5 IRA Timing Rules That Can Derail Your Retirement

Get familiar with IRA dates, ages — or risk your savings

Owning an IRA is one thing. Knowing the rules about IRAs is entirely different. And not knowing those rules can cost you dearly.

“IRAs are extremely complicated and it’s relatively easy for the average IRA account owner, and their financial adviser for that matter, to make simple, but very costly mistakes,” said Jeffery Levine, an IRA technical consultant with Ed Slott and Company.

IRA account owners need to be aware of all sorts of different dates, ages and “clocks.” When it comes to IRAs, timing is everything. 

“Unfortunately though, the tax code isn’t exactly friendly when it comes to timing issues,” Levine wrote in the current issue of Ed Slott’s IRA Advisor newsletter.

Here’s a look at the five timing issues with which, according to Levine, advisers and IRA account owners seem to have the most problems.

1. The age-55 penalty exception

In general, unless an exception applies, IRA owners must wait until they are 59½ to withdraw IRA funds without penalty (the 10% early distribution penalty). The age 59½ rule is based on the IRA owner’s actual age and not the year in which a client turns 59½, Levine wrote.

One exception is “the age-55 exception.” Participants in workplace retirement plans who separate from service in the year in which they turn 55 or older can take a distribution from their company retirement plan without having to pay the 10% early withdrawal penalty. They must pay income tax on the distribution, but they do not owe the 10% additional tax that the Internal Revenue Code imposes on most withdrawals before age 59½.

For the purpose of this rule, the applicable year is a calendar year in which a person turns 55, and not 365 days. 

Of note, this age-55 exception only applies to company retirement plans and not to IRAs, even if plan funds that would have otherwise met the age-55 exception are rolled over to an IRA, Levine wrote. So if you want to avoid the 10% penalty, take the money before rolling it into an IRA.

Trying to make sense of all this? Don’t bother. In a recent court case, a judge ruled against an IRA account owner who quit his job, rolled the money from his company retirement plan into an IRA, and then took a distribution from the IRA without paying the 10% penalty. The IRA account owner argued that he didn’t owe the 10% penalty; the judge ruled otherwise.

“Why should it matter that the money went from the [worker’s company] plan to an IRA before being withdrawn?” the judge wrote in his decision. 

“The answer is that the Internal Revenue Code says that it matters…Many parts of the tax code are compromises, and all parts reflect the need for lines that can’t be deduced from first principles,” the judge said. “Why can an employee withdraw money from an employer’s plan without the 10% addition at age 55 but not age 54? Why does the 10% additional tax apply to withdrawals at age 59 and 181 days, but not 59 and 183 days? These questions cannot be answered by logical analysis. The [Internal Revenue] Code’s lines are arbitrary.” 

2. The five-year rule for 72(t) payments

According to Levine, 72(t) payments — also known as SEPPs or SOSEPPs for “series of substantially equal periodic payments” — are distributions from an IRA that allow owners under 59½ to access money penalty free. With a 72(t), you take equal distributions from your IRA for five or more years or until you reach 59½.

But the 72(t) schedules can be doubly confusing since there are two separate time frames to keep track of.

“In order to successfully complete a 72(t) payment schedule and avoid back penalties and interest, the schedule must continue for the longer of five years or until the [IRA account owner] reaches 59½,” Levine wrote. 

For this rule, the age 59½ requirement is the IRA account owner’s actual 59½ birthday, he said. The five-year requirement is a full five years from the time the first 72(t) payment is distributed.

3. The five-year rule for Roth IRA conversions

On paper, Roth IRAs are relatively easy. In reality, not so much. Case in point: According to Levine, many advisers and Roth IRA account owners struggle to figure out what is taxable and what might be subject to penalties with distributions from a Roth IRA.

“Given the fact that there are actually two separate Roth IRA five-year rules, it’s not too difficult to understand why,” Levine said.

