Go to Jeff Salisbury LWGate Home Page.From: persfin-digest <owner-persfin-digest@shore.net>
Subject: persfin-digest V4 #94
Date: Sat, 18 Oct 1997 16:00:23 -0400 (EDT)
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persfin-digest Saturday, October 18 1997 Volume 04 : Number 094
IN THIS ISSUE:
ADVERTISEMENT: MCI InfoSource
Standard deduction of dependents in 1998?
Re: GE Interest Plus Gripe!
MotleyFool & InvBizDaily - Falling Out with O'Neill?
Re: Speed Reading and Various Mortgage Q's
Auto Insurance..........
Re: Rich Carreiro's IRA Calculations
re: Rich Carreiro's IRA Calculations
Re: whether Form 1099 or Form W-2
Re: Form 8606 not reported in 1990-1991
tax brackets for tax-year 1997?
RE: Philip Knight's post on IRA calculations
Re: Roth IRA comparisons - Roth is Better than NonDeductible IRA
Re: parents help in financing home purchase
Re: Living in the Netherlands
RE: Interested in a certified financial planner career
Re: Consulting question - 1099 or W-2?
Re: Low Cost Way To Start Investing
Best Investment of $35K For 69 Year Old Retiree?
Re: Can I do a 401K and a Roth IRA?
Re: Forgot Form 8606 But Made Nondeductible IRA Contributions
Re: Can You Separate Deductible from Nondeductible IRA Money?
Roth IRA vs deductible IRA
Re: Can I do a 401K and a Roth IRA?
Re: Re Car Accident
super single mortgage or How to Avoid PMI
Forgot Form 8606 But Made Nondeductible IRA Contributions
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Date: Sat, 18 Oct 1997 15:32:35 -0400 (EDT)
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------------------------------
Date: Sat, 18 Oct 1997 15:33:48 -0400 (EDT)
From: "Jim Y. Wan" <jwan@utmem1.utmem.edu>
Subject: Standard deduction of dependents in 1998?
I just got a brochure on the new tax law summary from Waterhouse. It
indicates that "the standard deduction for a child who is the dependent of
another taxpayer is increased beginning in 1998 to be equal to the lesser
of (1) the regular standard deduction for individual taxpayers or (2) the
greater of (a) $500 (indexed for inflation) or (b) the dependent's earned
income plus $250."
My interpretation is that if my dependent child has no earned income, his
standard deduction will be $500 in 1998, reduced from the current level of
$650. I came across a web address for the official new tax laws but I did not
save it. Does anyone have it?
------------------------------
Date: Sat, 18 Oct 1997 15:34:27 -0400 (EDT)
From: "Jim Y. Wan" <jwan@utmem1.utmem.edu>
Subject: Re: GE Interest Plus Gripe!
dmak@tma-net.org complained about GE Interest Plus deposits mailed (from
Maryland) to P.O. Box in Chicago have taken between 1-2 weeks to get
credited to account.
I have the same experience. You might want to check the dates your GE account
got credited and the dates your bank account debited. In fact, I cross checked
the dates and they happened on the same days. I suspect they cash the check
before they credit the account, even though the account agreement clearly
indicates they would credit the account on the day they receive the check (if
this is true, the bank account should get debited two days later). I also got
this same policy when I called and requested for this info. I am wondering if
this happens to me only or it is their practice, and I do not think it is
legal.
------------------------------
Date: Sat, 18 Oct 1997 15:35:16 -0400 (EDT)
From: Warren Keuffel <76702.525@compuserve.com>
Subject: MotleyFool & InvBizDaily - Falling Out with O'Neill?
The Motley Fool book recommends reading Investors Business Daily to follow
individual stocks. Several months ago I visited the Motley Fool site and
found several links and references to IBD. On a later visit I found that
all those links seem to have been deleted. Anyone know what happened? A
falling out between the Fools and O'Neill?
Thanks.
