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					University of Miami, Philip E. Heckerling Institute on Estate Planning, 1999



                                                  The Maze of IRAs:
                                    Traditional, Roth, SEP, Simple and Education
                                       Does Any of This Make Sense for You?

                                                 Marcia Chadwick Holt
                                              Davis, Graham & Stubbs LLP
                                                    Attorneys at Law
                                                    Denver, Colorado

TABLE OF CONTENTS

I.     IRAs: WHAT ARE THEY? 2-1
        A.   In General 2-1
        B.   Trust or Custodial Account 2-1
        C.   Exclusive Benefit 2-1
        D.   Nonforfeitable 2-2
        E.   Who can be a Trustee or Custodian? 2-2

II.    TRADITIONAL IRAs: aka REGULAR or NONROTH IRAs 2-4

       A.    Annual Traditional IRAs. 2-4
       B.    Rollover Traditional IRAs 2-10

III.    ROTH IRAs 2-18

       A.    "Annual" Roth IRAs 2-18
       B.    Rollover or Conversion of Traditional IRAs to Roth IRAs 2-22

IV.     OTHER RULES APPLICABLE TO BOTH TRADITIONAL AND ROTH IRAS 2-34

     A.    Too Early Withdrawals 2-34
     B.    Investment Restrictions. 2-37
     C.    Prohibited Transactions: 2-37
     D.    Pledge for Loan 2-38
     E.    No QDROs 2-38
     F. No ERISA 2-38
     G.    Creditors' Rights 2-38
     H.    No Spousal Rights 2-38
     I.   Limit on Rollovers 2-38
     J.    No Limit on Number 2-39
     K.    Income Averaging 2-39
     L.    Net Unrealized Appreciation 2-39
     M.     Withholding Tax 2-39
     N.    The Trustee-to-Trustee Transfer. Can a Nonspousal Beneficiary Transfer an Account to Another Trustee or
Custodian? 2-39
     O.    Income Tax 2-40
     P. Estate Tax 2-40

V.     CHART 4:       COMPARISON OF TRADITIONAL AND ROTH IRAs 2-41

VI.     THE FORMS:        DEFAULT PROVISIONS 2-44
          A.    Lack of Uniformity 2-44
          B.   Calculating the MRD 2-44
          C.   No Help 2-44
          D.    No Election Forms 2-44
          E.   Customizing IRAs 2-44
          F.   IRS Forms 2-44

VII.       SEP-IRAs and SIMPLE IRAs 2-51

          A.    What are They? 2-51
          C.    A Comparison 2-51

VIII.       EDUCATION IRAs 2-55

          A.  What are They? 2-55
          C. Beneficiary 2-55
          D.  Limitations in Contributions 2-55
          E. Deductibility 2-55
          F. Tax-Free Withdrawals 2-55
          G.  Annual Exclusion 2-56
          H.  Earnings 2-56
          I. Rollover 2-56
          J. Eligibility of Donor 2-57
          K.  Choice 2-57
          L. Investment 2-57
          M.  Limitations 2-57
          N.  Termination 2-58

IX.        SOME CONCLUSIONS 2-59



The Maze of IRAs:
Traditional, Roth, SEP, SIMPLE and Education
Does Any of This Make Sense for You?

I.        IRAs: WHAT ARE THEY?

A.        In General.

     1.      An Individual Account. An individual retirement account ("IRA") is an account established pursuant to the
          Internal Revenue Code of 1986 as amended ("IRC") § 408(a) (which is sometimes called a Traditional or Regular
          IRA), a Roth IRA pursuant to IRC § 408A, a SEP-IRA pursuant to IRC § 408(k), a SIMPLE IRA pursuant to IRC §
          408(p) or an Education IRA pursuant to IRC § 530.

     2.      An Individual Annuity. An IRA can also include an individual retirement annuity pursuant to IRC §408(h). An
          individual retirement annuity is established by purchasing an annuity contract or an endowment contract from a
          U.S. life insurance company.

     3.      This Outline. This outline concentrates on the IRAs which require trust or custodial accounts, that is, the
          Traditional, Roth, SEP, SIMPLE and Education IRAs and not the Individual Retirement Annuity. We should note
          that an Education IRA is not an individual retirement plan under IRC § 7701(G)(37). Nevertheless, for whatever
          reason, Congress labeled the arrangement an IRA and required a trust or custodial account. Education IRAs are
          considered separately in VIII of this outline.

B.        Trust or Custodial Account. An IRA must be a trust or custodial account which is created or organized in the
United States. IRC §§ 408(a), 408A(a), 408(k), 408(p) and 530.

C.    Exclusive Benefit. The IRA must be in writing and must be held for the exclusive benefit of an individual or his or
her beneficiaries.

D.        Nonforfeitable. The interest of an individual in his or her IRA must be nonforfeitable.

E.        Who can be a Trustee or Custodian?

     1.      A Bank Trustee. The trustee of an IRA must be a bank, as defined in IRC § 408(n), or other person who can
          demonstrate to the IRS the ability to perform fiduciary duties on a continuous basis and to properly administer the
          trust or custodial account in accordance with the law. Reg § 1.408-2(b)(2).

                a.     Bank. A bank includes a bank, trust company or other corporation incorporated and doing business
          subject to the supervision and examination of state or federal authorities in charge of the administration of banking
          laws and an insured credit union. IRC § 408(n).

                b.    Custodian. The custodian of an IRA is treated as the trustee for purposes of IRC § 408. IRC § 408(h).

     2.      Nonbank Trustee.

                a.    Requirements. A nonbank trustee must meet the requirements of the regulations at § 1.408-2(e) (1)
          through (7).

                      (1) Application. A nonbank trustee must pay a user's fee and submit an application to the IRS that
          demonstrates by clear and convincing evidence that it has the ability to act within the accepted rules of fiduciary
          conduct and has the capacity, experience and competence to assure uninterrupted performance of its fiduciary
          duties.

                       (2) Notice of Approval. If a nonbank applicant is approved, a written notice of approval will be
          issued by the IRS. A copy of the written notice must be given to the person establishing the IRA. Reg § 1.408-2(e)
          (7)(iii).

          PRACTICE POINTER:           Get a copy of the notice.

                b.    Not an Individual. The regulations state: "there must be sufficient diversity in the ownership of the
          applicant to ensure that the death or change of its owners will not interrupt the conduct of its business. Therefore,
          the applicant cannot be an individual." Reg § 1.408-2(e)(2)(i).

                 c.   A Hard Lesson: An Example of the "Individual" Trustee. A financial planner/accountant represented
          that he was the trustee of an IRA approved by the IRS. In 1991, he executed a Form 56 (Notice Concerning
          Fiduciary Relationship) and a Form 5305-A (Individual Retirement Custodial Account) with 17 different
          individuals. The individuals invested a total of $790,000 in the IRAs which invested in bus stop shelters. The IRS
          claimed that the financial planner/accountant was not qualified to serve as a trustee of an IRA trust under the Code
          or regulations and, therefore, petitioners' qualified plan and IRA proceeds were not rolled over into a qualified IRA.
          The Tax Court agreed and "although sympathetic to the petitioners' plight," the Tax Court held that distributions to
          the taxpayers were taxable in the year of distribution and subject to 10% additional tax under IRC § 72(t). Schoof v.
          Commissioner, 110 TC 1 (Jan. 12, 1998).

          MORAL:       Ask for a copy of the written IRS notice approving an IRA before investing in an IRA with a nonbank
          trustee.

     3.      Passive Trustee. A nonbank trustee may act as a passive trustee which merely acquires and holds investments
          specified by the trust instrument. A written notice of approval will be issued by the IRS and will specify the
          limitations. Reg § 1.408-2(e)(5)(ii).
          PRACTICE POINTER:           Get a copy of the notice.

     4.      Automatic Approval. A credit union, industrial loan company or other financial institution designated by the IRS
          which accepts trust assets solely for investment in its insured deposits is automatically approved without filing an
          application. Reg § 1.408-2(e)(6)(iii).

II.       TRADITIONAL IRAs: aka REGULAR or NONROTH IRAs

A.        Annual Traditional IRAs.

     1.      Eligibility.

                a.    Age. An individual who has not attained age 70½ in the year of contribution can contribute to a
          Traditional IRA. IRC §§ 219(d)(1), 408(o)(2)(B).

                 b.  Compensation. An individual must have compensation in the year of the contribution to an IRA except
          that an employed spouse can set up an IRA for his or her nonemployed spouse. Compensation includes amounts
          shown in the W-2 box 1 for wages, tips and other compensation. It also includes alimony. It does not include
          pension, annuities or other forms of deferred compensation. IRC § 219(f)(1).

                c.    Status. An individual may establish an IRA even if he or she is covered under other retirement plans.

     2.      Contributions.

               a.    Amount Allowed. The lesser of $2,000 or the compensation which is includable in the individual's gross
          income for the taxable year may be contributed to an IRA.

                b.    Form Allowed. Cash.

                c.    Excess: What to Do?

                     (1) Tax.     Excess contributions are subject to a cumulative 6% excise tax for each taxable year in
          which an excess contribution remains in the IRA. IRC § 4973.

                       (2) Avoidance of Tax.      The excise tax can be avoided if (A) the excess is withdrawn before the due
          date (including extensions) of the individual's tax return for that year, (B) no deduction is allowed for the
          contribution and (C) the distribution includes any net income earned by the contribution (which is taxable in the
          year in which the contribution was made). For purposes of determining excess contributions, rollover contributions
          are disregarded. IRC §§ 408(d)(4), 408A(c)(6)(B) and 4973(a), (b) and (f).

                       (3) Traditional First. An individual's excess contributions are applied first to a Traditional IRA and
          then to a Roth IRA. Prop Reg § 1.408A-3 Q&A 3.

     3.      Tax Consequences.

                a.    Going In? The contribution may or may not be deductible.

                       (1)    Individual.

                              (a)  Full Deduction. If neither an individual nor his or her spouse is covered for any part of the
          year by an employer retirement plan, the individual can take a deduction for total contributions to one or more
          Traditional IRAs of up to $2,000, or 100% of compensation, whichever is less. This limit is reduced by any
          contributions to a IRC § 501(c)(18) plan which is a plan created before June 25, 1959 pursuant to such IRC section.

                           (b) Reduced or No Deduction. If either the individual or his or her spouse is covered by an
          employer retirement plan, the individual may be entitled to only a partial deduction or no deduction at all,
depending on income and filing status. Even though the taxpayer may not be entitled to a deduction, he or she can
still make a contribution.

                  (c)    Phase-Out Limits. Under the Taxpayer Relief Act of 1997, the deductible Traditional IRA
income phase-out limits are increased as follows:

                          Joint Returns
    Taxable Years       Modified Adjusted Gross Income ("AGI")
   Beginning In:                   Phase Out Range
         1998                       $ 50,000-$60,000
         1999                       $51,000-$ 61,000
         2000                       $ 52,000-$62,000
         2001                       $ 53,000-$63,000
         2002                       $ 54,000-$64,000
         2003                       $ 60,000-$70,000
         2004                       $ 65,000-$75,000
                        Single Taxpayers
                        Modified Adjusted Gross Income ("AGI")
    Taxable Years
   Beginning In:
                                    Phase Out Range
         1998                       $ 30,000-$40,000
         1999                       $ 31,000-$41,000
         2000                       $ 32,000-$42,000
         2001                       $ 33,000-$43,000
         2002                       $ 34,000-$44,000
         2003                       $ 40,000-$50,000
         2004                       $ 45,000-$55,000
2005 and thereafter                 $ 50,000-$60,000

Modified AGI is AGI determined without taking into account: any IRA deduction; foreign earned income
exclusion; foreign housing exclusion or deduction; exclusion of Series EE bond interest shown on Form 8815 or
exclusion of amounts for qualified adoption expenses under IRC § 137. IRC § 219(g)(3)(A).

            (2)     Spouse.

                    (a)    Spousal IRA. In the case of a married couple with unequal compensation who file a joint
return, the limit on the deductible contributions to the Traditional IRA of the spouse with less compensation is the
lesser of $2,000, or the total compensation of both spouses, reduced by any deduction allowed for contributions to
the Traditional IRA of the spouse with more compensation. This limit is reduced by any contributions to an IRC §
501(c)(18) plan.

                   (b) Nonemployed Spousal IRA. An employed spouse can set up an IRA for his or her
nonemployed spouse. IRC § 219(c). The maximum deductible contribution to a Traditional IRA for an individual
who is not an active participant but whose spouse is an active participant is phased out at modified AGI between
$150,000 and $160,000.

                   The following examples taken from the Conference Report illustrate the income phase-out rules:
                       Example 1:      Suppose for a year W is an active participant in an employer-sponsored retirement
     plan, and W's husband, H, is not. Further assume that the combined modified AGI of H and W for the year is
     $200,000. Neither W nor H is entitled to make deductible contributions to a Traditional IRA for the year.

                      Example 2:     Same as example 1, except that the combined modified AGI of W and H is
     $125,000. H can make deductible contributions to an IRA. However, a deductible contribution could not be made
     for W.

           b.    Coming Out?

                  (1) Rules. Distributions from Traditional IRAs (whether to the owner or to a beneficiary of the
     owner) are taxable to the distributee except to the extent of any basis in the account. IRC § 72(e). The following
     rules apply:

                         (a)   All Traditional IRAs of an individual (including SEPs and SIMPLE accounts) are treated
     as a single contract.