For instance, one five-year rule applies only to Roth IRA conversions. Under this five-year rule, Levine wrote, penalty-free distributions of Roth conversions may be made at the account owner’s actual attainment of age 59½ or after five full years, whichever is sooner. A separate five-year period is established for each conversion. 

The actual attainment of age 59½ is pretty straightforward. But what makes this rule a little tricky is the five full years requirement. 

For instance, one might think that if a conversion is completed on May 10, 2012, the five full years would be up on May 10, 2017. “But if one thought like that, one would be wrong,” Levine said. 

“The subtle wrinkle that throws many account owners and advisers off is that while the five years must indeed be five full years, you don’t begin counting on the date the conversion is completed. Instead, the starting date for the five years — when the five-year clock begins to tick — is January 1 of the year the funds are deposited in the Roth IRA.” 

As a result, he said, “even though a separate five-year period applies to each Roth conversion, multiple conversions made in the same calendar year have a common clock since they share the same January 1 start date.”

4. Five-year rule for Roth IRA qualified distributions

The beauty of Roth IRAs is this: Qualified distributions are tax- and penalty-free. The key to whether a distribution is qualified or not is this: The distribution must be made five full years after an account owner establishes his first Roth IRA, and either the account owner is age 59½, or disabled, deceased (the account is inherited by a beneficiary), or the distribution is for the first-time purchase of a home. 

Here again, attainment of age 59½ is the account owner’s actual age 59½. “But to be a qualified distribution that’s only half the equation,” Levine wrote. “The account owner must also complete the five-year requirement. Remember, this five-year rule is a different five-year rule than the five-year rule for conversions, although they do share some similar aspects.” 

There are several key differences. “One difference is that the five-year clock for qualified distributions can, in some cases, begin to tick on January 1 of the year before the first dollars are actually contributed to a Roth IRA,” Levine wrote.

How can that be, you might ask. “A contribution to a Roth IRA will start the Roth qualified distribution clock ticking on January 1 of the year the contribution is made for, which is not necessarily the year the contribution is made in,” wrote Levine. That’s because Roth contributions can be made up until April 15 of the year after the calendar year it is being made for, he wrote.

Another important difference between the two rules is that the five-year rule for qualified distributions carries over to all future Roth IRA accounts. “Separate clocks are not needed,” wrote Levine.

5. The timing of non-spouse beneficiary RMDs

In general, a non-spouse beneficiary must begin taking required minimum distributions or RMDs by Dec. 31 of the year following the year of the IRA account owner’s death, said Levine. 

“However, when an IRA owner dies after reaching their required beginning date and has not taken their RMD for the year, the beneficiary or beneficiaries must take what would have been the IRA account owner’s RMD by Dec. 31 of the year of death, not the year following the year of death,” said Levine.

Resources

There are many other IRA timing issues about which you should be concerned. There’s the age 70½ rule for RMDs for IRAs, the age 70½ rule for qualified charitable distributions, and the once-per year IRA rollover rule to name but a few. The key to avoiding penalties is getting a handle on these rules well before making any decisions about your IRA.

When it comes to learning about these IRA timing rules, your resources are, sadly, few and far between. One website, IRAhelp.com, is operated by Slott’s company. That website has a directory of advisers who have received training about IRA distribution rules.

Books include An IRA Owner's Manual by Jim Blankenship and Life & Death Planning for Retirement Benefits 7th Ed. 2011 by Natalie B. Choate.

Of course, there’s always the IRS’s website, which offers IRS Publication 590, among other resources. Read Publication 590. 

After that, our best advice is this: You’d be ill-advised to make any IRA moves without being 100% certain that your timing is perfect. 

Robert Powell is editor of Retirement Weekly, published by MarketWatch. Robert Powell has been a journalist covering personal finance issues for more than 20 years, writing and editing for publications such as The Wall Street Journal, the Financial Times, and Mutual Fund Market News.  Read original article here. 

