inurance Plans

The Urban Institute

Investment Company Institute



Wall Street Journal

TIAA-CREF Institute


New York Times


CBS Money Watch

Journal of Accountancy

The Simple Dollar

Saylor Law Firm LLP

American IRA does not offer investment, tax, financial or legal advice to clients. Individuals who believe they need advice should consult with the appropriate professional(s) licensed in that area. These links are provided as resources only and are not endorsements.

IRS Resources

The links and information on this page are intended as a resource to help find specific information as it relates to Self Directed Retirement Plans.

Clicking on the links below will open a new window to the IRS website.

Retirement Topics

Correction to 2010 Publication 590, Individual Retirement Arrangements (IRAs) — 14-FEB-2011

 — 14-FEB-If you downloaded the 2010 Publication 590 before February 5, 2011, please note the following changes.

In the What’s New for 2011, on page 57, under Modified AGI limit for Roth IRA contributions increased, the amount in the last sentence of the 2nd bullet should be $122,000 (not $120,000).  The 2nd bullet should read:

Your filing status is single, head of household, or married filing separately and you did not live with your spouse at any time in 2011 and your modified AGI is at least $107,000. You cannot make a Roth contribution if you modified AGI is $122,000 or more.

The amount should also be changed in the 3rd bullet in the paragraph under Table 2-1 on page 58.  The 3rd bullet should read:

Your filing status is different than either of those described above and your modified AGI is at least $107,000. You cannot make a Roth IRA contribution if your modified AGI is $122,000 or more.

The corrected version of the 2010 Publication 590 is now available for download.

Pensions/Annuities/Retirement Plans (i.e., 401(k), etc.)

Top Frequently Asked Questions for Pensions/Annuities/Retirement Plans (i.e., 401(k), etc.)

  1. This is the first year that I received a distribution of benefits from my retirement plan. Are any of my benefits taxable?
  2. What is the maximum amount that I can contribute to my 401(k) plan?
  3. If taxes are withheld from a distribution from a 401(k) plan, am I required to include the amount of the distribution as income and also pay the 10% additional tax?
  4. Can I withdraw my elective contributions to a 401(k) plan penalty free to build or purchase my first home?
  5. If I retire or leave my employer for any reason (including due to being laid off) before I am age 59 1/2, can I withdraw my vested benefits under that employer’s 401(k) plan, without having to pay a 10% additional tax? What if I were 55 or older when I separated from service with my employer?
  6. How long do I have to roll over a retirement distribution?
  7. I am a plan sponsor. Where can I find additional information on retirement plan document design requirements and the IRS Determination Letter Program?

Frequently Asked Question Subcategories for Pensions/Annuities/Retirement Plans (i.e., 401(k), etc.)

  1. General/Taxability Issues including Distributions, Early Withdrawals, 10% Additional Tax, Defaulted Loans
  2. Rollovers – Pensions/Annuities/Retirement Plans (i.e., 401(k), etc.)
  3. Types of Plans
  4. Plan Operations
  5. Plan Design
  6. Correcting Plan Errors