                         (b)   All distributions during the individual's tax year are treated as one distribution.

                         (c)    The value of the contract, the income on the contract, and the investment in the contract
     are calculated (after adding back distributions made during the year) as of the close of the calendar year in which
     the tax year of the distribution begins.

                        (d) Total withdrawals excludable from income in all tax years cannot exceed the taxpayer's
     investment in the contract in all tax years. The individual's investment in the contract is made up of the aggregate
     nondeductible contributions to the Traditional IRAs. IRC §§ 408(d)(1), (2).

                         (e)   Traditional IRAs and Roth IRAs are treated separately for purposes of these rules. IRC §
     408A(d)(4)(A).

                  (2) Example: Joe owns two Traditional IRAs. Before 1998, Joe did not make any nondeductible
     contributions to either Traditional IRA. During his 1998 tax year, Joe made a deductible contribution of $1,000 to
     Traditional IRA 1 and a nondeductible contribution of $500 to Traditional IRA 2. During his 1999 tax year, Joe
     withdrew $1,500 from Traditional IRA 1 and made a $2,000 nondeductible contribution to Traditional IRA 2. Joe's
     total nondeductible contributions were $2,500 and his total withdrawals were $1,500. Joe's $2,500 in nondeductible
     contributions represents his basis in the contract. At the time of the withdrawal of $1,500, the account balance of
     Traditional IRA 1 was $10,000, and the value of the account balance of Traditional IRA 2 was $5,000. The portion
     of the $1,500 distribution which is excludable from income is a pro rata share of his investment in the contract
     determined as follows: $2,500/$15,000 x $1,500, or $250. The balance of the distribution or $1,250 is includible in
     Joe's gross income for 1999.

4.      Mandatory Withdrawals. The Minimum Distribution Rules under IRC § 401(a)(9).

           a.    MRDs. The rules for Minimum Required Distributions ("MRDs") under IRC § 401(a)(9) and the
     incidental death benefit requirements under § 401(a) apply to Traditional IRAs. IRC § 408(a)(6).

     DIFFERENT RULE FOR ROTH IRAs. Roth IRAs are not subject to MRDs during the owner's lifetime. IRC § 408A
     (c)(5). See III of this outline.

          b.   Alternative Rule. The IRS has provided an alternative rule for satisfying MRDs from Traditional IRAs.
     An owner must calculate the MRDs separately for each Traditional IRA. However, the owner may combine all such
     MRDs and withdraw the total from any one or more of the Traditional IRAs. Notice 88-38, 1988-1 CB 524.

           c.    Exception. The alternative method may not be used to satisfy the MRDs from Qualified Plans.

5.      Timing. Contributions to Traditional IRAs may be made up to and including the due date of the return for the tax
     year (April 15th) without considering extensions. IRC § 219(f)(3).

6.        Appeal of the Annual Traditional IRA?

             a.    Current Deduction.

                 (1)      Child. A child who wants (a child whose parents want him/her) to start saving early and wants a
     deduction now.

                  (2) Higher Bracket Now. A taxpayer who prefers a current deduction for a contribution to an IRA or
     who is in a higher tax bracket at time of contribution than at time of withdrawal may prefer a Traditional IRA.

           b.    No Deduction but the Only Game. The taxpayer who is not age 70½ but who can't make contributions
     to a Roth IRA (because his or her income exceeds the Roth limitations) may still be attracted to the nondeductible
     Annual Traditional IRA since it is the only annual IRA available. Although the contribution is not deductible, the
     IRA earnings are tax exempt. However, the earnings are subject to ordinary income tax when withdrawn. Question:
     Are investments outside an IRA which are taxable as capital gains and not ordinary income a more attractive
     investment? They may be.

     PRACTICE POINTER: A taxpayer who elects to treat a Traditional IRA contribution as nondeductible must file
     Form 8606 with his or her income tax return for the year of the contribution. IRC §§ 219(f)(7) and 408(o).

     B.      Rollover Traditional IRAs

7.        Eligibility.

             a.    Age. There is no maximum age requirement.

             b.    Compensation. Compensation is not required

     .

             c.    Status. Who can rollover?

                    (1)   Individual.

                       (a)     One or More. An individual may establish one or more rollover Traditional IRAs into
     which he or she rolls his or her Qualified Plan or Traditional IRA benefits.

                        (b) Over 70½. If an individual over age 70½ establishes a rollover Traditional IRA,
     distributions from the rollover Traditional IRA must begin in the tax year in which the distribution was received by
     such rollover IRA. Ltr Rul 9311037, Dec. 22, 1992.

                    (2)   Surviving Spouse.

                       (a)    Spousal Rollover. A surviving spouse may rollover a decedent's Qualified Plan or
     Traditional IRA benefits to a spousal rollover Traditional IRA.

                         (b) Over 70½? What if the surviving spouse is over age 70½? No problem. A spouse can
     establish a Traditional IRA after his/her own RBD and roll the deceased spouse's Traditional IRA into it. Who are
     the spouse's beneficiaries and are they measuring lives? A spouse's beneficiaries were treated as Designated
     Beneficiaries since the spouse named them before the spouse's first required distribution date even though that date
     was subsequent to the spouse's RBD. Ltr Rul 9311037, Dec. 22, 1992.

                (3) Not Executor. An executor of a surviving spouse may not exercise the spouse's right to treat an
     IRA as such spouse's own IRA. Ltr Rul 9237038, June 16, 1992.
                  (4) Not Children or Other Beneficiaries. There is no tax-free rollover for any amount received from
     an "inherited IRA" by a beneficiary who is not a surviving spouse. An IRA is treated as inherited if the individual
     for whose benefit the IRA is maintained acquired it because of the death of the IRA owner. IRC § 408(d)(3)(C).

8.      Contributions.

           a.    Amount Allowed. There is no limit on the amount which can be rolled over to an IRA.

           b.    Form Allowed: Two Different Rules.

                  (1) From a Qualified Plan. A distribution from a Qualified Plan in the form of money or other
     property may be rolled over tax free to a Traditional IRA as long as the transfer occurs within 60 days of receipt of
     the property. IRC § 402(c). If the distribution consists of property other than money, the amount transferred must
     consist of the property transferred. However, if the property is sold before the rollover, the proceeds (including any
     increase in value) are treated the same as property received in the distribution and can be rolled over to a Traditional
     IRA. IRC § 402(c)(6).

                 (2) From an IRA. A distribution from a Traditional IRA in the form of money and other property
     may be rolled over tax free to a Traditional IRA as long as the transfer occurs within 60 days of receipt of the
     property and the entire amount received (including money and other property) is paid into the Traditional or Roth
     IRA. IRC § 408(d)(3).

                  (3) A Hard Lesson: An Example to Avoid. A self employed accountant withdrew $480,000 from his
     Keogh and IRA accounts and used it to purchase certain stock. Within 60 days of the withdrawal, he deposited the
     stock in an IRA. The Tax Court held that the taxpayer's reinvestments of his Keogh and IRA distributions did not
     constitute rollover contributions and were taxable. Lemishow v. Commissioner, 110 TC No. 11 (Feb 18, 1998).

     Moral: Arrange for a direct rollover of the cash or property from an IRA to a self-directed Traditional or Roth
     IRA. Then, direct the trustee or custodian to make the appropriate investments.

           c.    From Where? Amounts can be rolled over to a Traditional IRA from another Traditional IRA, a SEP-
     IRA, a SIMPLE IRA (subject to a two year wait), a Qualified Plan, an IRC §§ 403(a) plan or 403(b) plan. IRC §§
     401(a)(31), 402(c), 403(a)(4) and (5), 403(b)(8) and 10, and 408(d)(3). There currently is no authority for rolling
     over any distribution to a Roth IRA other than a distribution from a Traditional IRA.

           d.    Exceptions to Permissible Rollovers. Any distribution from a Qualified Plan which is includable in
     income (i.e. does not include nondeductible contributions IRC § 402(c)(2)) or from an IRA may be transferred to a
     rollover IRA within 60 days of receipt EXCEPT:

                 (1)     Minimum required distributions under IRC § 401(a)(9). IRC § 402(c)(4)(B).

                   (2) One of a series of substantially equal periodic payments made over a term certain of 10 years or
     more; or over life, life expectancy, or joint lives or joint life expectancies. See Temp Reg § 1.402(c)-2T, Q&A 5 for
     rules if the amount of payments change. IRC § 402(c)(4)(A).

                 (3)     Refunds of elective deferrals.

                 (4)     Corrective distributions of excess deferrals, contributions and income thereon.

                 (5)     Loans treated as distributions.

                 (6)     Dividends paid on employer securities pursuant to IRC § 404(k).

                 (7)     Cost of life insurance coverage (P.S. 58 Costs).

                 (8)     Hardship distributions from a Qualified Plan.
                  IRC § 402(c)(4) and (9); IRC § 408(d)(3)(E).

                  CAVEAT:        A distribution of after-tax contributions from a Qualified Plan can not be rolled over to
      an IRA. A distribution of nondeductible contributions (i.e. after-tax contributions) from an IRA can be rolled over
      to an IRA. Q: Why do the rules have to be so illogical and confusing?

            e.    Spouse. If a distribution attributable to an employee is paid to the employee's surviving spouse, the
      spouse is treated as the employee for purposes of the rollover rules. IRC § 402(c)(9).

            f.   Excess: What to Do? Same as Annual Traditional IRAs.

 9.      The Spousal Rollover. There are three methods to transfer Traditional IRA assets without income tax from a
      deceased owner to a beneficiary who is the decedent's surviving spouse. Prop Reg § 1.408-8, Q&A-4(b). These
      transfer methods are:

            a.    Elect to Treat as Own.

                    (1) Change the Owner's Name. The surviving spouse may elect to treat the Traditional IRA as the
      spouse's own account and change the name of the owner of the Traditional IRA on the records of the financial
      institution from the decedent to the surviving spouse.

                   (2) vRollover the IRA Assets. The surviving spouse may withdraw the Traditional IRA assets and
      transfer them to a new or existing Traditional IRA titled in the name of the surviving spouse. The transfer must be
      completed within 60 days of the withdrawal from the IRA in order to be tax-free.

                  CAVEAT:        Only one tax-free withdrawal is allowed from a Traditional IRA in a twelve month
      period. IRC § 408(d)(3)(B). Planning is critical. A rollover contribution from a Traditional IRA to a Roth IRA is
      disregarded for purposes of this rule. IRC § 408A(e).

                   (3) Trustee-to-Trustee Transfer. The surviving spouse may direct the trustee or custodian of the
      Traditional IRA to transfer the decedent's Traditional IRA assets directly to the trustee or custodian of a new or
      existing Traditional IRA titled in the name of the surviving spouse.

                  GOOD NEWS:           There are no limitations to the number of tax-free trustee-to-trustee transfers
      allowed.

            b.    Deemed Election: Failure to Take. The surviving spouse will be deemed to have elected to treat the
      Traditional IRA as his or her own if the MRD is not distributed to the surviving spouse on a timely basis after the
      death of the decedent.

            c.    Deemed Election: Addition. The surviving spouse will be deemed to have elected to treat the
      Traditional IRA as his or her own if the surviving spouse makes a contribution to the account.

10.     Timing. Does it matter when the surviving spouse transfers a decedent's Traditional IRA to a spousal Traditional
      IRA? Maybe.

            a.    One letter ruling approved a surviving spouse taking as a beneficiary in one year and as an owner in the
      next year. The decedent died in 1994. The surviving spouse took as a beneficiary in 1995. In 1995, she transferred
      the decedent's Traditional IRAs by a trustee-to-trustee transfer to her own Traditional IRA. In 1996, she began
      taking her first required distribution from her own Traditional IRA. See Ltr Rul 9534027, June 1, 1995.

      BUT

             b.    Other letter rulings have ruled that a surviving spouse's receipt of a distribution as a beneficiary on
      which she does not pay the 10% additional income tax imposed by IRC § 72(t)(1) is an irrevocable election NOT to
      treat the Traditional IRA as her own. See Ltr Rul 9418034, Feb. 10, 1994, and Ltr Rul 9608042, Dec. 1, 1995.
            c.    A solution? The surviving spouse could arrange a trustee-to-trustee transfer to transfer the decedent's
      Traditional IRA to two Traditional IRAs in the decedent's name. A spouse who has not reached age 59½ could then
      take as a beneficiary from one Traditional IRA and avoid the 10% additional income tax and roll the other
      Traditional IRA over to his/her own spousal rollover Traditional IRA and postpone distributions until age 59½.

             d.   Consider also that if a spouse is older than the decedent, a rollover will cause MRDs to occur earlier
      that they need to occur, that is--at the spouse's (and not the decedent's) RBD.

11.      Tax Consequences.

             a.       Going In? Rollover contributions are not subject to tax.

             b.  Coming Out? Distributions from rollover IRAs are taxable as ordinary income except to the extent of
      basis because of after-tax contributions.

