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Perhaps these are best reserved for a tax/accounting professional, and if so, I appreciate you tellinng me so :-)

I have a Rollover IRA in my name, and a Traditional IRA in my wife's that I've not been a very good custodian of, and now I want to ensure I have my record-keeping in order moving forward so that there's no issues down the road when we finally retire and want to take distributions, etc.

My Rollover IRA received a rollover distribution from a qualified employer's plan (401(k)) in early 2004. A couple of trades were made over the course of the next several months, and ultimately, I took a non-qualified distribution of the entire account balance, paying the taxes and fees, etc, as appropriate. The balance withdrawn from the account was $2,766.95 less than the original rollover amount due to poor trading (I know - I made lots of stupid mistakes in the past), and the balance left following the non-qualified distribution was $0.02 which has sat untouched in the account since 2004. I would have filed a Form 8606 in 2004 if required (I'd have to pull my taxes to verify, and don't have access right now); but definitely have filed anything on this account since then.

In the wife's Traditional IRA, 42 shares of an Index Fund were transferred directly into the account in early 2003 (I don't even remember where these came from... that would take some digging), and later and additional $400 of regular cash contributions were made. Funds were bought and sold over the course of the next year, and in 2004, a non-qualified distribution of the entire account was taken, leaving a balance of $0.21 (which strangely enough, seems to have disappeared... the current available balance on the account - accordinng to the website - is $0.00, not $0.21). As before, I'm certain the correct paperwork was filed in 2003 and 2004, and that nothing has been filed since.

What I am looking to do is start fresh with the wife's account... make regular, tax-deductible contributions, not take any further non-qualified distributions, and allow the investment and earnings to accumulate until retirement ( > 30 years from today).

Based on the previous activity in the account, is there anything special I need to do? Am I delinquent on 6 years of Form 8606, or since the account balance has been $0.00 (or $0.21) since 2004, with no activity, is it alright? Do I have any basis in the account, or since the last activity was a complete distribution and the current available balance is $0.00, is it just as good as starting from a new account, and I should just keep my records moving forward?

With the Rollover account in my name, I think I need to simply close that one out and be done with it - I do not plan on any further contributions to that account as I have a Roth that will recieve my contributions moving forward.

And lastly, regarding that Roth, it has a current balance of $54.12 - essentially it was opened in 2003 with an ACH transfer of cash, has accumulated a few cents of interest over the years, but has had no further activity. When I begin investing regularly in that account, filing the new 8606s, etc, will it be current? Is there anything I need to do to "account for" the past 7 years of inactivity (I haven't filed any 8606 since the first year, etc).

I know this was long, and I appreciate you reading this far. Any advice fellow fools can offer is greatly appreciated!

--
FoolRedo
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Ask your questions on this board, very knowledgeable people and a TMF'er who is a former IRS person. He's (TMFPMarti) very good.


http://boards.fool.com/tax-strategies-100155.aspx?mid=290069...
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Will do; thank you for the tip!
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Foolredo
You are a bit confused on how an IRA is set up and rules governing withdrawals. Let me go through and point out a few things so that you might better understand your situation.

I have a Rollover IRA in my name, and a Traditional IRA in my wife's

A rollover IRA is a Traditional IRA (TIRA)...there is no difference.
And you could not hold an IRA in anyone's name other than your own, although each IRA should have a named beneficiary and a contingent beneficiary.

I took a non-qualified distribution of the entire account balance

I assume you mean you took a withdrawal prior to age 59.5? If so, this is really not "non-qualified", as would be the case of a Roth IRA withdrawal...its just an early withdrawal that will be subject to a 10% penalty on the amount you have to include in your gross income on your tax return for that year.

the balance left following the non-qualified distribution was $0.02 which has sat untouched in the account since 2004. I would have filed a Form 8606 in 2004 if required (I'd have to pull my taxes to verify, and don't have access right now); but definitely have filed anything on this account since then.

Why do you feel you need to have filed a form 8606? Did any of your IRAs have basis in them prior to the withdrawal? If so, then you would need to file an 8606. If not, you wouldn't

Based on the previous activity in the account, is there anything special I need to do? Am I delinquent on 6 years of Form 8606, or since the account balance has been $0.00 (or $0.21) since 2004, with no activity, is it alright? Do I have any basis in the account, or since the last activity was a complete distribution and the current available balance is $0.00, is it just as good as starting from a new account, and I should just keep my records moving forward?

Whether you elect to 'start over' or not has no bearing on contribution limits, withdrawal rules, tax deductiblity of your annual TIRA contributions or anything else I can think of...its really a state-of-mind you have that may help you to make disciplined contributions and leave the $$ in the IRA alone until requirement.

With the Rollover account in my name, I think I need to simply close that one out and be done with it - I do not plan on any further contributions to that account as I have a Roth that will recieve my contributions moving forward.

Again, whether you keep TIRA account X or TIRA account Y has nothing to do with the rules for contributing to or withdrawing from an IRA. However, to make it easier, you should probably close out any accounts that you are not using, because even with $.01 in an account will require the custodian to send you annual statments.

And lastly, regarding that Roth

Which 'Roth' is that? You haven't mentioned a Roth to this point. Did you establish a Roth earlier that you've contributed to over the years or done a conversion into?

essentially it was opened in 2003 with an ACH transfer of cash.

Ok....so if this 'ACH transfer' was from a taxable account, then you made a Roth Contribution of $XXX in 2003.

When I begin investing regularly in that account, filing the new 8606s, etc, will it be current? Is there anything I need to do to "account for" the past 7 years of inactivity (I haven't filed any 8606 since the first year, etc).

When you say 'actively investing in', do you mean contributing to the Roth or simply choosing investments within the Roth without adding to it? In any case, this really has nothing to do with your ability to continue making contributions to the Roth of up to $5,000 this year...but the contributions have to be made by April 18 (this year) to the Roth for 2010, if you haven't made your 2010 contribution yet.

You keep mentioning the form 8606, which has no relevance to what you are doing. The form 8606 is filed only if one of the following 4 events occur:
1. You make an after tax contribution to your traditional IRA or withdraw from a TIRA, SIMPLE or SEP IRA when one of your TIRAs has basis
2. A Roth Conversion
3. You make a rollover conversion from your employer's qualified retirement plan to either your own Roth IRA or to a Roth IRA associated with your employer's plan.
4. Non-qualified distributions from your Roth IRA.

You sound like you are new to this, so here's what I'd suggest:

Contribute 10 to 15% of your gross income to:

1. a combination of your employer sponsored 401(k) or 403(b) or 457(b) plan, if offered AND to to your TIRA or Roth IRA. The TIRA contribution you and your wife make may be deductible if your adjusted gross income does not exceed $90,000 if you are married and file your taxes jointly. If you make too much to deduct it but have an Adjusted Gross Income that is less than $169,000, then you should make your non-deductible contributions to your Roth IRAs. If you make too much to contribute to your Roth IRA(s), you can make non-deductible contributions to your TIRA(s), but you will have to file the form 8606 each year you make an after tax contribution to your TIRA(s).
3. Within your employer plan and IRA, invest in a Target date fund, with the date on the fund representing your expected year of retirement (you'll need to figure that out)
4. Leave it alone

Hope that helps

BruceM
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