ROANOKE TIMES
Copyright (c) 1997, Roanoke Times
DATE: Monday, January 6, 1997 TAG: 9701070119
SECTION: THE MONEY PAGE PAGE: 6 EDITION: METRO
COLUMN: MONEY MATTERS
SOURCE: MAG POFF
Q: Before retiring last year at age 65 and while working in various employments, I took advantage of every tax-deferred retirement investment available to me, none of which I have yet tapped. Although none is them is very big, they include an IRA, Keogh, 401(k) and 403(b) accounts.
Is it possible for me to consolidate these accounts into one without suffering any penalties?
A: David Cissel, a certified financial planner with Financial Solutions in Roanoke, said you can consolidate your accounts provided you put the money into a rollover IRA.
After you do this, however, you cannot add any new contribution to that particular IRA. You must keep any future contributions in a separate IRA, Cissel said. Because you are retired and presumably have no earned income, you probably will not be making any future contributions anyway.
Cissel advised you to set up the new account with a bank, brokerage house or mutual fund of your choice and then have the trustees of your various retirement funds transfer the money directly. If you take control of any of the money at any time, the trustees must by law deduct 20 percent for federal income tax payments.
The only problem you might experience, Cissel said, is having a new trustee accept the types of securities you might own. As an example, he said, you probably cannot transfer a proprietary mutual fund (such as Merrill Lynch) to another family of funds (such as Fidelity).
Death doesn't change stock-price redemption
Q: I heard that if a person owns stock when he dies, then at a later date his stock can be redeemed at the value it was on the day that he died. They said that even if the stock should go down a month later, the stock would be redeemed at the value it was at the time of his death.
A: You heard wrong. Stock is always redeemed at the market price on the date of the sale.
Perhaps what your friends were discussing was the tax basis of the stock.
If you inherit stock (or anything else of clear market value) from an estate, your tax basis is the value of that item on the date of the original owner's death or at a specific valuation date six months after death.
This is a tremendous advantage for the person who inherits the stock. Most stock has run up in value in the long haul. This means that all of the gain during the lifetime of the original owner escapes taxation. You as the heir start with the value on the date of death in calculating your own gain.
If the stock should drop in value after the death, the heir would have some advantages in keeping the new tax basis. You could write off a higher loss, assuming the stock has gained some value over the years.
Anyone who inherits stock or any other asset should retain the records of the valuation made at the time of death in order to prove the tax basis later. The executor or administrator should make such a report to the court as part of the probate process.
Handling gift of money during a divorce
Q: My parents gave a gift to my brother and to me. He is currently in the process of getting a divorce.
The money was $20,000 apiece. I would like to know how we can avoid the tax.
A: You are saying that your mother gave you a gift of $10,000 and your father gave you a gift of $10,000. Any person can give any other person up to $10,000 a year without any tax consequences. You are fortunate to have both parents living so that they can each make independent $10,000 gifts. Because that is so, you do not have to pay any tax. But make sure that your tax records reflect separate gifts.
Your brother may have a problem, however, if he is getting a divorce. His estranged wife may lay claim to some of the money during the divorce settlement. Your brother should consult a certified public accountant or other experienced tax adviser.
LENGTH: Medium: 75 linesby CNB