12.      Mandatory Withdrawals. Same as Annual IRAs.

13.      Appeal of the Traditional Rollover IRA?

             a.   The Qualified Plan Distributee: Postpone Tax. A taxpayer or a surviving spouse who wants to postpone
      the tax consequences of a distribution from a Qualified Plan may rollover his or her distribution to a Traditional
      Rollover IRA. The taxpayer can later decide whether to convert or rollover the IRA to a Roth Rollover IRA.

             b.   The Surviving Spouse: The Stretch IRA. A surviving spouse may rollover a deceased spouse's account
      from a Qualified Plan or IRA to a Traditional Rollover IRA and name a child or children as Designated Beneficiary
      (ies). The child's life expectancy (or the oldest child's life expectancy if more than one child is named and separate
      shares are not created) will be measuring lives and will "stretch out" the MRDs otherwise payable. For example, a
      spouse creates two spousal IRAs, one for a 40 year old child and one for a 30 year old child. See Chart 1. The
      spouse does not elect to recalculate his/her life expectancy. The spouse dies in Year 2. Distributions can continue
      for 40.9 years and 50.3 years respectively! Remember that after the owner's death the Minimum Distribution
      Incidental Benefit Rule no longer applies and each beneficiary's actual age is used to determine the MRD. Prop Reg
      § 1.401(a)(9)-1, Q&A F-3A(b)(1), H-2.

             CHART 1:           NAMING CHILDREN AS BENEFICIARIES OF SPOUSAL ROLLOVER IRAS

                           I.        II.                  III.                    IV.                  V.            VI
                                                                             MDIB or Life
                                             Child's Life Expectancy      Expectancy Multiple
                                               after Spouse's Death         Spouse Does Not          Balance at
                        Spouse's   Child's   (Prop Reg §1.401(a)(9)-      Recalculate (Table VI   Preceding 12/31 MRD on
             Year         Age       Age        1, Q&A F3A(b)(1))             Reg § 1.72-9)         (8% interest)   12/31
       IRA        1        70        40             40       42.9                 26.2              $1,000,000    $38,168
        #1
                  2       71         41         one year           41.9           25.3              $1,041,832    $41,179
                       Deceased

                  3    Deceased      42            less          40.9             40.9              $1,084,000    $26,504
       IRA        1        70        30             30       52.3                 26.2              $1,000,000    $38,168
        #2
                  2       71         31         one year           51.3           25.3              $1,041,832    $41,179
                       Deceased

                  3    Deceased      32            less          50.3             50.3              $1,084,000    $26,504
     There is value in deferring the payments over time since earnings accrue on a tax exempt basis.

            c. The Retiree: More Distribution Options. Many retirees are faced with very restrictive distribution options
     from Qualified Plans. Qualified Plans are usually written for the convenience of the employer and many do not
     offer long-term distributions after the death of an employee. Some Qualified Plans pay only lump sum distributions
     or distributions over only a short term. If the beneficiary is not the spouse, the beneficiary will be stuck with the
     Qualified Plan's distribution options since a beneficiary who is not a spouse cannot rollover a distribution from a
     Qualified Plan. The retiree can avoid the problem simply by rolling over his or her account in the Qualified Plan to
     an IRA with distribution options which allow for a long payout to the beneficiary.

            d. The Employee Between Jobs: The Conduit IRA. If an employee rolls over his or her distribution from a
     Qualified Plan into an IRA and makes no other contributions to such IRA, the IRA can be rolled over into another
     Qualified Plan without tax. Ltr Rul 8044030 (Aug 5, 1980). The IRA becomes a conduit for the Qualified Plan
     distributions which will later be rolled into a Qualified Plan.

                 (1) Investments. This could be attractive for an employee who wants to take advantage of investment
     opportunities in his new employer's Qualified Plan which are not available in his IRA like investment in closely
     held company stock.

                   (2) Postponed Retirement. It could also be attractive for an employee who wants to postpone MRDs
     until his or her actual retirement date. Such a postponement is available for distributions from Qualified Plans but
     not for distributions from IRAs. IRC § 401(a)(9)(C)(i).

            e. The Control Taxpayer: The Custom IRA. Some taxpayers may want to control distributions from a rollover
     IRA. Either the rollover IRA can be "customized" by beneficiary designation (see discussion on forms) or the
     rollover IRA can be paid to a trust which includes specific directions to the trustee regarding discretionary
     distributions, investments, income and principal definitions, payment of tax and other trust provisions.

III. ROTH IRAs

A. "Annual" Roth IRAs. A Roth IRA must meet the same requirements as a Traditional IRA except as described below.
To be treated as a Roth IRA, the account must be so designated when created. IRC § 408A.

  1. Eligibility.

          a. Age. Unlike an Annual Traditional IRA, contributions can be made by a taxpayer after age 70½. IRC §
     408A(c)(4).

            b. AGI Restrictions. An individual with modified AGI within the following income limits:

                    (1) Up to $95,000 for individuals.

                    (2) Up to $150,000 for married couples.

                  (3) Eligibility to contribute phases out for individuals with modified AGI between $95,000-$110,000,
     for married couples filing jointly with modified AGI between $150,000 - $160,000 and for married individuals
     filing separate returns with modified AGI between $0-$10,000. IRC § 408A(c)(3).

                 (4) Modified AGI is AGI determined under IRC § 219(g)(3) but does not include income which results
     from rollovers or conversions of a Traditional IRA to a Roth IRA. IRC § 408A(c)(3)(C)(i). It also does not take into
     account deductions for contributions to an IRA. Prop Reg § 1.408A-3, Q&A 5.

                  (5) No contribution can be made to a Roth IRA by a single person with modified AGI of at least
     $110,000, married individuals filing jointly with modified AGI of at least $160,000 or by a married individual filing
     a separate return with modified AGI of at least $10,000.
          c. Status. Same as Traditional IRAs.

         d. Employer or Association of Employees. An employer or association of employees can establish a Roth
   IRA to hold contributions of employees or members. Each employee's or member's account in the trust is treated as
   a separate Roth IRA subject to the general Roth IRA rules. IRC § 408(c); Prop Reg 1.408A-2, Q&A 2.

2. Contributions.

         a. Amount Allowed. The lesser of $2,000 or the compensation which is includable in the individual's gross
   income for the taxable year may be contributed to a Roth IRA. IRC § 408A(c)(2). The $2,000 limit is coordinated
   with the $2,000 limit applicable to a Traditional IRA. Contributions can be made to both a Traditional IRA and a
   Roth IRA so long as the total of such contributions do not to exceed $2,000 in total per individual. In determining
   excess contributions, the taxpayer is deemed to contribute first to a Traditional and then to a Roth IRA. Prop Reg §
   1.408A-3(d)2.

          b. Form Allowed. Cash.

          c. Excess: What to Do? Same as Traditional IRAs.

3. Tax Consequences.

          a. Going In? Contributions to a Roth IRA are not deductible. IRC § 408A(c)(1).

         b. Coming Out? An individual can withdraw his or her contributions tax free anytime but can withdraw
   earnings tax free only if the distribution is qualified. IRC § 408A(d). If the distribution is not qualified, earnings are
   subject to ordinary income tax and penalties for early withdrawal unless an exception applies.

4. Qualified Distributions. There are two requirements for a Qualified Distribution:

         a. Five-Taxable-Year Period. The Roth IRA must be held for 5-taxable years before any earnings are
   withdrawn ("Five-Taxable-Year Period"). IRC § 408A(d)(2)(B). The 5-taxable years begin with the first-taxable
   year for which the individual made a contribution to a Roth IRA. Because of the Five-Taxable-Year Period, no
   Qualified Distributions can occur before taxable years beginning in 2003.

          b. Purposes of Distribution. A Qualified Distribution is a distribution which is made:

                (1) Age 59½. To the owner after he or she reaches age 59½.

                (2) Death. To a beneficiary because of the owner's death.

                (3) Disability. To the owner after he or she is disabled.

                (4) Home Purchase. To the owner for a qualified first-time home purchase of up to $10,000 lifetime.
   The distribution must be used within 120 days of the distribution for the "qualified acquisition costs" of acquiring a
   "principal residence" for a "first-time homebuyer who is the owner, his or her spouse or a descendant or ancestor of
   either." IRC §§ 72(t)(2)(F), 408A(d). See discussion at IV.

5. Other Distributions. All other withdrawals of earnings, i.e., distributions which are not Qualified Distributions, are
   subject to income tax on earnings and the 10% penalty tax (unless an exception applies to the 10% penalty under
   IRC § 72(t)(2)). See discussion at IV.

   GOOD NEWS: Distributions from Roth IRAs are deemed made first from amounts contributed which are not
   subject to income tax and then from earnings except in the case of certain rollovers or conversions discussed below.
   This could be a planning opportunity.

6. MRDs. There are no MRD's before the death of the owner. IRC § 408A(c)(5). An Owner of a Roth IRA is always
     deemed to have died before his or her RBD. The Five-Year Rule governing distributions and its exceptions always
     apply.

  7. Appeal of the Annual Roth IRA?

            a. The Child. The child who has wages from a parent or other employer can establish a Roth IRA and the
     earnings can accrue on a tax-exempt basis. If the child needs to use his or her earnings for expenses and cannot
     afford to fund an IRA, the parent or other donor could fund the child's IRA as a gift to the child and contribute up to
     the lesser of $2,000 or the amount which the child earned that year. The younger the child is when he or she starts
     the Roth IRA, the longer it has to grow. A child who contributes $2,000 each year from age 8 to 65 will have
     $2,692,011 at age 65, assuming an 8% growth and no change in the law.

            b. Low Tax Bracket Now. Individuals in a low tax bracket now (e.g. 15%) who are likely to be in a higher tax
     bracket at retirement will find Roth IRAs attractive. "Tax-free distributions later" are more attractive than "a
     deduction now." Such individuals could include those entering the work force, temporary or part-time workers,
     those on temporary leaves or even retirees who don't need their retirement funds now and who anticipate that their
     retirement funds will ultimately be paid to beneficiaries in a higher tax bracket.

            c. No Qualified Plan. The Roth IRA provides a vehicle for retirement savings. If a retiree is in the same or
     higher tax bracket as he or she was at the time of contribution, the Roth IRA performs better than a tax-deductible
     Traditional IRA. However, if a retiree is in a significantly lower tax bracket later than at the time of contribution,
     the tax-deductible Traditional IRA performs better.

            d. In Lieu of Nondeductible Contributions to a Traditional IRA. A taxpayer who exceeds the income
     limitations for deductibility or who chooses not to claim a deduction for an IRA contribution may contribute to a
     nondeductible Traditional IRA. However, upon withdrawal from a nondeductible IRA, all earnings are taxed. This
     is not true for a Roth IRA. Earnings from a Roth IRA will not be taxed as long as the withdrawal is a Qualified
     Distribution. Consequently, nondeductible Traditional IRAs may now only appeal to the individual who cannot
     qualify for a Roth IRA because of income limitations. It's the only IRA available for these taxpayers.

            e. Over age 70½. A taxpayer who wants to continue to contribute to an IRA after age 70½ will like the Roth
     IRA.

B. Rollover or Conversion of Traditional IRAs to Roth IRAs

  1. Eligibility.

            a. Age. No age limit.

            b. Limits. $100,000 or less Modified AGI.

                  (1) A taxpayer can rollover or convert a Traditional IRA to a Roth IRA, so long as the taxpayer's
     modified AGI for the taxable year of distribution does not exceed $100,000 and the taxpayer is not a married
     individual filing a separate return. IRC § 408A(c)(3)(B) and (d)(3)(C). The $100,000 applies to both single and
     married taxpayers.

                  (2) Modified AGI for purposes of rollover or conversion to a Roth IRA does not include any amount
     included in income due to the rollover or conversion to the Roth IRA. IRC § 408A(c)(3)(C)(i).

               (3) The AGI limitations apply for the tax year of the distribution to which the later contribution relates.
     IRC § 408A(c)(3). A distribution made in 1998 which is rolled over within 60 days in 1999 will be qualified based
     on 1998 AGI.

                  (4) Effective for tax years beginning after Dec 31, 2004, MRDs from IRAs are excluded from the
     definition of AGI for purposes of the $100,000 AGI limitation. IRC § 408A(c)(3)(C).
   GOOD NEWS: Recharacterization of Contributions. If a taxpayer discovers he or she exceeds the AGI limitation
   after a conversion or rollover of a Traditional IRA to a Roth IRA, the taxpayer may transfer the contribution and
   earnings made to the Roth IRA to a Traditional IRA by a trustee-to-trustee transfer providing the transfer is made
   before the due date of the tax return for that year including extensions. The transfer is treated as made to the
   transferee IRA, not the transferor IRA on the same date and for the same tax year that it was initially made to the
   transferor IRA. The transfer must include all the net income earned by that contribution. Taxpayers can elect
   whether to recharacterize contributions made to one type of IRA by having the contributions transferred in a
   trustee-to-trustee transfer: (1) to a different type of IRA in a different financial institution or, (2) between two IRAs
   of a single financial institution. Recharacterization transfers are not deemed rollovers under IRC § 408(d)(3) for
   purposes of the one-rollover-per-year rule. IRC § 408A(d)(6)(A). Prop Reg § 1.408A-5.

   BAD NEWS: Reconversion Only Once a Year. The IRS has issued a Notice that an individual who converted a
   Traditional IRA to a Roth IRA at any time during 1998 and then transfers the converted amount back to a
   Traditional IRA may reconvert that amount to a Roth IRA one time only after November 1, 1998. Reconversion
   must occur on or after November 1, 1998, and on or before December 31, 1999. Similarly, an individual who
   converts a Traditional IRA (that hasn't previously been converted) to a Roth IRA during 1999 and then transfers the
   converted amount back to a Traditional IRA may reconvert that amount to a Roth IRA one time only, on or before
   December 31, 1999. IRS Notice 98-50 (Oct 21, 1998)

         c. Status.