Warren Keuffel
wkeuffel@acm.org
------------------------------
Date: Sat, 18 Oct 1997 15:37:33 -0400 (EDT)
From: Stephan <stephan@mail.org>
Subject: Re: Speed Reading and Various Mortgage Q's
Don - The best Speed Reading course I know of is by Ed Stracher; this is
an audio/video/CD/Workbook guided course; costs around $300. so you could
be on to a bargain at $60 for Berg's (or not). ps. We hear "faster" than
we read, so you may want to get some books-on-tape and speed 'em up ;^)
Phil - stuck between credit reports and lender: Been there, too. What I
wound up doing was writing the mortgage lender an explanation of the
derogatory credit info and copied them to the credit reporting agency for
insertion in my file. The creditors then have 90 days to respond to the
comments. (Bonus - if they fail to respond then the negative info is
removed) I had the loan approved before that based on overall
creditworthiness, income history, charm and a threat to take my business
to a mortgage _broker_ (which I have done for all subsequent purchases).
Melba's parents want to stick her with an overpriced house - oops,
that's _my_ story!
Melba wants to buy her parents' house in Michigan: No downpayment - do
your parent's _own_ or _owe_ on the house? Can you Lease with an Option to
buy it with % of the rent applied to the purchase price? Is the mortgage
assumable? You might be able to get a lender to OK a 100% financed deal
(80 bank, 20 second mtg from parents) if your folks co-sign. Who says the
house is worth $150K? PMI is not so bad for a couple of months; if you can
show that the property appreciated (thru improvements or market
conditions) the PMI can be recinded. Can you form a partnership to invest
in the house?
These are just a few suggestions based on the little info available;
good luck!
Stephan
- --
at http://www.tpw.com/mi/siscoe
------------------------------
Date: Sat, 18 Oct 1997 15:38:49 -0400 (EDT)
From: Nikhil Subhash Sarpotdar <nsarpotd@td2cad.intel.com>
Subject: Auto Insurance..........
Hello !!
I am caught up in a insurance issue here. I bought a new car a
few days back and called up an insurrance agent (Farmers) to get a quote.
The following was decided on :-
=> 1000 deductible Collision
=> 500 deductible comprehensive
=> No towing and road side assitance.
The premium that was calculated was $550 or so.
I got the policy from the company today and the following are the terms.
=> 500 deductible Collision
=> 200 deductible Comprehensive
=> Towing and Roadside assistance.
The premium quoted/listed is $680 or so.
I wish to think that this was a mistake but my friends tell me that they
know of such occurences that have happened in the past (More premium more
commission to the agent)
So :-
1) What can I do about this ?
2) May I obligated to get the insurance from this guy. I got the policy
from him over the phone and gave him my SS # and VIN over the phone ?
3) What usually is the procedure/process if you have to complain to the
Company or the Insurance commissioner ?
Thanks and have a nice day.
Nikhil
------------------------------
Date: Sat, 18 Oct 1997 15:39:14 -0400 (EDT)
From: Rich Carreiro <rlcarr@animato.pn.com>
Subject: Re: Rich Carreiro's IRA Calculations
> 2) "Excess accumulation tax." This must be paid if the account value is
> over over a certain amount. (Can't remember the amount.)
The excess accumulation tax and the excess distribution tax were
repealed by the Tax Relief Act of 1997.
Rich Carreiro
rlcarr@animato.pn.com
------------------------------
Date: Sat, 18 Oct 1997 15:40:00 -0400 (EDT)
From: "L. Chen" <am302@FreeNet.Buffalo.EDU>
Subject: re: Rich Carreiro's IRA Calculations
> > I've performed some pretty simple spreadsheet calculations with
> > Excel. Using the same tax rates applied to both the Traditional
> > and Roth IRA, they do not have "exactly the same value after all
> > taxes are paid". In fact, no matter what tax bracket, comparison
> > period, rate of return, etc. I plug in, the Roth comes out ahead
> > when all things are created equal.
