Has anyone heard of increasing penalties on closing out IRA?greenspun.com : LUSENET : TimeBomb 2000 (Y2000) : One Thread
Has anyone heard that they might increase the penalties from 10% to whatever when closing out an IRA? A friend on the internet told me that the government might do this soon to prevent just what a lot of us are thinking about doing, if not already doing.
-- Pat Spruce (firstname.lastname@example.org), March 31, 1998
One possible way to protect your IRA assets during the moment of truth is to switch custodians or trustees via a rollover. With the rollover, you can take physical possession of your retirement plan assets and wait 60 days before switching those assets into a new plan. Generally speaking, a rollover is subject to 30% withholding i.e., 20% Federal income tax and 10% penalty, which eventually can be reclaimed on your income tax return as long as the 60-day rollover provisions are met.)
Assuming that there are no material rule changes enacted by the IRS prior to 1-1-00, one could initiate a rollover on 11-15-99, hopefully get a check on or before 12-15-99 (at which time the 60-day rollover clock would begin ticking), cash the check, hold the proceeds in physical cash, t-bills or precious metals until 2-10-00, at which time you would assess whether or not it was safe to roll into a new retirement plan. If the coast looked clear, you would rush like mad to complete your rollover by 2-15-00. However, if it looked like the party was over, the 30% withheld portion would by then be drifting to the bottom of the North Atlantic along with the IRS but you would still have 70% of the original assets in your lifeboat.
Obviously, a banking system breakdown prior to 1-1-00 would neutralize this gameplan, but lets hope that the ship stays afloat long enough for us to complete this type of lifeboat drill...
-- Randy L Flink (CFA100@msn.com), April 02, 1998.
Check that advice again before following it. The rules changed in 1993 or 1994, and most if not all of the situations where you can hold those assests for 60 days without penalty have been removed. Now, rollovers must generally be accomplished via direct transfer between custodians. Consult your accountant or financial advisor.
-- Paul Neuhardt (email@example.com), April 02, 1998.