                (1) Individual: Same as Traditional IRA except:

                      (a) A married individual filing a separate return is not eligible for a Rollover or Converted Roth
   IRA. However, an individual who has lived apart from his or her spouse for the entire taxable year can treat himself
   or herself as not married. Prop Reg § 1.408A-4, Q&A 2(b).

                         (b) If the individual is at least age 70½, he or she may not convert a Traditional IRA to a Roth
   IRA to the extent an MRD for the year has not been distributed. However, if an MRD is contributed to a Roth IRA
   it is treated as distributed under IRC § 408(d)(1) and (2) and then contributed as a regular contribution (not as a
   conversion) to a Roth IRA. Prop Reg § 1.408A-3, Q&A 6.

                (2) Surviving Spouse: Same as Traditional IRA.

                (3) Not Personal Representative: Same as Traditional IRA.

                (4) Not Children or Other Beneficiaries: Same as Traditional IRA.

2. Contributions.

          a. Three Methods: There are three methods available for conversions: a 60-day rollover, a trustee-to-trustee
   transfer and a same institution transfer. Prop Reg § 1.408A -4 Q&A-1(b).

         b. Excluded: A 1997 distribution from a Traditional IRA may not be converted to a Roth IRA in 1998.

         c. Excess: What to Do? Recharacterize the contribution or reconvert the account.

3. Tax Consequences.

         a. Going In?

                (1) Income Tax. If a taxpayer rolls over or converts a Traditional IRA to a Roth IRA, the assets of the
   Traditional IRA are subject to income taxes. If converted or rolled over, the 10% additional income tax does not
   apply except as noted below.

                (2) Four Years. If the rollover or conversion occurs before January 1, 1999, the amount required to be
included in gross income may be (but does not need to be) spread ratably over the four tax-year period beginning
with the tax year in which the distribution is made.

            Example: In 1998, Mary had AGI of $80,000. She withdrew $100,000 from her Traditional IRA and
within 60 days rolled it over to a Roth IRA. She will have $25,000 of additional gross income in each of 1998,
1999, 2000 and 2001. However, the extra $25,000 of income in 1998 does not increase Mary's AGI of $80,000 for
purposes of the $100,000 AGI limit.

            (3) One Year. The taxpayer can elect to have the amount rolled over or converted in 1998 includable in
income in 1998 rather than ratably over four years. IRC § 408A(d)(3)(A)(iii).

      b. Coming Out?

             (1) Contributions are Tax Free. An individual can withdraw his or her contributions tax free anytime
subject to the rules below. Distributions from a Roth IRA are treated as made from contributions first. All of an
individual's previous Roth IRA distributions are aggregated for this purpose. IRC § 408A(d)(4)(B)(i).

             (2) Earnings may be Tax Free. An individual can withdraw earnings tax free only if the distribution is
qualified. IRC § 408A(d). If the distribution is not qualified, earnings are subject to ordinary income tax and
penalties for early withdrawal unless an exception applies. See III above (Roth IRAs) for definition of Qualified
Distribution.

             (3) Treated Separately. Roth IRAs and Traditional IRAs are treated separately for purposes of the rules
requiring that all IRAs be treated as one contract, all distributions during any one year be treated as a single
distribution and that the value of the contract be computed as of the close of the calendar year. IRC § 408A(d)(4)
(A).

            (4) Income Acceleration.

                    (a) Withdrawal. If a taxpayer elects the four-year rule in 1998 and withdraws amounts before the
entire amount of the rollover or conversion is included in income, the income inclusion is accelerated and the
amount withdrawn plus any amount not yet includable in income (up to the amount of the total conversion or
rollover) is taxable. Acceleration reduces the last income tax payment due not the next payment due. IRC § 408A(d)
(3)(E)(i).

                   (b) Death. If a taxpayer dies before the full amount is includable in income, any remaining
amount must be included in taxpayer's gross income for the taxable year that includes the date of death. However, if
the surviving spouse is the sole beneficiary of all the decedent's Roth IRAs, the spouse can elect to continue income
taxation under the four-year rule. Prop Reg § 1.408A-4, Q&A 11.

            (5) Ordering Rules. Amounts withdrawn from a Roth IRA are treated as made in the following order:

                   (a) From regular contributions.

                    (b) From conversion contributions on a first-in first-out basis. Distributions allocated to a
qualified rollover or conversion contribution are treated as coming first from the taxable portion of the contribution
or conversion.

                   (c) From earnings.

IRC § 408A(d)(4)(B). Prop Reg § 1.408A-6 Q&A 8. The 10% penalty applies to income withdrawn unless an
exception applies. IRC § 408A(d)(4)(B).

Note: Distributions which are not qualified distributions may be withdrawn tax-free up to the aggregate amount of
contributions to Roth IRAs. Excess amounts are includible in income.
              (6) Penalty Tax. Any amount rolled over or converted from a Traditional IRA to a Roth IRA which is
withdrawn before the Five-Taxable-Year Period is subject to the 10% penalty (unless an exception applies) to the
extent that the amount distributed would have been taxable if it had been distributed from the Traditional IRA and
not rolled over or converted. IRC § 408A(d)(3)(F).

                   (a) Under Age 59½. If the taxpayer is under age 59½, he or she must keep track of which dollars
were rolled over or converted and when. The penalty is imposed if a distribution of a rolled over or converted
amount occurs within the Five-Taxable-Year Period beginning with the taxable year in which the contribution was
made. If such a distribution occurs, IRC § 72(t) imposes the 10% penalty as if the distribution were includible in
gross income. IRC § 408A(d)(3)(F). Note: the rule measuring the Five-Taxable-Year Period beginning with the first
year for which the taxpayer made a Roth contribution does not apply.

      Example: Jane rolls over $50,000 to a Roth IRA in year 1 from a Traditional IRA. Jane has a basis of $30,000
      in the conversion amount and so must include $20,000 in gross income She withdraws $15,000 to buy a car
      in year 2. Under the ordering rules, the withdrawal is attributable to amounts includible in income due to the
      conversion. Since the $15,000 is withdrawn within the Five-Taxable-Year Period beginning with the year in
      which the IRA was converted into a Roth IRA, the $15,000 withdrawal is subject to a 10% early withdrawal
      tax of $1,500. Jane would have been better off withdrawing from a Traditional IRA since the amount
      withdrawn would have been a pro-rata portion of nondeductible contributions which are not taxable and
      earnings which are taxable.

                    (b) Age 59½ or Older. If the taxpayer is age 59½ or older, the taxpayer can withdraw all
rollovers as qualified distributions beginning five years after the first rollover. Since the taxpayer is 59½ or older,
there is no 10% penalty tax. IRC § 408A(d)(2).

      Example: Bob rolls over $20,000 to a Roth IRA in year 1. He rolls over $60,000 in year 5. He withdraws
      $70,000 in year 6 when he is 59½ . The withdrawal is a tax-free qualified distribution since the holding
      period is satisfied and he is over age 59½.

             (7) Surviving Spouse. Any amounts includable in income because of a conversion or rollover are
includable in income in the decedent's final return. The surviving spouse as beneficiary of the Roth IRA could
continue the deferral. IRC § 408A(d)(3)(E)(ii).

             (8) Series of Substantially Equal Period Payments. A taxpayer's conversion of funds from a Traditional
IRA from which the taxpayer was receiving a series of substantially equal periodic payments will not be treated as a
modification of that series and would not trigger recapture of the 10% penalty tax on previous distributions from a
Traditional IRA as long as the series of substantially equal periodic payments is continued under the Roth IRA.
Prop Reg § 1.408A-4 Q&A 12.

      c. An Example of a Conversion:

             (1) Assumptions

      A widow with a large IRA and "sufficient" other assets wants to rollover $150,000 of her IRA into a Roth
      IRA and name her three children as beneficiaries

      A Personal Fund of $36,584 available to pay any tax on the rollover

      3% inflation rate

      8% growth rate

      Widow's date of birth 10/11/34

      Widow's assumed date of death 2017 (age 83)
        Oldest child's date of birth 11/29/59

        Oldest child's assumed date of death 2042 (age 83)

        Income tax marginal rate at date of rollover: 28%

        Net-After Tax Assets means IRA value less any income tax on withdrawal plus Personal Fund

                                                      CHART 2: VALUE OF IRA


                                                               Roth IRA: Tax Paid from               Roth IRA: Tax Paid from
                            Traditional Roth IRA
                                                                      Roth IRA                          Outside Roth IRA
                          IRA Beginning Annual               Roth IRA             Annual          Roth IRA             Annual
 Year                     Value         Distribution         Beginning Value      Distributions   Beginning Value      Distributions
 1998                     $150,000          $0               $150,000*            $0              $150,000*            $0
 2005 (widow 70 1/2) $257,075               $10,161          $197,473             $0              $257,073             $0
 2008                     $285,600          $12,581          $248,760             $0              $323,838             $0
        (widow dies:
 2017                     $351,214          $22,955          $497,272             $0              $699,141             $0
        age 83)
        Net After-Tax
                          $579,398                           $598,189                             $699,141
        Assets**


*Amount converted in 1998. Assume 28% tax bracket and income tax paid (inside or outside) is spread over four years.

**Net After-Tax Assets, that is, the assets remaining after income tax is paid.

               (2) A Comparison: Assume all funds withdrawn in 2017 when the widow dies

        The Traditional IRA: The widow has taken MRDs during her lifetime. She has withdrawn $207,587 taxable
        at 28%. She dies with an IRA of $351,214 which is IRD to her beneficiaries. Her personal fund assuming a
        5.7% after-tax growth is worth $326,524 and the Net After-Tax Assets are $579,398.

        Roth IRA: Tax Paid from Roth IRA. The widow takes no distributions during her lifetime. She dies with an
        IRA of $497,272 which is not subject to income tax. Her personal fund assuming a 5.7% after-tax growth is
        worth $100,917 and the Net After-Tax Assets are $598,189 or 3.24% more than the Traditional IRA.

        Roth IRA: Tax Paid Outside Roth IRA. The widow takes no distributions during her lifetime. She dies with
        an IRA of $699,141 which is not subject to income tax. Her personal fund is worth "0" and the Net After-Tax
        Assets are $699,141 or 20.66% more than the Traditional IRA.

           (3) Conclusion: If the widow's goal is to leave the largest amount to her children after income tax, the
Roth IRA beats the Traditional IRA.

PLANNING POINTER: A Roth IRA is an excellent vehicle for passing on wealth to the next generation free of
income tax.

        d. An Example of Withdrawal:

                        CHART 3: THE IMPACT OF CHANGING INCOME TAX BRACKETS

Chart 3 illustrates how the Annual Traditional IRA (deductible) beats an Annual Roth IRA (nondeductible) if the taxpayer's tax rate drops
in retirement. The chart assumes that the taxpayer contributes $2,000 a year for five, 10, 15 and 20 years; that the account earns a
compound annual return of 8%; and that the taxpayer then withdraws the proceeds without penalty. For the Traditional IRA, the figures
assume that the taxpayer was in the 28% bracket when the contributions were made. The figures also show how much the taxpayer
   receives after tax if the tax rate drops, holds steady or rises.


                                                                         YEARS IN IRA
                                   5                        10                15                      20
    ANNUAL ROTH IRA
    Total available for tax-free withdrawal:
                                   $12,672**                $31,292**         $58,648**               $98,845**
    ANNUAL TRADITIONAL IRA
    Total available, after tax, if rate was 28% when contributed and then during retirement, the rate:
    Drops to 15%                   $13,849***               $35,162***        $663,242***             $105,182***
    Stays at 28%                   $12,466                  $30,249           $55,763                 $92,401
    Rises to 31%                   $12,122                  $30,391           $54,036                 $89,451
    Rises to 36%                   $11,581                  $27,910           $51,157                 $84,533
    Rises to 39.6%                 $11,191*                 $26,795*          $49,084*                $80,992*

   Note: Contributions are made at the beginning of the year, withdrawals at year end. Annual Traditional IRA balances assume that annual
   tax savings were reinvested in taxable accounts and combined with IRA balance upon withdrawal.
   Source: Deloitte & Touche
   ***Highest
   **Second Highest
   * Lowest

                   (1) Moral: You need a crystal ball. Question: Will you be in a lower tax bracket during retirement?

               (2) A Conclusion: An Annual Traditional IRA which is deductible beats a Roth IRA if the tax bracket
   is lower on withdrawal. The Roth IRA wins if the tax bracket on withdrawal stays the same or is higher.

           e. Another Idea: A Life Time Gift of a Roth IRA Trust

                 (1) The Suggestion. At least one commentator has suggested that a taxpayer could make a gift of his or
   her interest in an irrevocable Roth IRA trust during lifetime by retaining no interest in, or powers over, the
   irrevocable IRA trust including the right to withdraw funds during life. The beneficiary designation would provide
   that no distributions could be made to anyone during the taxpayer's life. According to this suggestion, the IRA
   would not be includable in the taxpayer's estate and all increases in value after the creation of the irrevocable IRA
   trust would escape estate taxation. See "Innovative Estate Planning Strategies Using Roth IRAs" by Mervin M.
   Wilf, Estate Planning, March/April 1998.