> >
> >
> > ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
> >
> > Traditional Roth IRA
> >
> > Amount Invested $2,000 $2,000
> >
> > Tax Bracket 28.00% 28.00%
> > Capital Gains Bracket 20.00% 20.00%
> > Comparison Period 10 10
> > Annual Rate of Return 10.00% 10.00%
> >
> > Future Value
> > after 10 years $5,187.48 $5,187.48
> > FV after taxes $3,734.99 $5,187.48
> >
> > Amount of Tax Savings $560 $0
> > FV of tax savings $1,452.50 $0.00
> >
> > FV after taxes
> > of tax savings $1,162.00 $0.00
> >
> > Total Return on
> > Investment $4,897 $5,187
> >
> > ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
>
> Unfortunately, this example doesn't present an accurate picture because
> you forgot to take into account that the Roth IRA contribution is not
> tax-deductible.
But it did -- by adding the $560 and the return on that $560 to the
traditional IRA.
Another poster commented that it is not proper to compare $2000 in Roth --
with $1440 (effective cost) in deductible IRA and $560 in conventional
investment. I am not clear on the reasoning behind it. Isn't it basically
the same analysis that results in the conclusion that investing in IRA is more
advantageous than conventional investing -- comparing the results of a
deductible investment vs that of a non-deductible investment?
>In order to contribute 2000 to the Roth IRA, you will
> need $2778 ($2778 * 28% tax = 778, which leaves $2000 to be invested).
That is another way to do the comparison. The after-tax return of $2000 in
traditional IRA -- vs the after-tax return of $2000 in ROTH *less* the
opportunity cost of $778
> Or another way to look at it: If you use $2000 for a traditional IRA,
> you get to invest the whole contribution today. If you invest it in
> a Roth IRA, you get to invest only 72% of that contribution ($1440), the
> remaining $560 is paid in taxes.
I disagree with this. You get to invest $2000 in Roth (assuming one can
afford to), not $1440. If anything, one can argue that one can EFFECTIVELY
invest only $1440 in traditional IRA. This is the tooted advantage of Roth --
sheltering more of your investments from income taxes. Whether it actually
works out that way, it depends on the specifics of the people involved.
> Despite that, however, the Roth IRA still comes out quite a bit ahead with
> all other things being equal (don't have the exact numbers, but I went
> through this recently with my financial planner).
>
> Here's another additional advantage my financial planner pointed out to me:
>
> One fact that many people are not aware of is that 401K and traditional IRA
> accounts are not treated in the same way as other assets on an estate.
> According to my CFP, there are potentially different types of taxes on
> inherited 401K and IRA accounts:
>
> 1) Regular income taxes. Heirs who inherit your 401K or IRA account have
> to pay taxes on that money as though it were all personal income in
> the year in which they inherited it, which means they can potentially
> be kicked into an extremely high tax bracket for that year.
Do the heirs get a credit for the estate taxes paid on the 401K or IRA?
> 2) "Excess accumulation tax." This must be paid if the account value is
> over over a certain amount. (Can't remember the amount.)
Do the heirs have to take it out in one lump sum, thereby triggering the
excess accumulation tax? Has the new tax law eliminated this tax?
>
> 3) If I remember correctly, the third tax he mentioned was regular estate
> tax.
Lily Chen
am302@freenet.buffalo.edu
------------------------------
Date: Sat, 18 Oct 1997 15:41:06 -0400 (EDT)
From: "Louis J. Schwarz, CFP, RFC" <sfc@deafcfp.com>
Subject: Re: whether Form 1099 or Form W-2
>I'm going to leave my full time job and start consulting soon. A
consulting agency which I am working with asked me if I want
to be a W2 or 1099 consultant.
Does anyone have any experience with this and can note the pros and cons
of each type.
The agency seems to be pushing the W2 type. They indicated that the per
hour payrate would be the same for both.
- --
I would choose W2 so I let the employer pays half of my social security
taxes. Otherwise, I, as self employed, pay full FICA and MEDICARE taxes.
However, there are pros and cons being self-employed - so you have to
weigh both sides in terms of business expenses deductions and payroll
taxes. Being self-employed is more tax benefitical in many ways other
than being own boss!
