| Sargent & Lundy Savings Investment Plan |
| ROTH IRA HASSLES |
| The following excerpts are from an article in the September
1998 issue of "Mutual Funds" magazine. The opinions expressed
may or may not reflect those of the SIP Committee.
Q. I am one of the early converts to the Roth Individual Retirement Account. However, it has become a nightmare of financial spin-doctoring from sponsor IRA firms. In June 1997, I opened a regular IRA with Schwab, contributing $2,000. In February 1998, I converted it to a Roth IRA. Three weeks later, I sent a contribution of $2,000 for 1998. Schwab returned my check stipulating that I must open a new 1998 Roth IRA. My regular IRA has now been labeled a Roth Conversion IRA. They absolutely refuse to consolidate into one account. Schwab has given me various reasons for this, ranging from an IRS regulation, to Schwab policy, to they are looking out for my tax interests, to they are trying to avoid accounting hassles. What is the right answer? A. All of those, and more. The Internal Revenue Service strongly "encourages" the maintenance of separate Roth IRA accounts for regular contributions and for each year you make a regular IRA to Roth IRA conversion. This is because for purposes of qualifying for tax-free distributions, there was originally a separate five-year holding period for the amounts attributable to each year you make a conversion, as well as different rules regarding earlier withdrawals from conversion Roths and other Roths. Schwab was merely following the IRS recommendation. By doing so, they were watching out for your interests to help you avoid accounting and tax hassles when you begin taking distributions from your Roths. Recently enacted technical corrections to the law on Roth IRAs largely eliminate the need for separate accounts, but it remains to be seen whether the IRS will rethink its earlier advice on this subject. |
This page updated on 8/17/98