                (2) Not a Good Idea? The Proposed Regulations issued September 3, 1998 provide that a transfer of a
   Roth IRA by gift constitutes an assignment and that the assets are deemed to be distributed to the owner and are
   treated as no longer held in the IRA. Furthermore, if any gift made prior to October 1, 1998 is reversed prior to
   January 1, 1999, it would be treated as if it had never been made for estate, gift and generation-skipping tax
   purposes. Prop Reg § 1.408A-6, Q&A 19. Q: Is the suggestion in (1) above a transfer covered under this new
   Proposed Regulation?

4. Appeal of Roth Rollover IRAs?

           a. Who Should Consider Rollover or Conversion of a Traditional IRA to a Roth IRA? Who has a Crystal
   Ball?

                (1) Same or Higher Tax Bracket. The taxpayer will be in as high a tax bracket when he or she takes
   distributions from a Roth IRA as he or she is in now.

                   (2) Little Income Taxes Due. The Traditional IRA has been open for a relatively short period of time or
it consists of nondeductible contributions. Little income taxes will be due because of the rollover or conversion.

              (3) No Plans to Withdraw. The taxpayer will not need to withdraw from the Roth IRA when he or she
retires. The taxpayer prefers to allow the Roth IRA to increase tax free after his or her retirement and plans to pass
it to his or her children. After the taxpayer's death, the account can continue to build tax free subject only to the
MRD rules.

              (4) Favorable Status. The taxpayer has separate funds from which to pay the income taxes due because
of the rollover or conversion. The taxpayer has charitable deduction carryforward or other credits which can be used
to offset the tax due.

             (5) Lots of Time. The taxpayer is young and has many years until retirement.

             (6) Correct a Mistake. The taxpayer is beyond his or her Required Beginning Date ("RBD") and has
failed to name a Designated Beneficiary and has no possibility of naming one for the Traditional IRA. The
taxpayer's Traditional IRA must be paid over only the owner's life expectancy either recalculated or not
recalculated. If the owner converts to a Roth IRA, the Five-Year Rule and its exceptions will apply on the death of
the owner regardless of the age of the taxpayer at death. This could be an estate planning opportunity. For example,
without a rollover, an owner who has passed his RBD and who failed to name a Designated Beneficiary and whose
life expectancy was being recalculated is stuck. His entire Traditional IRA must be distributed to his beneficiary by
December 31st of the year following his death. However, if that same owner rolled over his Traditional IRA to a
Roth IRA, he could name a new Designated Beneficiary and at the owner's death, the IRA could be distributed to
his beneficiary over his or her life expectancy.

             (7) A New Designated Beneficiary. Estate planners often advise a surviving spouse to rollover a
decedent's account balance to an IRA and then designate a new beneficiary for purposes of the MRDs. What
happens if there is no surviving spouse, that is, the spouse dies before the IRA owner but after the IRA owner's
RBD? Is the owner stuck with his or her life expectancy elections? No. The owner could rollover his or her
Traditional IRA to a Roth IRA and name a new Designated Beneficiary. Upon the owner's death, MRDs could be
made over the life expectancy of the new Designated Beneficiary. Of course, the owner must recognize income tax
on the amount rolled over to the Roth IRA. This technique could be used in the event any beneficiary (not just the
surviving spouse) died prior to the IRA owner but after the IRA owner's RBD.

             (8) A Full Exemption Equivalent. If a taxpayer has a short life expectancy and has only a Traditional
IRA available to fund an exemption equivalent trust, a death-bed rollover or conversion to a Roth IRA could be
attractive. The exemption equivalent trust could be funded with the Roth IRA. Distributions from the Roth IRA
would not be IRD as long as they were qualified distributions and, consequently, would be more valuable to the
beneficiaries than taxable distributions. The federal and state income tax payable because of the rollover or
conversion would be deductible for estate tax purposes and beneficiaries would not be subject to IRD rules because
of the Roth IRA.

             (9) IRA to Children or Grandchildren. The taxpayer wants to provide a gift or retirement vehicle for
children or grandchildren at the taxpayer's death. The taxpayer does not intend to make any withdrawals during
lifetime and intends to allow the IRA to grow and pass (without income taxes but with estate taxes) at the taxpayer's
death.

      b. Who Gets Hurt by a Rollover or Conversion of a Traditional IRA to a Roth IRA?

             (1) Withdraw Funds. A taxpayer who needs to withdraw funds for college tuition or other reasons
which are not Qualified Distributions gains no benefit from paying income taxes early to convert or rollover the
Traditional IRA. If the taxes hadn't been paid to the IRS, the funds could still be earning tax-free for the taxpayer.

               (2) Close to Retirement. A taxpayer who expects to withdraw funds from the IRA soon may realize
little benefit from paying the taxes early to convert or rollover the Traditional IRA. If the taxes hadn't been paid, the
funds could still be earning tax-free and the retiree may need those funds.

             (3) Lower Tax Bracket. If the taxpayer expects to be in a lower tax bracket when the funds are
     withdrawn from the IRA than when they were contributed, the taxpayer gains no benefit from paying the taxes early
     to convert or rollover a Traditional IRA to a Roth IRA.

                 (4) Social Security. A taxpayer on Social Security may find his or her payments taxable because
     income from a rollover or conversion is AGI for purposes of determining whether Social Security benefits are
     taxable. Additional income in the year of rollover or conversion could cause a retiree's Social Security benefits to be
     taxed. On the other hand, after the rollover or conversion, withdrawals from Roth IRAs are not taxable and, hence,
     would not affect the taxability of Social Security payments. Also, after the rollover or conversion, MRDs aren't
     required from a Roth IRA. The AGI will be less and Social Security may escape taxation.

             c. Some Problems.

                  (1) No Exception at Death. Apparently, there is no exception to the Five-Taxable-Year Period rule for
     death. But, holding periods can be tacked. In addition, if the surviving spouse treats the decedent's Roth IRA as his
     or her own, the Five-Taxable-Year Period ends on the earlier of the decedent's or the spouse's Five-Taxable-Year
     Period. Prop Reg § 1.408A-6, Q&A 7.

                  (2) If an MRD is required in the year of rollover or conversion to a Roth IRA, the MRD is includable in
     AGI at least until the year 2004. IRC § 408A(c)(3)(C)(i)..IV. OTHER RULES APPLICABLE TO BOTH
     TRADITIONAL AND ROTH IRAS

A. Too Early Withdrawals: The 10% Additional Income Tax on Premature Distributions.

  1. The Tax. IRC § 72(t) imposes a 10% additional income tax on the taxable amount of distributions from a Qualified
     Plan, IRA or other qualified retirement plan under IRC § 4974(c) unless the distribution is described immediately
     below:

  2. Exceptions to the 10% Additional Income Tax. A distribution:

             a. 59½. To a participant on or after he or she attains age 59½.

             b. Death. To a beneficiary of a deceased participant.

             c. Disability. To a disabled participant.

           d. Periodic Payments. Which is part of a series of substantially equal periodic payments and which, in the
     case of a distribution from a Qualified Plan, begin after the participant separates from service. If the periodic
     payments are subsequently modified before 5 years or before the employee attains age 59½, a penalty will apply.

             e. Dividends. Which represent dividends paid with respect to certain employer securities.

             f. Age 55. To a participant after separation from service after he or she attains age 55. (Does NOT apply to
     IRAs)

            g. Medical Expenses. To a participant for medical expenses deductible under IRC § 213. For distributions
     after Dec. 31, 1996, this exception applies to IRAs as long as the distribution is used to pay medical expenses in
     excess of 7.5% of adjusted gross income or to pay health insurance premiums after separation from service under
     certain conditions. IRC § 72(t)(2)(B), 3(A) and § 72(5)(2)(D).

             h. QDRO. To an alternate payee pursuant to a qualified domestic relation order. (Does NOT apply to IRAs).

            i. Education. From an IRA, if the distribution is used to pay the qualified higher education expenses
     (including those related to graduate-level courses) of the taxpayer, the taxpayer's spouse, or any child or grandchild
     of the individual or the individual's spouse.

                   (1) Qualified expenses include tuition, fees, books, supplies, and equipment required for enrollment or
attendance, as well as room and board, at a post-secondary education institution.

              (2) The provision is effective for distributions after 1997, for expenses paid and education commencing
after that date. (IRC § 72(t)(2)(E)).

      j. Roth IRA. From a Roth IRA, if the account is held for 5 years and withdrawals are made after age 59½, or
on account of death, disability or a qualified first-time home purchase pursuant to (xi) below. IRC §§ 72(t)(2)(F),
408A(d).

      k. Home. From an IRA, for a qualified first-time home purchase (up to $10,000 lifetime). IRC § 72(t)(2)(F).

              (1) A distribution which is used within 120 days of the payout for qualified acquisition costs of a
qualified first-time homebuyer's principal residence.

             (2) The homebuyer (or spouse, if married) cannot have had a present ownership interest in a principal
residence within the 2-year period ending on the new home's acquisition date. A first-time homebuyer can be the
taxpayer, his or her spouse, or a descendant or ancestor of either.

           (3) There is a $10,000 lifetime limit on distributions that may be treated as qualified first-time
homebuyer distributions.

             (4) The rules for qualified first-time homebuyer distributions are effective for payments and
distributions in tax years beginning after 1997.

                                       CHART 5: Summary of Income Tax Consequences

"yes" means
taxable
                       Qualified Plans             Traditional IRAs                            Roth IRAs
"no" means
nontaxable
                                                                            Held Less Than 5 Years    Held More Than 5 Years
                                       10%                        10%                        10%                        10%
                 Principal* Earnings           Principal Earnings         Principal Earnings         Principal Earnings
                                       Penalty                    Penalty                    Penalty                    Penalty
1.
  Separation
from service        yes       yes        no      yes       yes     yes       no       yes      yes      no       yes      yes
in year attain
age 55
2. Age 59
                    yes       yes        no      yes       yes        no     no       yes      no       no       no       no
1/2 or later
3. Death            yes       yes        no      yes       yes        no     no       yes      no       no       no       no
4. Disability       yes       yes        no      yes       yes        no     no       yes      no       no       no       no
5. Before
age 59 1/2,
but not
because of 1,       yes       yes        yes     yes       yes     yes       no       yes      yes      no       yes      yes
3 or 4 above,
or through e
below
a. Series of
substantially
equal               yes       yes        no      yes       yes        no     no       yes      no       no       yes      no
periodic
payments

b. Medical
expenses
      deductible
      under IRC §        yes           yes   no    yes     yes   no       no      yes      no      no      yes      no
      213
      c. To
      alternate
      payee under
                         yes           yes   no    N/A    N/A    N/A    N/A      N/A      N/A     N/A      N/A     N/A
      QDRO
      d. Qualified
      higher
      education
                         yes           yes   yes   yes     yes   no       no      yes      no      no      yes      no
      expenses
      under IRC §
      72(t)(2)(E)
      e. Qualified
      first-time
      home
                         yes           yes   yes   yes     yes   no       no      yes      no      no       no      no
      purchase
      under IRC §
      72(t)(2)(F)


     *Except to the extent of basis.

B. Investment Restrictions.

  1. No Life Insurance. No part of an IRA may be invested in life insurance contracts.

  2. No Commingling. The assets of the IRA must not be commingled with other property except in a common trust
     fund or common investment fund.

  3. No Collectibles. The assets of the IRA may not be invested in collectibles except for certain U.S. minted gold and
     silver coins. Any investment in collectibles which is not covered by the exception is considered a taxable
     distribution to the Owner.

C. Prohibited Transactions:

  1. What are they? An Owner or beneficiary must not participate in a transaction with his or her IRA that is prohibited
     by IRC § 4975 or the IRA will be disqualified. IRC § 408(e)(1). If an IRA is disqualified, the assets of the IRA will
     be treated as if they were distributed as of January 1 of the year in which the IRA was disqualified. IRC § 408(e)(2).
     It is a prohibited transaction for the owner or beneficiary to enter into a transaction with the IRA that constitutes a
     direct or indirect:

            a. Sale or exchange, or leasing, of any property;

            b. Lending of money or other extension of credit;

            c. Furnishing of goods, services, or facilities;

           d. Transfer of any assets of the IRA to or for the use of an Owner, beneficiary, family member or other
     disqualified person;

           e. Dealing with the income or assets of the IRA by an Owner, beneficiary, family member or other
     disqualified person for his/her own account; or

           f. Receipt of consideration for his/her own account by an Owner, beneficiary, family member or other
     disqualified person in connection with a transaction involving the income or assets of the IRA.

  2. Some Examples. It is a prohibited transaction if:
            a. An Owner or beneficiary invests his or her IRA in companies that he or she owns;

            b. An Owner or beneficiary lends his or her IRA funds to himself or herself or to a family member;

            c. An Owner or beneficiary buys a family vacation home with assets of his or her IRA; or

            d. An Owner or beneficiary swaps personal assets for IRA assets.

D. Pledge for Loan. If an Owner uses an IRA as security for a loan, the portion so pledged is treated as distributed to the
Owner. IRC 408(e)(4).

E. No QDROs. Qualified Domestic Relations Orders ("QDROs") do not apply to IRAs. However, IRAs may be
transferred tax-free to a spouse incident to a divorce. IRC § 408(d)(6).