Louis J. Schwarz, CFP, RFC TTY 301-587-5996
Schwarz Financial Concepts FAX 301-587-5997
814 Thayer Avenue, Suite 301 Voice Relay 800-735-2258
Silver Spring, Maryland 20910-4500 Mailto:sfc@deafcfp.com
------------------------------
Date: Sat, 18 Oct 1997 15:41:47 -0400 (EDT)
From: "Louis J. Schwarz, CFP, RFC" <sfc@deafcfp.com>
Subject: Re: Form 8606 not reported in 1990-1991
>Subject: Forgot Form 8606 But Made Nondeductible IRA Contributions
- --
In 1992's Form 8606 should reflect the correct information including
figures based in the year 1990 and 1991. If not, too bad because those
"non reported" nondeductible contributions will be fully taxable when
withdrawn at a certain time.
Louis J. Schwarz, CFP, RFC
------------------------------
Date: Sat, 18 Oct 1997 15:42:36 -0400 (EDT)
From: "Dalmia, Bipin K." <DALMIABK@phibred.com>
Subject: tax brackets for tax-year 1997?
hello:
where can i find information on the income limits for each tax-bracket
for the tax-year 1997 (and each year after that). i need the exact
numbers for married filing joint return to do some year-end
tax-planning.
all this talk about IRAs........if even smart people (most persfin
digesters) including CFAs can't come to a consensus, what the heck was
congress thinking!!!!!
somebody mentioned that he won't be eligible for a deductible IRA but
his wife would be. does that mean having to file separate returns?
what is the 'consensus' on savings for college education for your child?
i have a 18 month old and haven't done anything yet. the options are:
(are there more?)
1. education IRA:
2. UGMT (or is that UGTM?) account
3. college tuition credits
how do these relate to each other? what are the implications of kiddie
tax-savings? when will they come up with a flat-tax? :(
regards, bip
------------------------------
Date: Sat, 18 Oct 1997 15:43:15 -0400 (EDT)
From: ANDREA WELCH <ACE.AWELCH@MEMO.ACEHARDWARE.COM>
Subject: RE: Philip Knight's post on IRA calculations
In Persfin Digest #93 Philip Knight wrote in response to my post
on Roth IRA vs. Traditional IRA earnings calculations assuming all
variable (such as tax rates, comparison period, rate of return,
etc.) are the same:
AW> Traditional Roth IRA
AW>
AW> Amount Invested $2,000 $2,000
AW>
AW> Tax Bracket 28.00% 28.00%
AW> Capital Gains Bracket 20.00% 20.00%
AW> Comparison Period 10 10
AW> Annual Rate of Return 10.00% 10.00%
AW>
AW> Future Value
AW> after 10 years $5,187.48 $5,187.48
AW> FV after taxes $3,734.99 $5,187.48
AW>
AW> Amount of Tax Savings $560 $0
AW> FV of tax savings $1,452.50 $0.00
AW>
AW> FV after taxes
AW> of tax savings $1,162.00 $0.00
AW>
AW> Total Return on
AW> Investment $4,897 $5,187
AW>
PK> Unfortunately, this example doesn't present an accurate
PK> picture because you forgot to take into account that the Roth
PK> IRA contribution is not tax-deductible. In order to
PK> contribute 2000 to the Roth IRA, you will need $2778 ($2778 *
PK> 28% tax = 778, which leaves $2000 to be invested). Or another
PK> way to look at it: If you use $2000 for a traditional IRA,
PK> you get to invest the whole contribution today. If you invest
PK> it in a Roth IRA, you get to invest only 72% of that
PK> contribution ($1440), the remaining $560 is paid in taxes.
In my comparison example I do show the initial tax savings benefit
of the Traditional IRA as well as future earnings and taxes
thereon. Isn't this the same as taking "into account that the
Roth IRA contribution is not tax-deductible"? It seemed to me to
be the most realistic way to approach the comparison since my
objective is always to maximize IRA contributions as permitted by
law.