For information on how to purchase a franchise using funds from a self-directed IRA, go to the website for The IRA Institute here.  

 

 

Sports and Energy Drinks Cause Irreversible Damage to Teeth

A recent study published in the May/June 2012 issue of General Dentistry, the peer-reviewed clinical journal of the Academy of General Dentistry, found that an alarming increase in the consumption of sports and energy drinks, especially among adolescents, is causing irreversible damage to teeth - specifically, the high acidity levels in the drinks erode tooth enamel, the glossy outer layer of the tooth.

"Young adults consume these drinks assuming that they will improve their sports performance and energy levels and that they are 'better' for them than soda," says Poonam Jain, BDS, MS, MPH, lead author of the study. "Most of these patients are shocked to learn that these drinks are essentially bathing their teeth with acid."

Researchers examined the acidity levels in 13 sports drinks and nine energy drinks. They found that the acidity levels can vary between brands of beverages and flavors of the same brand. To test the effect of the acidity levels, the researchers immersed samples of human tooth enamel in each beverage for 15 minutes, followed by immersion in artificial saliva for two hours. This cycle was repeated four times a day for five days, and the samples were stored in fresh artificial saliva at all other times.

"This type of testing simulates the same exposure that a large proportion of American teens and young adults are subjecting their teeth to on a regular basis when they drink one of these beverages every few hours," says Dr. Jain.

The researchers found that damage to enamel was evident after only five days of exposure to sports or energy drinks, although energy drinks showed a significantly greater potential to damage teeth than sports drinks. In fact, the authors found that energy drinks caused twice as much damage to teeth as sports drinks.

With a reported 30 to 50 percent of U.S. teens consuming energy drinks, and as many as 62 percent consuming at least one sports drink per day, it is important to educate parents and young adults about the downside of these drinks. Damage caused to tooth enamel is irreversible, and without the protection of enamel, teeth become overly sensitive, prone to cavities, and more likely to decay.

"Teens regularly come into my office with these types of symptoms, but they don't know why," says AGD spokesperson Jennifer Bone, DDS, MAGD. "We review their diet and snacking habits and then we discuss their consumption of these beverages. They don't realize that something as seemingly harmless as a sports or energy drink can do a lot of damage to their teeth."

Dr. Bone recommends that her patients minimize their intake of sports and energy drinks. She also advises them to chew sugar-free gum or rinse the mouth with water following consumption of the drinks. "Both tactics increase saliva flow, which naturally helps to return the acidity levels in the mouth to normal," she says.

Also, patients should wait at least an hour to brush their teeth after consuming sports and energy drinks. Otherwise, says Dr. Bone, they will be spreading acid onto the tooth surfaces, increasing the erosive action.

Article by:  Academy of General Dentistry. "Irreversible Damage To Teeth Caused By Sports And Energy Drinks." Medical News Today. MediLexicon, Intl., 3 May. 2012. Web.
16 May. 2012. See original article here. 

Franchise Industry to Grow in 2012

After a few bleak years, franchises can look forward to modest growth in 2012, according to a report released Monday. And that’s good news for the beleaguered economy, given the franchise industry's contribution to hiring and gross domestic product.

Franchise businesses are expected to add 168,000 jobs next year, bringing the total number of jobs in the franchise industry to 8.1 million, according to the report released by the International Franchise Association, the industry's major trade group.

The number of franchise businesses will increase by 1.9%, or 13,928 establishments, to a total of 749,499 in 2012, the IFA predicts. The sales of franchise businesses will grow by 5%, or $37 billion, the IFA expects, for a total financial output of $782 billion.

While the franchise industry's outlook has improved, the sector has not yet returned to 2007 levels. "The rate of growth is far below the growth trends we experienced before the recession," said IFA President & CEO Stephen J. Caldeira in a written statement.

Caldeira added that lower taxes for corporations and individuals as well as increased lending to small businesses would increase the industry’s rate of growth.