F. No ERISA. IRAs are not subject to the Employee Retirement Income Security Act (ERISA) unless the IRA is part of
an employer sponsored plan.

G. Creditors' Rights.

  1. State Law. State law will usually apply to determine creditors' rights to reach the IRA assets. Although IRAs are
     required to be nonforfeitable under IRC § 408, some state laws allow creditors to attach an IRA of a debtor. Some
     state laws exempt IRAs qualified under IRC § 408. Roth IRAs are created under IRC § 408A. Query: Are they
     covered under the exemption?

  2. Federal Preemption. ERISA preempts state law. Creditors cannot reach a debtor's interest in a Qualified Plan
     subject to ERISA. Patterson v. Shumate, 112 S. Ct. 2242 (1992). There is no general federal preemption as to IRAs.

  3. Spendthrift Clauses. Many IRAs include a spendthrift clause. Query: In the case of a spendthrift clause, which law
     applies? The governing law of the IRA or the law of the Owner's domicile?

H. No Spousal Rights. A spouse has no right to an annuity from an IRA nor to be named beneficiary of an IRA under
federal law. Anyone can be named beneficiary. On the other hand, under a Qualified Plan, a spouse must be the
beneficiary of a part or all of a qualified Plan (depending on the kind of Qualified Plan) unless he or she has otherwise
consented in writing and that consent has either been notarized or has been witnessed by a representative of the Qualified
Plan.

I. Limit on Rollovers. An Owner can withdraw funds from a single IRA and rollover the funds tax-free only once in a
one year period. IRC § 408(d)(3)(B). There is no limit on the number of trustee-to-trustee transfers.

J. No Limit on Number. There is no limit on the number of separate IRAs an Owner may establish.

K. Income Averaging. The special 5-year and 10-year income averaging and capital gains taxation available to certain
distributions from a Qualified Plan are not available for distributions from IRAs. IRC § 402(d)(4)(A).

L. Net Unrealized Appreciation. Employer stock purchased with after-tax employee contributions and employer stock
purchased with employer contributions and distributed as a lump sum distribution from a Qualified Plan is not taxed on its
net unrealized appreciation until the stock is sold. IRC § 402(e)(4). It is taxed upon distribution from an IRA.

M. Withholding Tax. The 20% withholding tax on distributions does not apply to distributions from IRAs. IRC § 3405
(c)(1) and (2).

N. The Trustee-to-Trustee Transfer. Can a Nonspousal Beneficiary Transfer an Account to Another Trustee or
Custodian? Yes. Simply open an account for a decedent!

  1. A nonspousal beneficiary of an inherited IRA may transfer the decedent's IRA without tax and without losing the
     tax-deferred status of the IRA as long as the transfer is a direct transfer between trustees or custodians. Such a
   transfer is considered neither a distribution nor a rollover. The transferred IRA must remain in the name of the
   deceased original owner even though the beneficiary receives the payments. Ltr Rul 9504045, Nov. 4, 1994; Ltr Rul
   9433032, May 28, 1994; Ltr Rul 9305025, Nov. 12, 1992; Ltr Rul 9250040, Sept. 16, 1992.

2. After a trustee-to-trustee transfer of an inherited IRA, the beneficiary was entitled to distributions over the life of
   the Designated Beneficiary as an exception to the Five-Year Rule. Ltr Ruls 9623037, 9623038, 9623039, 9623040,
   Mar. 11, 1996; Ltr Rul 9504045, Nov. 2, 1994.

3. A surviving spouse died at age 74 naming her three sons as beneficiaries of her Rollover IRA. At the time of her
   death, she was receiving MRDs over her and the oldest son's lifetimes. The IRS approved dividing the IRA into
   three equal subaccounts, one for each son, all titled in the spouse's name. Each son could transfer his subaccount
   from one trustee or custodian to another. The IRS ruled that the mere segregation of beneficiaries' interests in an
   IRA into separate subaccounts does not affect the qualification of the IRA. Furthermore, although a nonspouse
   beneficiary cannot roll over an inherited IRA, the beneficiary is not barred from moving the subaccount from one
   trustee or custodian to another. Ltr Ruls 9810031, 9810032 and 9810033, Dec. 10, 1997.

4. CAVEAT: Finding a trustee or custodian willing to open an account in the name of a decedent may be difficult.

   O. Income Tax. An IRA is exempt from income tax other than taxes imposed under the unrelated business income
   tax (UBIT) rules.

   P. Estate Tax. An IRA is subject to estate tax. Q: Should the probate estate or the IRA beneficiaries pay? Direction
   is needed.

                       V.     CHART 4: COMPARISON OF TRADITIONAL AND ROTH IRAs

                                          Traditional IRA                                     Roth IRA
                                       Annual               Rollover                 Annual                  Rollover
    Age at Which       Year in which taxpayer           None              None                        None
    Contributions Must reaches 70 1/2
    Cease
    Compensation            Required                    Not required      Required                    Not required
    Deadline to Create      Date tax return due not     Within 60 days    Date tax return due not     Within 60 days of
                            including extensions        of receipt of     including extensions        receipt of property
                            (usually April 15)          property          (usually April 15)
    Status                  Wage Earning Individual Individual            Wage earning individual     Individual

                            Non-employed spouse         Surviving         Non-employed spouse         Married couples
                            who files a joint return    spouse            who files a joint return    filing separately
                                                                                                      are not eligible

                                                                                                      Surviving spouse
    Amount of               Lesser of $2,000 or         Eligible rollover Lesser of $2,000 or         Eligible rollover
    Contributions           annual compensation         amount            annual compensation         amount

                            Non-employed spouse                           Non-employed spouse
                            may also contribute up to                     may also contribute upt o
                            $2,000 per year                               $2,000 per year
    Form of                 Cash                        Same property     Cash                        Same property as
    Contributions                                       as received                                   received
    Maximum                 $2,000 per year             Not deductible    Not deductible              Not deductible
    Deductible
                      Traditional IRA                                       Roth IRA
AGI Requirements • None, although              • To contribute to annual Roth IRA, taxpayer must have AGI
                 deductibility is              below $95,000 (single) and $150,000 (joint). Reduced
                 determined based on           contributions allowed when AGI is $95,000 - $110,000 (single),
                 AGI                           $150,000 - $160,000 (joint) or $10,000 married filing separately

                                               • To convert or rollover a Traditional IRA to a Roth IRA, a
                                               taxpayer's (single or joint) AGI must not exceed $100,000

                                               • Married taxpayer filing separately cannot rollover or convert to a
                                               Roth IRA.
MRDs              • Yes. If owner dies         • No, during owner's lifetime
                  before RBD, subject to
                  Five-Year Rule               • Yes, after owner's death, subject to the Five-Year Rule

                  • Yes. If owner dies after
                  RBD, subject to At Least
                  As Rapidly Rule
Accumulation of   • Accumulate Tax Free        • Accumulate Tax Free
Earnings?
                  • Tax DEFERRED               • Tax FREE Growth
                  Growth
Tax-Free          • None                       • Yes, but withdrawal is subject to penalties if made before the end
Distribution of                                of the 5-taxable-year period and withdrawal would have been
Principal?                                     subject to penalties if not rolled over or converted to an IRA
Tax Free          • None                       Distribution must satisfy 5-taxable-year period and must be for:
Distribution of
Earnings?                                      • Attainment of age 59½ or later

                                               • Death

                                               • Permanent disability

                                               • Qualified first-time home purchase ($10,000 lifetime cap)
10% Penalty-free • Attainment of age 59½ • Same
distribution events and later

                  • Death

                  • Permanent disability

                  • Series of substantially
                  equal periodic payments

                  • Qualified education
                  expenses

                  • Qualified first-time
                  home purchase ($10,000
                  lifetime cap)

                  • Medical Expenses
                  under IRC § 213
                      Traditional IRA                                                     Roth IRA
              Annual                    Rollover                          Annual                      Rollover or Conversion
Appeal? CURRENT                  POSTPONE TAX               SAVE NOW                                LOWER BRACKET NOW
        DEDUCTION
                                 • A Qualified Plan         • A child who wants (a child whose      • Taxpayer who expects to be in
      • A child who wants (a     distributee who wants to   parents want him/her) to start saving   the same or higher tax bracket
      child whose parents want   postpone tax or who        early and doesn't want or need a        later when funds will be
      him/her) to start saving   wants to rollover a        deduction.                              withdrawn
      early and wants a          distribution to a Roth
      deduction now              IRA
                                                            LOWER BRACKET NOW                       LITTLE TAXES
      • A taxpayer who prefers
      a current deduction and is STRETCH-OUT                • A taxpayer who doesn't want a      • Taxpayer with little income
      in higher tax bracket now                             current deduction and is in a lower  taxes due because of the rollover
      than when funds will be • A surviving spouse          tax bracket now than when funds will or conversion
      withdrawn                  who wants a Stretch-Out    be withdrawn
                                 IRA
                                                                                                    OTHER DEDUCTIONS
      THE ONLY GAME                                         RETIREMENT
                               MORE OPTIONS                                                         • Taxpayer with separate funds
      • A high income taxpayer                           • A taxpayer who has no other              to pay income taxes because of
      for whom a               • A retiree who wants     retirement plan or wants to                rollover or conversion or who
      nondeductible IRA is the more distribution options supplement a retirement plan               has carryforward deductions or
      only annual IRA                                                                               credits
      available
                                 CONDUIT                    NONDEDUCTIBLE OK
      • A taxpayer age 70½ and                                                                CUSTOMIZE
      older
                                 • An employee between • A taxpayer who was making
                                 jobs who wants a conduit nondeductible contributions to a    • A taxpayer who wants a
                                 IRA                      Traditional IRA and who prefers a   customized IRA which controls
                                                          Roth IRA which allows withdrawal of distributions
                                                          earnings which are not taxable
                                 CUSTOMIZE
                                                                                              NO WITHDRAWALS
                                 • A taxpayer who wants
                                 a customized IRA which                                       • Taxpayer with no plans to
                                 controls distributions                                       withdraw


                                                                                                    YOUNG

                                                                                                    • Young taxpayer with lots of
                                                                                                    time


                                                                                                    CORRECT A MISTAKE

                                                                                                    • Taxpayer who wants to correct
                                                                                                    a mistake and/or who wants to
                                                                                                    name a new designated
                                                                                                    beneficiary after such taxpayer's
                                                                                                    RBD


                                                                                                    EXEMPTION EQUIVALENT

                                                                                                    • Taxpayer who wants to leave a
                                                                                                    full exemption equivalent which
                                                                                                    is not IRD to the beneficiaries


                                                                                                    GIFT AT DEATH
                                                                                           • Taxpayer who wants to name
                                                                                           children or grandchildren as
                                                                                           beneficiaries now and who
                                                                                           intends never to withdraw from
                                                                                           the IRA during life


VI. THE FORMS: DEFAULT PROVISIONS

A. Lack of Uniformity. IRAs are not uniform. ASSUME NOTHING. If you want to be in control, you need to read
the IRA agreement. For example, the default provisions for recalculation of life expectancy will differ from IRA to
IRA. The distribution provisions will differ from IRA to IRA.

B. Calculating the MRD. All IRAs agree on one principle: the owner or beneficiary (not the IRA sponsor) is
responsible for calculating the MRD and for requesting a distribution. The owner or beneficiary must pay the 50%
excise tax for failure to withdraw all or a part of an MRD. IRC § 4974(a). On the other hand, the plan administrator
is responsible for calculating MRDs from a Qualified Plan and the employer must pay the 50% excise tax on behalf
of the participant under some circumstances. Rev. Proc. 94-62, IRB 1994-39, 11, Sep. 26, 1994.

C. No Help. Most IRAs are provided at "no cost" by banks, mutual funds, brokerage companies and insurance
companies who make their profits on the investments. "No cost" can translate into "no help." Most fund or company
representatives don't have the slightest idea about MRDs, either what they are or how to calculate them. Most also
don't care whether or not a beneficiary is named. The default provisions will control.

D. No Election Forms. Many IRAs don't offer election forms for recalculating life expectancy. The default
provisions control if the owner fails to elect otherwise.

E. Customizing IRAs. At least one attorney recommends customizing IRAs by creating customized beneficiary
designations to be used with the usual IRA forms. These beneficiary designations deal with issues such as:
disability or incompetence of the owner; distribution directions; recalculation of life expectancy issues; investment
control; individuals as Trust Advisors to the IRA trustee or custodian; QTIP Trusts and the definition of income and
tax clauses. See "The Need For and Use of Customized IRAs, Parts I & II," by Mervin M. Wilf, Estate Planner's
Alert, Research Institute of America Group, April 8, 1997 and May 6, 1997.

F. IRS Forms.

  1. Traditional IRAs. Form 5305 creates an IRA Trust. Form 5305-A creates an IRA Custodial Account. Forms
     5305 and 5305-A were revised to reflect the rules regarding MRDs. Forms that are dated before October 1992
     cannot be used to establish new IRAs.

       NOTE: Some IRAs do not use Forms 5305 or 5305-A. Some may have been submitted to and approved by
       the IRS. Others may not have been submitted to the IRS. A favorable determination letter from the IRS is not
       required to obtain favorable tax treatment.

  2. Roth IRAs. Form 5305-R creates a Roth Individual Retirement Account Trust. Form 5305-RA creates a Roth
     Individual Retirement Account Custodial Account. Form 5305-RB creates a Roth Individual Retirement
     Annuity Endorsement.