Regards,
Andrea
------------------------------
Date: Sat, 18 Oct 1997 15:44:40 -0400 (EDT)
From: David Meyers <dmeyers@panix.com>
Subject: Re: Roth IRA comparisons - Roth is Better than NonDeductible IRA
>
>first case, almost every analysis I see takes the tax savings from the
>deductible and invests it in a regular taxable account. I don't think
>that that is correct. Now you are winding up comparing on one side
It is correct inasmuch as many folks wish they could put
away _more_ for retirement than the idiotic current 2k
limit allows. With the Roth, they effectively put away
2k/(1-tax), and with ded IRA, they have to put away the
2k and put the tax savings away separately - in fact, it
is likely that folks concerned with this issue are putting
money away for retirement both inside and outside such
plans whichever they use, so the tax savings is indeed
invested. There are certainly issues with respect to
the psychology, but for anyone who is planning on putting
away more than 2k for retirement in a given year anyway,
it is quite valid to consider what is done with the tax
savings - in that case, assuming that tax rates at
retirement are identical (all on the margin, ie. not
the calculation you make below), the end result is
identical _if_ the entirety of the tax savings can grow
at the same rate as the assets in the retirement plan,
_and_ those tax savings grow entirely tax-deferred (pure
capital gains, for example). Of course, this last is
not too realistic, and thus favors the Roth.
>(ded. IRA + regular taxable a/c) vs Roth on the other side. Instead,
>as someone else has pointed out, consider the out-of-pocket investment
>cost, i.e. an investment of $A in deductible is the same as an investment
>of $A(1-Tp) in a Roth (where Tp is your current federal+state tax rate).
>For simplicity, let us also assume that the Roth IRA is tax-free for state
>purposes, just like it is for federal.
There are definately two ways to look at it - one is to
compare Roth to (ded IRA + tax savings), the other is to
compare (Roth - taxes) to ded IRA. In the latter case,
end return is identical, assuming identical tax rates.
In the former, you have the issue which several other
comparisons have focussed on, and which appears to favor
the Roth.
>the retiree has the oft-recommended 70-80% of regular income), the effective
>tax rate will be lower than the marginal tax rate (Tp), due to the standard
>deduction, personal exemptions, (maybe some tax credit), and part of the income
>is taxed at lower brackets.
This is a valid point which I've not seen discussed
anywhere else. I suspect that the assumption most
are using, as above, is that folks have money outside
of the retirement plan and that the income from that
money will be enough to eat up the deductions and
exemptions. Your analysis assuming no other income
at all seems exceptional.
> Ded. IRA Roth IRA
>After-tax income 32K 25.08K
Again, note that had you not applied any exemptions to
the dedIRA distribution, the after-tax is identical.
>Finally, there is a psychological issue. The Roth is tax-free today. Can
>we be certain that it will remain tax-free until our retirment 30 years
>or so hence ? Future congresses may try to get some tax money out of the
>Roth withdrawals. The Roth's tax-benefit is in the future, we have not yet
Playing this kind of what-if game is counterproductive. It
is equally likely that they would put some sort of extra
tax on regular IRA withdrawals to help pay for the retirements
of those who didn't save enough for retirement, particularly
when it comes time to cover the shortfall in SS.
>Given all of these factors, I don't think that the ded. vs Roth issue is a
>no-brainer decision. In my personal case, I cannot get a ded. IRA, so I
>am going to start a Roth (Roth is never worse than a non-ded. IRA). On the
Agreed. I am kind of uncomfortable with so many folks
calling it a no-brainer. The only place where it may
really be that easy a choice is for folks who can't
get a ded IRA, like yourself (and myself, actually).
>I really wish that the 2000 limit on an IRA would be raised. That limit
The limit, as I said, is idiotic. And the penalties for
putting too much in, or not taking enough out when one
hits their 70s - these are equally idiotic. But getting
rid of these provisions has effective costs in cutting
down a bit on current tax reciepts and would make it
harder for congress to pretend that they've balanced
the budget...
- --D
------------------------------
Date: Sat, 18 Oct 1997 15:45:51 -0400 (EDT)
From: David Meyers <dmeyers@panix.com>
Subject: Re: parents help in financing home purchase
>However loaning your children money (which what is really happening) can be
>a problem for both parents and children. The usual problem is what
>happens when the child does not make the payments when they are due. Does
>a parent foreclose on a child?