And even as the franchise industry begins to turn around, leaders in the sector -- both franchisees and franchisors -- are concerned with the slow pace of economic growth. In particular, more than 80% of franchisors said that tight credit impacts their ability to grow and more than 55% of franchisees say reduced access to credit has negatively impacted them, according to the IFA’s Annual Business Leader Survey.

Also, respondents to the survey made it clear they were fed up with the stalemate in Washington. In particular, respondents to the leader survey said they felt a "lack of support for pro-growth small business policies," and a frustration with the "negative rhetoric coming out of Washington."

Entrepreneur Magazine, December 19, 2011.  See original article here.

To learn how to buy a franchise using funds from a self-directed IRA, go to the website for The IRA Institute here.   

Study finds link between contraceptive and periodontitis

An injectable contraceptive administered every three months may be putting women who opt for this method at increased risk for periodontal disease, according to a new study in the Journal of Peridontology.

Depot medroxyprogesterone acetate (DMPA) is a progestin-only, injectable contraceptive that is most often seen under the brand name Depo-Provera, marketed by Pfizer.
It has been suggested that progestins may have an inflammatory component and/or stimulate the synthesis of prostaglandins, which is why the extended use of DMPA may be associated with a higher risk of periodontal diseases, according to the study authors.

"There are many hormonal contraceptive options out there for women to prevent or delay pregnancy, yet we have little information on how they may affect women's oral health," lead author Susan Taichman, RDH, MPH, PhD, assistant professor at the University of Michigan School of Dentistry, said in an interview with DrBicuspid.com.  Information regarding the pill and gingival inflammation is mixed, she added, with some studies showing an association and others not.

"There remains some controversy over the impact of new, low-dose oral contraceptives and periodontal diseases," she said. "We previously reported in an analysis of National Health and Nutrition Examination Survey (NHANES) data that low-dose oral contraceptives had no significant association with decreased periodontal health."

Economic status plays a role

In the current JOP study, Taichman and her co-authors found that although women of all socioeconomic backgrounds and ages use DMPA, roughly twice as many blacks and one-third Hispanics and Latinas use it as compared with whites. In addition, the majority of DMPA users are women of low socioeconomic status who are already at risk for increased levels of gingival disease, they noted.

“Women ... who use this method of birth control may be at a higher risk for gingivitis” says Susan Taichman, RDH, MPH, PhD.  "Given that DMPA use is common among high-risk women, it is important to learn more about potential deleterious effects on periodontal tissues," the researchers wrote.

The study authors collected the data from the 1999-2004 NHANES, a set of cross-sectional studies designed to obtain information on the health and nutritional status of the non-institutionalized population of the U.S.

They looked at 4,460 U.S. women between 15 and 44 who were asked about their use of DMPA. In the final sample, 4% were current DMPA users while 12 % indicated a past history of DMPA use.  In addition, they included data on the women's periodontal health, which was assessed using randomly assigned half-mouths (one upper and one lower quadrant) for each individual using a periodontal probe.

The authors also took into account sociodemographic and behavioral factors, which have been shown to be associated with DMPA use, they noted.  They found significant differences in pocket depths, gingival bleeding, and CA loss between DMPA users and non users. The prevalence of gingivitis was 53.9% for women who reported having used DMPA, compared to 46.1% for never having used DMPA.

DMPA use was associated with an increased risk of gingivitis and periodontitis after adjusting for age, race, education, poverty income ratio, dental care utilization, and smoking status, the researchers noted.

More research needed

The study findings suggest that DMPA use may be associated with periodontal disease, they concluded.  "Although many women of child-bearing age use DMPA, a large portion of DMPA users are young, non-white women of low socioeconomic status with a history of smoking, and thus may be at an already increased risk for periodontal diseases," explained Taichman.