  3. What You Will Find

                                 CHART 6: A SAMPLE OF TRADITIONAL IRAS

        I.                 II.                   III.             IV.              V.                    VI.
IRAs             Recalculation of Life   What if surviving   Applicable law Recipient if   Available Forms of
                 Expectancy for Owner3   spous makes no      (if federal law Beneficiary   Distribution5 to the Owner
                 and Spouse              election re         not applicable) Dies before
                                         distribution                        Complete
                                                options?                Spendthrift   Distribution         Other Comments
                                                                        Clause?4
1. Dain            4.02 Unless otherwise        Silent                  Minnesota     As Depositor         S, I, A, C
Rauscher           elected, life expectancies                                         directs, or, if no
Incorporated       are recalculated 8.3.05.                             Yes           direction, to        Sub-accounts required for
                   Unless the Custodian (or                                           beneficiary's        separate beneficiaries after
Form 5305-         the Depositor, if the                                              estate               Depositor's death
A 1/98             Custodian permits) elects
                   otherwise, life
                   expectancies are not                                                                    Custodian will recognize
Custodial          recalculated                                                                            disclaimers
Account
                   *CHANGE: was "may be                                                                    Spousal consent required to
                   recalculated"!                                                                          beneficiary designation unless
                                                                                                           Custodian waives

                                                                                                           Agreement applies without
                                                                                                           regard to community property
                                                                                                           laws
2. Dean Witter     If no election, life         If spouse fails to      New York      Silent except        S, I, A, C
Reynolds Inc.      expectancy is not            elect any other                       surviving
                   recalculated                 provision or fails to                 spouse can           Beneficiary can accelerate
                                                take MRDs as            Yes           designate
Will be                                                                                                    payments
submitted to IRS                                beneficiary, spouse                   beneficiary
for approval                                    deemed to elect to
                                                treat IRA as own                                           QTIP provisions
  1/98
                                                                                                           Beneficiary may disclaim
Custodian
                                                                                                           Spousal consent required to
                                                                                                           beneficiary designation in
                                                                                                           community property state
3. Dreyfus IRA     If no election, life         If spouse fails to    New York        Silent               S, I, A
                   expectancy is not            elect any other
Will be            recalculated                 provision or fails to Yes
submitted to IRS                                take MRDs as
for approval                                    beneficiary, spouse
12/97                                           deemed to elect to
                                                treat IRA as own
Custodial Acct.
4. Fidelity        Unless otherwise elected,    Silent                  Mass.         As Depositor       S, I, A, C
Brokerage IRA      life expectancies are                                              directs, or, if no
                   recalculated                                         Yes           direction to
                                                                                                         If a trust for a surviving spouse
Form 5305-A                                                                           beneficiary's
                                                                                                         is the beneficiary (such as a
 12/97                                                                                estate
                                                                                                         QTIP or QDOT), all income of
                                                                                                         Account must be paid to
Custodial Acct.                                                                                          spousal trust annually or more
                                                                                                         frequently and no person has
                                                                                                         the power to appoint any part of
                                                                                                         the account to any person other
                                                                                                         than the Spousal Trust
5. Franklin        Unless otherwise elected,    Silent                  California    Silent               S, I, C
Templeton          life expectancies are
                   recalculated                                         Silent                             Agreement applies without
Form 5305-A                                                                                                regard to community property
 2/98                                                                                                      laws

Custodial Acct
6. Invesco         Unless otherwise elected,    Silent                  Colorado      Silent               S, I, A
Funds              life expectancies will not
                   be recalculated                                      Silent
Derived from
Form 5305-A
      1/98

 Custodial Acct.
 7. Janus           Unless otherwise elected,   Silent                Missouri       Beneficiary's   S, I, A
 Universal IRA      life expectancies are not                                        estate
                    recalculated                                      Yes
 Form 5305-A
 2/98               *CHANGE: was "are
                    recalculated"
 Custodial Acct.
 8. Merrill Lynch Unless otherwise elected,     Silent                New York       Silent          S, I, A, C
                  life expectancies are
 Will be          recalculated                                        Yes                            Beneficiaries have all the
 submitted to IRS                                                                                    distribution rights of the
 for approval     *CHANGE: was "may be                                                               Depositor
   1/97           recalculated"
                                                                                                     Agreement applies without
 Custodial Acct.                                                                                     regard to community property
                                                                                                     laws but written statement
                                                                                                     needed if payment made to
                                                                                                     spouse and not to named
                                                                                                     beneficiary

                                                                                                     Divorce or annulment cancels
                                                                                                     designation of spouse as
                                                                                                     beneficiary unless decree or
                                                                                                     later designation provides
                                                                                                     otherwise
 9.  Schwab IRA Can elect not to recalculate    If no election,       California     Silent          S, I, C
                life expectancies               single payment to
 IRS approved                                   spouse by Dec. 31     Yes                            Equal or substantially equal
   10/91                                        of calendar year                                     payments at intervals we
                                                containing the 5th                                   determine
                                                anniversary of
 Custodial Acct.                                Depositor's death
 10.                Unless otherwise elected,   If required amounts New York         Silent          S, I, C
  SmithBarney       life expectancies are       are not distributed
                    recalculated                within required time Yes                             Sub-accounts required for
 IRS approved                                   period, spouse                                       separate beneficiaries after
 12/96                                          deemed to elect to                                   Grantor's death
                                                treat IRA as own
 Custodial Acct.                                                                                     If Marital Trust ("MT") is
                                                                                                     beneficiary, the entire account
                                                                                                     must be distributed to the MT
                                                                                                     on death of surviving spouse
 11. T. Rowe        Unless otherwise elected,   Silent                Silent         Silent          S, I, C
 Price IRA          life expectancies are not
                    recalculated                Maryland
 IRS approved
 8/2/93             *CHANGE: was "may be
                    recalculated"
 Custodial Acct.
 12.     Vanguard   Unless otherwise elected,   If spouse fails to    Pennsylvania   Silent          S, I, C
                    life expectancies are       elect any other
 IRS approved       recalculated                provisions or fails   Yes
   1/98                                         to take MRDs as a
                                                beneficiary, spouse
                                                deemed to elect to
 Custodial Acct.                                treat IRA as own



* CHANGE means default provisions were changed from author's previous review of the form.
3        Owner means Grantor or Depositor

4        Some spendthrift clauses have exceptions for Qualified Domestic Relations Orders or "except to the extent as may be required by law."

5  Distributions: "S" means Single Sum Payment; "I" means Installment Payments, "A" means Annuity Payments; "C" means
combination of payments.




                                                          CHART 7: ROTH IRAs

              I.                  II.                      III.                      IV.                V.                       VI.
    IRAs                 Recalculation of What If Surviving                 Applicable         Recipient if         Available Forms of
                         Life Expectancy Spouse is Sole                     Law (if            Beneficiary          Distributions to the
                         for Spouse       Beneficiary?                      federal law        Dies before          Owner7
                                                                            not                Complete
                                                                            applicable)        Distribution         Other Comments

                                                                            Spendthrift
                                                                            Clause?6
    1. Dean Witter       Life expectancy of    If spouse fails to elect any New York           Silent, except       Five-Year Rule and
    Reynolds Inc.        beneficiary is not    other provisions of rails to                    surviving spouse     Exceptions
                         recalculated          take MRDs as a               Yes                can designate
    Will be submitted                          beneficiary, spouse deemed                      beneficiary          S, I, A, C
    to IRS for                                 to elect to treat IRA as own
    approval 1/98                                                                                                   Beneficiary can
                                                                                                                    accelerate payments
    Custodial
    Account>                                                                                                        Beneficiary may disclaim

                                                                                                                    QTIP provisions

                                                                                                                    Spousal content required
                                                                                                                    to beneficiary designation
                                                                                                                    in community property
                                                                                                                    state
    2.    Dreyfus IRA Unless otherwise         Spouse may elect to treat    New York           Silent               Five-Year Rule and
                      elected, life            account as own                                                       Exceptions
    Will be submitted expectancy of                                         Yes
    to IRS for        beneficiary is
    approval 12/97 notrecalculated
    3. Fidelity          Life expectancy of    Spouse is treated as         Massachusetts      As Depositor         Five-Year Rule and
    Brokerage IRA        beneficiary is not    Depositor                                       directs, or, if no   Exceptions
                         recalculated                                       Yes                direction to
    Will be submitted                                                                          beneficiary's        Rollover contributions
    to IRS for                                                                                 estate               from other Roth IRAs are
    approval 12/97                                                                                                  distinguished from
                                                                                                                    conversion contributions
    Custodial                                                                                                       from an IRA other than a
    Account                                                                                                         Roth IRA

    4. Franklin          Life expectancy of    Spouse treated as Depositor California          Silent               Five-Year Rule and
    Templeton            beneficiary is not                                                                         Exceptions
                         recalculated                                       Silent
    Form                                                                                                            Agreement applies
    5305RA 2/98                                                                                                     without regard to
                                                                                                                    community property laws
    Custodial
    Account
5. Invesco         Silent               Spouse may elect to treat       Law of         Silent          S, I, A, C
Funds                                   account as own                  Custodian's
                                                                        domicile                       Five-Year Rule and
Silent                                                                                                 Exceptions
                                                                        Silent
Custodial                                                                                              If no election, payable to
Account                                                                                                surviving spouse over life
                                                                                                       or life expectancy and to
                                                                                                       other beneficiaries within
                                                                                                       five years
6. Janus           Life expectancy of   Spouse treated as depositor Missouri           Beneficiary's   Five-Year Rule and
Universal IRA      beneficiary is not                                                  Estate          Exceptions
                   recalculated                                         Yes
Form 5305-
RA 2/98

Custodial
Account
7.   Merrill Lynch Unless otherwise     Spouse may elect to treat       New York       Silent          Five-Year Rule and
                   elected, life        account as own                                                 Exceptions
Will be submitted expectancy of                                         Yes
to IRS for         spouse is                                                                           S, I, A, C
approval 1/98      recalculated
                                                                                                       Beneficiaries have all the
Custodial                                                                                              distribution rights of the
Account                                                                                                Depositor

                                                                                                       Agreement applies
                                                                                                       without regard to
                                                                                                       community property laws
                                                                                                       but written statement
                                                                                                       needed if payment made
                                                                                                       to spouse and not to
                                                                                                       named beneficiary

                                                                                                       Divorce or annulment
                                                                                                       cancels designation of
                                                                                                       spouse as beneficiary
                                                                                                       unless decree or later
                                                                                                       designation provides
                                                                                                       otherwise
8.   SmithBarney   Unless otherwise     If required amounts are not New York           Silent          Five-Year Rule and
                   elected, life        distributed within required                                    Exceptions
Has been           expectancy of        time period, spouse         Yes
submitted to IRS   spouse is            deemed to elect to treat
for approval       recalculated         IRA as own

Custodial
Account
9. T. Rowe Price Life expectancy of     Silent                          Maryland       Silent          Five-Year Rule and
                 beneficiary is not                                                                    Exceptions
Not IRS          recalculated                                           Silent
approved 1/98                                                                                          or

Custodial                                                                                              At Least as rapidly Rule
Account                                                                                                (!)
10. Vanguard       Life expectancy of   Art V: Spouse is treated as     Pennsylvania   Silent          Five-Year Rule and
                   beneficiary is not   Depositor                                                      Exceptions
Not IRS            recalculated                                         Yes
Approved 1/98                           Section 9: If spouse fails to
                                        elect any other provisions
                                        or fails to take MRDs as a
 Custodial                                   beneficiary, spouse deemed
 Account                                     to elect to treat IRA as own

                                             INCONSISTENT!




6     Some spendthrift clauses have exceptions for Qualified Domestic Relations Orders or "except to the exten as may be required by law."

7 Distributions: "S" means Single Sum Payment; "I" means Installment Payments; "A" means Annuity Payments; "C" means
combination of payments.




VII. SEP-IRAs and SIMPLE IRAs

A.     What are They?

     1. The SEP-IRA. The SEP-IRA is a Simplified Employee Pension Plan established pursuant to IRC § 408(k).
        The Employer makes contributions to Traditional IRAs which are established and maintained by eligible
        Employees. The Employer's contributions must be allocated on a nondiscriminatory basis. SAR-SEPs or
        salary reduction SEPs allow employees to make salary reduction contributions. They may not be established
        after December 31, 1996 so they are not considered here.

     2. The SIMPLE IRA. The SIMPLE IRA is a Savings Incentive Match Plan for Employees established pursuant
        to IRC § 408(p) . The Plan requires the Employer to make contributions to Employees' IRAs and allows
        Employees to make salary reduction contributions. A similar kind of plan allows contributions to a 401(k)
        Trust. Only the IRA form of plan is considered here.

B.     Forms.

     1. SEP-IRAs. Form 5305-SEP creates a Simplified Employee Pension.

     2. SIMPLE IRAs. Form 5305-SA creates a SIMPLE Individual Retirement Custodial Account. Form 5305-S
        creates a SIMPLE Individual Retirement Trust Account. Form 5305-Simple creates a Savings Incentive
        Match Plan Account.