As I understand it, some banks will _service_ aprivate mortgage for
a portion of the interest. The borrower still writes a check to
the bank and the bank takes care of collection, calculation of
interest and principal, etc, and passes the payments (less the
fee) to the lender. This arrangement may make a lot of sense
both for having a neutral third-party to collect the payments,
and for IRS purposes of verifying that interest is being collected
and how much it is. (it may help allow the borrower to deduct
the interest, too). I'm really not sure, though - anyone else
have experience with this?
- --D
------------------------------
Date: Sat, 18 Oct 1997 15:46:43 -0400 (EDT)
From: Ricky_Hatch@notes.pw.com
Subject: Re: Living in the Netherlands
I would like to add another twist to the "Living in the Netherlands" question:
I am considering an offer from my firm to move to Moscow for three years.
Pay would be substantially more than it is here in the states. In trying
to figure out just how much more income we will net, we can't seem to
estimate very well how much higher the cost of living (including their
35-40% tax rate) is in Moscow than in Los Angeles. Does anyone know of
where I could find comparisons of costs of living in Moscow to other parts
of the world?
Ricky,
La Verne, CA
------------------------------
Date: Sat, 18 Oct 1997 15:47:42 -0400 (EDT)
From: Jeff Morgan <Morgajs@parsec.com>
Subject: RE: Interested in a certified financial planner career
> >College For Financial Planning
> >(National Endowment for Financial Education)
> >4695 S. Monaco St.
> >Denver, CO 80237
> >(303) 220-1200
>
> What is the relationship of the College to the National
Endowment?
You'd have to ask the college, I just passed on the address.
> >They offer a CFP curriculum via both onsite courses and self-study
>
> I think I read somewhere recently that the CFP training had been
>sold to the University of Phoenix, which is apparently a for-profit
>university which is a pioneer in offering online education. Do you know
>what is the actual situation here?
No, but if it is true, we can probably expect the tuition to triple.
JMHO.
Jeff Morgan - morgajs@parsec.com
------------------------------
Date: Sat, 18 Oct 1997 15:48:29 -0400 (EDT)
From: rrue@hotmail.com
Subject: Re: Consulting question - 1099 or W-2?
>>>>> "Sanjiv" == Sanjiv Garg <garg@IMPACT.xerox.com> writes:
Sanjiv> I'm going to leave my full time job and start consulting
Sanjiv> soon. A consulting agency which I am working with asked me
Sanjiv> if I want to be a W2 or 1099 consultant.
W2 means you are an employee of the consulting agency. 1099 means you
are an independent contractor, in business for yourself. W2 means they
withhold the taxes for Social Secuirty, Fed Income, State Income,
State Disability, etc. 1099 means you handle all the taxes yourself,
they will will you the entire paycheck. W2 sometimes have benefits
such as 401k, medical insurance, disability insurance, etc. 1099 means
you handle all of that. W2 means no deductions. 1099 means all of the
legitimate deductions of business.
Sanjiv> Does anyone have any experience with this and can note the
Sanjiv> pros and cons of each type.
I prefer the flexibility of a 1099. I generally end up with more
spendable cash and am able to deduct things for the business that I
would have bought anyhow. I expect more cash as a 1099 from the
contracting agency to make up for the extra social security and
workman's comp that I have to pay for.
Sanjiv> The agency seems to be pushing the W2 type. They
Sanjiv> indicated that the per hour payrate would be the same for
Sanjiv> both.
W2 is "safer" for the agency and the company with regards to how the
IRS will classify you. If you don't pay your taxes and they determine
you weren't an independent contractor, they could be left holding the
bag for some of your taxes.
Rue
------------------------------
Date: Sat, 18 Oct 1997 15:50:00 -0400 (EDT)
From: Bryan <eskari@primenet.com>
Subject: Re: Low Cost Way To Start Investing
What does a person do if he wanted to invest in a company in his local
area that offers shares of just a few dollars? What would be the best way
to go about starting to invest in these low cost shares?