"Women and adolescents who use this method of birth control may be at a higher risk for gingivitis and periodontitis," she said. "Dentists should encourage women who use DMPA contraceptives to maintain good oral health habits and seek regular dental examinations."
Future clinical studies that also look at oral health behaviors and duration of DMPA use are required to further understand the relationship between DMPA use and the incidence of periodontal health, she and her co-authors concluded.

Excerpt of article by Rabia Mughal, Contributing Editor of drbicuspid.com.  See original article here.

Franchise lending shortfall robbing the nation of jobs, economic output

For information about a franchise that can be purchased with IRA funds rather than a small business loan, see the notes at the bottom of this post.  

Lenders continue to fall shy of the overall loan volume sought by franchise business owners, a shortfall that’s holding back the recovery by choking job creation and economic production.

New lending to franchises will total $9.5 billion this year, according to new data released by the International Franchise Association. While that’s up slightly from 2011, it falls well short of the $11.72 billion those franchise owners will seek in loans over the course of 2012.

“As a result of demand for more business units, there has been an increase in demand for new loans,” IFA Educational Foundation President John Reynolds said at the 2nd Small Business Lending Summit in Washington on Tuesday. “But unfortunately, lending hasn’t kept pace with the demand from franchise businesses.”

During a time when the economic recovery is still struggling to gather momentum, that 18.6 percent gap in loan demand and loan supply will rob the economy of an estimated 94,000 new jobs and $12.9 billion in gross domestic output in 2012, experts said. Contributing to the shortfall are factors like tighter credit standards, heightened regulatory scrutiny and uncertainty surrounding the tax code, according to the report, which was conducted by the the IFA in partnership with FRANdata.

The gap draws a distinction between the credit challenges facing franchises and those facing small businesses as a whole. Recently, an overwhelming majority (92 percent) of small firm owners reported either no problems securing loans or no need for a loan in response to a study published by the National Federation of Independent Business. Those findings were backed up in a recent Wells Fargo/Gallup survey, which showed that the number of small employers who believe credit will be hard to come by this year is on the decline.

“In the competition for limited credit, franchise businesses must prove credit worthiness by showing strong unit economics and system performance,” IFA President Steve Caldeira said in a statement. “With a still slow, uneven and sluggish economic recovery, coupled with a stricter regulatory environment as a result of Dodd-Frank, the pressure to maintain and create jobs has never been greater for franchisees, franchisors and the overall small business community.”

When they do manage to get their hands on the capital they need, franchise owners have proven themselves effective job creators. SBA Administrator Karen Mills, who also spoke at the summit on Tuesday, pointed to research that showed franchises create roughly 34 new jobs for every $1 million they receive in new loans. 

“Two thousand franchises, 825,000 franchise units and 18 million people that you employ,” Mills said. “This is a real constant job creator, and it’s a great business model, an American business model. It’s really one of our competitive assets around the world.”

On the bright side, the overall health of the franchise industry appears to be improving and the gap between loans sought and loans acquired is growing smaller rather than larger. A year ago, lenders fell 19.6 percent short of franchise loan demand, and the year before, they missed the mark by 22.8 percent. Moreover, the IFA estimates nearly 36,000 new franchise units will be financed this year.

Hoping to accelerate that growth, the IFA on Tuesday announced an expanded partnership with the Financial Services Roundtable and the Consumer Bankers Association. The consortium has asked members of the administration and lawmakers in Congress to sit down with their respective members to address the current regulatory and lending hurdles facing franchises, small businesses and lending institutions.

Article by J.D. Harrison, posted April 18, 2012 on www.washingpost.com.  See original article here.

You can purchase a Dental Support Plus Franchise unit for only $25,000, using funds from an IRA.  For more information on Dental Support Plus Franchise, please visit our website.   

For information on how to purchase a franchise with funds from a self-directed IRA, visit www.theirainstitute.com. 

Treating Gum Disease May Help Diabetics Avoid Complications

Good periodontal care helped reduce hospitalizations, medical costs over time, study found

 Treating gum disease in people with diabetes reduces their medical costs and hospitalizations, new research shows.