C.     A Comparison

                            CHART 8: A COMPARISON OF SEP-IRAs AND SIMPLE IRAs

                                               SEP-IRA                                             SIMPLE IRA
 1. Who can                  • Corporation: "C" or "S"                       • Corporation: "C" or "S"
 establish?
                             • Partnership                                   • Partnership

                             • Self-Employed individual                      • Self-Employed individual

                             • Nonprofit organization                        • Nonprofit organization

                                                                             • Business must have 100 or fewer employees in
                                                                             the preceding year who earned at least $5,000 in
                                                                             compensation
                                                              • Business may not maintain any other qualified
                                                              retirement plan unless it is for collectively
                                                              bargained employees
2. Elegibility to   • Must include all employees over age     • Must include any employee who earned $5,000
participate         21 who have worked for employer for       or more during any two preceding years and is
                    any part of three of last five calendar   expected to earn $5,000 or more in the current
                    years.                                    year.

                    • May exclude employees earning less      • No age limit: Eligible employee includes an
                    than $400 in the current year.            employee over age 70½

                    • No age limit: Eligible employee         • May exclude union employees and certain
                    includes an employee over age 70½         nonresident aliens

                    • May exclude union employees and
                    certain nonresident aliens
3. Employer         • Employer can make voluntary             • Employer must make an annual contribution
Contributions,      contributions which are allocated as a    equal to: (1) a dollar-for-dollar matching
Limitations and     percent of compensation.                  contribution up to 3% of an eligible employee's
Vesting                                                       compensation (can be lowered to 1% in two out of
                    • Employer can change or discontinue      five years), or (2) a nonelective, nonmatching
                    contributions each year.                  contribution of 2% of compensation for each
                                                              eligible employee.
                    • If the Plan is Top-Heavy (i.e. 60% of
                    aggregate contributions are made for    • Contributions cannot exceed the 3% matching or
                    Key Employees), employer must make 2% nonmatching contribution.
                    a contribution of up to 3% of
                    compensation to all non-key employee • Employer contributions are deductible.
                    participants.
                                                            • 100% vested
                    • Employer deduction cannot exceed
                    15% of the eligible participants'
                    compensation.

                    • Contribution cannot exceed the lesser
                    of 15% of an eligible participant's
                    compensation or $30,000 (reduced to
                    $24,000 in 1998 because of $160,000
                    limitation on compensation)

                    • 100% vested
4. Discrimination   • Not required                            • Not required
Testing
5. Employee         • None                                    • Employee salary reduction contributions cannot
Contributions                                                 exceed $6,000 as adjusted for cost-of-living.
                                                              Contributions are deductible.
6. Timing to        • Must be established and contributions • Must be established and employer contributions
Create              must be made by the due date of         must be made by due date of employer's tax return,
                    employer's tax return, including        including extensions.
                    extensions.
                                                            • Employee salary reduction contributions must be
                                                            taken out of current compensation during the tax
                                                            year.
7.    Earnings      • Not taxed until withdrawn.              • Not taxed until withdrawn.
8.    Withdrawals   • Distributions are taxable as ordinary   • Distributions are taxable as ordinary income.
                    income.
                                                              • 25% penalty applies to withdrawals before two
                    • 10% penalty applies to withdrawals      years' participation; 10% rules apply after.
                    before age 59½ unless certain
                    exceptions apply.                         • Penalty-free distributions for:

                    • Penalty-free distributions for:               • Attainment of age 59½ and later

                            • Attainment of age 59½ and             • Death
                    later
                                                                    • Permanent disability
                            • Death
                                                                   • Series of substantially equal periodic
                            • Permanent disability            payments

                          • Series of substantially equal           • Qualified education expenses
                    periodic payments
                                                                    • Qualified first-time home purchase
                            • Qualified education expenses    ($10,000 lifetime cap)

                          • Qualified first-time home               • Medical expenses under IRC § 213
                    purchase ($10,000 lifetime cap)
                                                           • Tax-free rollover or transfer to a Traditional IRA
                            • Medical expenses under IRC § is permitted only after two years of participation in
                    213                                    the SIMPLE IRA.

                    • Minimum required distribution based     • Minimum required distribution based on life
                    on life expectancy. Must begin by         expectancy. Must begin by April 1 of the year
                    April 1 of the year following the year    following the year in which the employee attains
                    in which the employee attains age 70½     age 70½ even if the employee has not retired.
                    even if the employee has not retired.
9.    Loans         • None allowed.                           • None allowed.
10. Reporting and   • Minimal: No IRS or DOL reporting. • Minimal: No IRS or DOL reporting. Employer
Disclosure          Employer fills out SEP agreement and fills out SIMPLE agreement.
                    gives copy to employee when
                    employee becomes eligible.           • Employee fills out salary reduction form.
11. Other IRA       • Yes, up to $2,000 a year.               • Yes, up to $2,000 a year.
Allowed
12.    Appeal?      • Small business owner who wants          • Small business owner with 100 or fewer eligible
                    simplicity and a retirement plan for      employees who wants an alternative to a 401(k)
                    employees without costly                  plan and who wants simplicity in a retirement plan
                    administration.                           for employees without costly administration.

                    • Small business owner who wants to       • Small business owner who wants to encourage
                    contribute only if the company can        employees to reduce salaries to save for retirement
                    afford it.                                and doesn't mind making annual contributions.

                    • Works well with start-up and small      • Self-employed individuals with modest incomes
                    companies with roller-coaster profits     (no employees are required)
                    and low employee turnover.
                          • Self-employed individuals with
                          variable income (no employees
                          required)
13.      Drawbacks        • No salary reduction allowed              • Maximum contribution is $12,000 per year
                                                                     ($6,000 by employee salary reduction and $6,000
                                                                     by employer match)
14. Convert to            • Yes                                      • Yes, but only after expiration of two years'
Roth IRA?                                                            participation
                          • After conversion, the Roth IRA
                          ceases to be part of the SEP-IRA           • After conversion, the Roth IRA ceases to be part
                                                                     of the SIMPLE-IRA

VIII. EDUCATION IRAs

A. What are They? An Education IRA is a trust or custodial account created or organized in the U.S. exclusively
for paying "Qualified Higher Education Expenses" of a beneficiary. IRC § 530. The requirements for eligibility as a
trustee or custodian, the prohibition against investment in life insurance and against commingling property are the
same for the Education IRA as for Traditional and Roth IRAs. An Education IRA is not an individual retirement
plan within the meaning of IRC § 7701(a)(37). Amounts contributed to an Education IRA should not be treated as a
contribution to another individual retirement plan maintained for a taxpayer.

B. Forms. Form 5305-EA creates an Education Individual Retirement Custodial Account. Form 5305-E creates
an Education Individual Retirement Trust Account.

C.     Beneficiary. The beneficiary must be a life-in-being.

D.     Limitations in Contributions.

     1. Up to $500 in the Aggregate per Beneficiary. Beginning in 1998, taxpayers can contribute up to $500 in the
        aggregate per beneficiary in cash until the beneficiary reaches the age of 18, to an Education IRA.

     2. Over $500. Contributions over $500 per beneficiary for a taxable year are subject to the 6% tax on excess
        contributions under IRC § 4973(a) for each year that the excess contribution remains in the IRA.

E.     Deductibility. Contributions are not deductible.

F. Tax-Free Withdrawals. Withdrawals to pay the cost of a beneficiary's Qualified Higher Education Expenses
are tax-free so long as a HOPE credit or lifetime learning credit is not claimed for the beneficiary for the same tax
year and so long as the withdrawals are made before the beneficiary reaches age 30.

     1. "Qualified Higher Education Expenses" mean tuition, fees, books, supplies and equipment required for the
        enrollment or attendance of a designated beneficiary at an eligible educational institution. IRC §§ 529(e)(3)
        (A) and 530(b)(2)(A). Qualified higher education expenses include expenses for undergraduate or graduate-
        level courses, and generally include only out-of-pocket costs. For a beneficiary who is an eligible student, the
        term also includes reasonable costs incurred for room and board expenses while attending the educational
        institution. IRC §§ 529(e)(3)(A) and 530(b)(2)(A).

     2. To be an "eligible student," a beneficiary must be at least a half-time student in a degree or certificate
        undergraduate or graduate program at an eligible institution.

     3. An "eligible educational institution" generally is an accredited post-secondary educational institution offering
        credit toward a bachelor's degree, an associate's degree, a graduate-level or professional degree, or another
        recognized post-secondary credential.

G.     Annual Exclusion. For federal estate and gift tax purposes, contributions to an education savings account are
eligible for the $10,000 per donor annual gift tax exclusion.

H.     Earnings.

     1. Not Taxable. Earnings on contributions are not taxable until distribution, .unless the UBIT rules apply.

     2. 10% Additional Tax. Any earnings from an Education IRA distribution that are not used to pay a
        beneficiary's education expenses prior to the beneficiary's 30th birthday are included in the distributee's gross
        income and subject to a 10% additional income tax.

     3. Exceptions. There are some exceptions to the 10% additional tax if the beneficiary is deceased, disabled or
        receives a scholarship, allowance or other payment or if distribution of a contribution is made on or before
        the due date of the beneficiary's return including extensions.

     4. Distributions. Distributions from Education IRAs are treated as representing a pro rata share of contributions
        and earnings in the account pursuant to IRC § 72.

I. Rollover. Account balances may be rolled over tax-free from an Education IRA benefitting one family member
to an Education IRA benefitting another family member without triggering taxes or penalties.

     1. Different Generations. If the beneficiaries are not of the same generation, $50,000 of the transferred amount
        is exempt from gift and generation-skipping transfer taxes.

     2. Same Generations. Transfers within the same generation are exempt from gift tax. IRC § 530(d)(3).

     3. Includible in Gross Estate. The value of any interest in an Education IRA is includable in the estate of a
        deceased beneficiary.

J. Eligibility of Donor. Eligibility is phased out for donors who are single taxpayers with modified adjusted gross
income between $95,000 and $110,000 and for married taxpayers with modified adjusted gross income between
$150,000 and $160,000. IRC § 530(b)(1)(A)(iii) and (c).

K.     Choice.

     1. IT'S COMPLICATED: Modified AGI applies per donor, $500 limitation applies per beneficiary and the 6%
        penalty applies per beneficiary. Q: Who pays the penalty?

     2. In each tax year, taxpayers can opt either to take the Lifetime Learning Credit (20% tax credit for up to
        $5,000 per year for qualified tuition and related expenses) or the Hope Tax Credit (100% credit for first
        $1,000 of qualified tuition and related expenses and a 50% credit for next $1,000 of eligible expenses up to
        $1,500 a year) or tax-free distributions from an Education IRA. Probably, it will be a long time before
        Education IRAs accumulate enough earnings to make them preferable. However, if a donor contributed $500
        a year from the date a child was born to the child's 18th birthday, the Education IRA (assuming nothing is
        spent) would be worth:

         Growth Rate Value at 18th Birthday Value at 29th Birthday
              6%               $16,878                  $32,039
              8%               $20,721                  $48, 314
              10%              $25,581                  $72,986
     3. If the beneficiary waives the rule to exclude earnings from gross income, the grantor of the Education IRA
        may claim a HOPE Scholarship Credit or Lifetime Learning Credit during that year. IRC §§ 25A(e)(2) and
        530(d)(2)(C). The waiver can be made without the 10% additional tax.

L.     Investment. Assets may not be invested in life insurance contracts. Assets may not be commingled with other
property except in a common trust fund or common investment fund. IRC § 530(b)(1)(A)-(E).

M. Limitations. A taxpayer cannot make contributions on behalf of a beneficiary both to an Education IRA and a
state tuition program under IRC § 529(b) in the same tax year. (IRC § 530).

N. Termination. Any balance remaining in an Education IRA is deemed distributed within 30 days after the
beneficiary reaches age 30 or dies, whichever is earlier. On death, the surviving spouse or family member who
acquires the beneficiary's interest in the Education IRA is treated as the beneficiary.

O. No Rollover. An amount transferred from an Education IRA may not be rolled over to a Roth IRA. Prop Reg
§ 1.408-A-6, Q&A 18.

IX. SOME CONCLUSIONS

A. In General. IRAs don't require costly administration for the owner. They beat Qualified Plans when it comes
to ease of administration. No 5500's and no discrimination tests are required.

B. Traditional and Roth IRAs

     1. Start Early. A little goes a long way when it compounds tax free and can be withdrawn tax free. Annual Roth
        IRAs for children and grandchildren are attractive. All you need is an employer. Dad? Mom? Grandpa?
        Grandma? Traditional IRAs make sense if the taxpayer wants a deduction now.

     2. Low Tax Brackets. Lower tax brackets at time of withdrawal favor Traditional IRAs. Aren't most retirees
        likely to be in lower tax brackets? Is the rollover/conversion to a Roth IRA just a revenue raiser designed to
        collect taxes early? A retiree who needs the funds probably should not rollover or convert to a Roth IRA.

     3. No Need. Taxpayers who don't need the funds, who can control their AGI and limit it to $100,000 or less can
        convert a portion or all their Traditional IRAs to Roth IRAs, allow the funds to grow tax free and provide a
        wonderful inheritance to their children and issue without IRD consequences. The rollover/conversion Roth
        IRA is an excellent vehicle to accumulate funds to pass to beneficiaries at your death if you qualify for it.

C.     SEP-IRAs/SIMPLE IRAs

        Easy to establish for the employer. Q: Are the benefits enough?

D. Education IRA

        Requires close monitoring regarding contributions. Q: Is it worth it? Could be.

				
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