Thanks!
eskari@primenet.com
------------------------------
Date: Sat, 18 Oct 1997 15:51:19 -0400 (EDT)
From: Bryan <eskari@primenet.com>
Subject: Best Investment of $35K For 69 Year Old Retiree?
If you were 69 and retired and in need of an income and had $35k to
invest. What kind of no-load mutual funds would you suggest a person
invest in? How many funds, and what kind? This person is only recieving
S.S payments of $517.00 a month right now.
Thanks for any help you could provide!
eskari
eskari@primenet.com
------------------------------
Date: Sat, 18 Oct 1997 15:52:05 -0400 (EDT)
From: Rich Carreiro <rlcarr@animato.pn.com>
Subject: Re: Can I do a 401K and a Roth IRA?
[Disclaimer: this is my opinion, not advice. I am not a professional.]
>I've read a lot of information about the Roth IRA, but have not seen anyone
>address whether I can max out a 401K and do a $2,000 Roth IRA in the same
>year. Anyone know?
>From everything I've read, from the local personal finance column to
Arthur Andersen LLC's *excellent* summary of the new law, 401(k) plans
and Roth IRAs have no interaction whatsoever, other than that 401(k)
contributions reduce your adjusted gross income, which could help you
out if you are in a phase-out zone.
Rich Carreiro
rlcarr@animato.pn.com
------------------------------
Date: Sat, 18 Oct 1997 15:52:41 -0400 (EDT)
From: Rich Carreiro <rlcarr@animato.pn.com>
Subject: Re: Forgot Form 8606 But Made Nondeductible IRA Contributions
[Disclaimer: this is my opinion, not advice. I am not a professional.]
>In 1991 and 1992 (in less self-educated times) I made non-deductible
>contributions to an IRA. I did this for 2 years without filing form 8606
>with my taxes.Then I realized the error and began filing form 8606 in
>subsequent years. Still being uneducated I queried my accountant about
>ammending my past tax returns to include form 8606. He thought this was
>'not worth the trouble and possible penalties". I took his advice. (Ok Ok
>Ok now don't waste everyone's time lambasting me on that one)
It is an interesting question. Personally, I doubt very much that
there will be any penalties worth mentioning. First, your failure to
file the 8606 has no effect on the bottom line of the return. Since
you did not underpay any tax, there will be no penalties or interest
from that. Now, it is true that you can be hit for a $50 fine for
failing to file an 8606 when you make a non-ded contribution. This
has been discussed on misc.taxes.moderated and none of the pros there
has ever seen the IRS actually assess that fine.
Another question is if you CAN send in the forms. Those returns are
more than three years old. You may well be barred from amending the
returns. On the other hand, it may well be that filing a missing 8606
is not considered an amendment. Some pros on m.t.m have handled it by
filing an 8606 in the current year bringing the non-ded total up to
date.
As I see it, the worst that would happen is you'd get hit with a $100
fine ($50x2). Since $100 is in all likelihood less than the taxes
you'll pay on the contributions you shouldn't have to pay tax on, it's
probably worth squaring the situation.
Rich Carreiro
rlcarr@animato.pn.com
------------------------------
Date: Sat, 18 Oct 1997 15:54:00 -0400 (EDT)
From: "Lester M. Levy, MD" <llevy@hoflink.com>
Subject: Re: Can You Separate Deductible from Nondeductible IRA Money?
persfin-digest V4 #93 Rich Carreiro wrote in part:
>Subject: Re: Can You Separate Deductible from Nondeductible IRA Money?
>>If you add money to your Roth IRA on an annual basis how will you
>>establish that the money you take out comes from money you put in over >>5 years ago.
>That is a very good question. Stay tuned to the upcoming "technical
>corrections" law and IRS regulations for the answer...
Everything is conjectural, since the regulations have not been written,
but I can't imagine the tax writers applying anything but first in first
out (FIFO) to this issue... just as determining long term or short term
when calculating the average cost single category method when selling
mutual funds. By the way it appears that the five year period doesn't
start running until the money has been deposited into the Roth IRA... so
any time in prior IRA's doesn't count.