The three-year study included diabetes patients with gum (periodontal) disease who were randomly selected either to receive periodontal therapy or no treatment (control group).

Those in the treatment group underwent periodontal therapy in the first year and their gum health was maintained for the following two years. The patients in the control group had incomplete periodontal therapy before the study and did not receive regular periodontal maintenance during the study.

The total annual per-patient cost of hospital admissions, doctor visits and overall medical care was an average of more than $1,800 lower in the treatment group than in the control group. The patients in the treatment group had 33 percent fewer hospital admissions.

The study was presented March 26, 2012 at the annual meeting of the American Association for Dental Research, in Tampa, Fla.

"There have been emerging links between oral infections and systemic diseases such as diabetes, which is increasingly prevalent in our population," lead researcher Marjorie Jeffcoat, professor and dean emeritus of the University of Pennsylvania School of Dental Medicine in Philadelphia, said in an association news release.

"My research team and I had looked at other data sets and we knew that health care costs could be reduced, but we wanted to look at the hospitalizations and see how those could be reduced," Jeffcoat said. "This study provided direct insight as to how lower hospitalizations could be achieved through periodontal therapy, and we will further this study by analyzing other chronic diseases and conditions such as heart attacks, strokes and pregnancy with pre-term birth."

Because this study was presented at a medical meeting, the data and conclusions should be viewed as preliminary until published in a peer-reviewed journal.

It's also important to note that although the study showed an association between better gum care and lowered health costs for diabetics, it didn't prove that healthier gums directly resulted in fewer hospitalizations or lowered costs.

SOURCE: American Association for Dental Research, news release, March 23, 2012

See story here.

For more information about Dental Support Plus, please visit our website. 

New Bill Offers Steep Tax Breaks for Veterans to Open a Franchise

Tax rebate would make franchise ownership possible for a larger number of returning veterans

Veterans looking to start their own business may get a big assist from the United States Senate, which is considering a bipartisan bill that would provide tax rebates to veterans who become franchisees.

The American Growth, Recovery, Empowerment and Entrepreneurship Act is cosponsored by Senators Marco Rubio (R-FL) and Chris Coons (D-DE), who introduced the legislation in November. The bill proposes to give veterans a 25 percent tax rebate on the cost of franchise fees, up to $100,000.

“The AGREE Act is a meaningful step to find common ground and create a better environment for job creators to start businesses or expand existing ones,” Rubio said in announcing the legislation.

A report by the International Franchise Association shows that for every $1 million of lending obtained by a franchised business, more than 34 jobs are created. The IFA and other organizations are lobbying Congress to help entrepreneurs create jobs for themselves and others by making it easier to borrow the money they need to start and operate a franchise.

The help would come at the same time that federal agencies are aggressively trying to send more of contracting dollars to veteran-owned small businesses. Executive Order 13360, signed by President George W. Bush, directed all federal agencies to send at least 3 percent of their contracting dollars to businesses owned by service-disabled veterans.

“Now is an excellent time for veterans to use the skills they’ve acquired and open new franchised businesses,” said Jania Bailey, COO of FranNet, a national franchise consulting firm. “These incentives make a franchise purchase much easier for veterans.”

With government contracting adding up to more than $425 billion a year, that means there is $12.5 billion that the government is eager to send to veteran-owned businesses.

The U.S. General Services Administration notes, though, that agencies have fallen far short of the 3 percent goal — largely due to the lack of identified veteran-owned small businesses in the marketplace.

The tax rebate on franchise fees would give service members an ideal way to start businesses that already have a proven business model — many of which are well-suited for government contracting work. 

The AGREE Act also reflects a growing realization in Congress that if the economy is going to regain its strength, something needs to be done to free up money to start franchises and other small businesses. Small businesses have accounted for 65 percent of new jobs over the past 17 years, according to the Small Business Administration.

View original post here. 

For information about Dental Support Plus Franchise, please visit our website.