- --
-Lester M. Levy, MD llevy@hoflink.com
------------------------------
Date: Sat, 18 Oct 1997 15:54:38 -0400 (EDT)
From: Steve Foulks <steve_foulks@up.bresnan.net>
Subject: Roth IRA vs deductible IRA
>Steve Foulks said in effect that, if I have $18,000 in a deductible IRA with
>one company and $2,000 in a nondeductible IRA with a different company
>(with a
>cost basis if $1,000), and I convert the $2,000 to a Roth IRA, I cannot omit
>the entire $1,000 from the taxable part, just a pro-rata amount of $100. I
>have
>not been able to find a clarification of that in the official legislation,
so I
>would like to have a reference for that fact that I can check for myself.
>Bill Jones
What I said is indeed correct. Read section 408 of the Internal Revenue
Code of 1986, revised for the official legislation. It will tell you
everything you ever wanted to know about IRA's.
Steven M. Foulks, CPA, CFP, PhD
Professor of Accounting & Finance
Northern Michigan University
www.nmu.edu/instruct/business/sfoulks/
------------------------------
Date: Sat, 18 Oct 1997 15:55:25 -0400 (EDT)
From: Steve Foulks <steve_foulks@up.bresnan.net>
Subject: Re: Can I do a 401K and a Roth IRA?
You can do both, but if you can't contribute the maximum to both, first
contribute to the ROTH IRA and anything left should go into the 401(k),
using the algebraic analysis I wrote about earlier. If your employer does
any kind of a match, then it would involve a time value of money
computation - not so simple.
Steven M. Foulks, CPA, CFP, PhD
Professor of Accounting & Finance
Northern Michigan University
www.nmu.edu/instruct/business/sfoulks/
------------------------------
Date: Sat, 18 Oct 1997 15:56:13 -0400 (EDT)
From: Avrum Lapin <avrum113@cyberg8t.com>
Subject: Re: Re Car Accident
>From: dmak@tma-net.org
>Subject: Re: Car Accident
>
>
>Anyway, my wife got into an accident where the car in front was
>stopped trying to make an illegal left turn. My wife stopped and the
>car behind hit her, driving her car into the car in front. In the
>end, my wife was responsible for her car's damage, despite the
>illegal left turn and getting hit from behind - go figure!
Generally speaking the hitter is responsible unless the hittee
stopped suddenly. Unless there are really independent witnesses (not
relatives or passengers) it is hard to prove that one of the parties was
doing something illegal.
Police reports are of limited value unless they include items such
as skid mark lengths, smell of alchohol comments etc., They mostly contain
"party 1 said" type comments. Understaffed police departments often
decline to investigate non-injury traffic accidents.
Avrum Lapin
Upland., CA
------------------------------
Date: Sat, 18 Oct 1997 15:57:02 -0400 (EDT)
From: "L & R Seely" <LJS_RTS@classic.msn.com>
Subject: super single mortgage or How to Avoid PMI
Any thoughts on avoiding PMI by doing the new super single mortgage. It's
cheaper than the 80/10/10 method. Only problem is that it's only offered on
the 30-year fixed. I would like to get the much lower 7 year fixed balloon
because it's our first house and I don't think we'll be in it very long. Any
thoughts?
Laine J. Seely
LJS_RTS@msn.com
------------------------------
Date: Sat, 18 Oct 1997 15:58:18 -0400 (EDT)
From: Steve Foulks <steve_foulks@up.bresnan.net>
Subject: Forgot Form 8606 But Made Nondeductible IRA Contributions
I agree with your accountant 100%. I have represented taxpayers many times
before the IRS and testifed in court as an expert witness for taxpayers.
A harmless error like yours would be overlooked since it had no income tax
ramifications. In any event I don't think their procedures are
sophisticated enough to detect the type of error you committed since by
filing the 1993 return correctly, they should have been tipped them off
that you made an error in some earlier year. Remember there would be a 3
year statute of limitation in this case.
Steven M. Foulks, CPA, CFP, PhD
Professor of Accounting & Finance
Northern Michigan University
www.nmu.edu/instruct/business/sfoulks/
------------------------------
End of persfin-digest V4 #94
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