Sidney Blum Sidney A. Blum, CFP, CPA/PFS, ChFC, is president of Successful Financial Solutions, Inc., a fee-only financial planning and registered advisory investment firm based in suburban Chicago. Sid specializes in comprehensive financial planning with an emphasis on income and estate taxes, retirement planning and investment planning. Sid has appeared on national and regional television and is frequently quoted in many major publications on financial planning and investment topics. He has been included the last three years in Worth magazine's, "The Best Financial Advisors". For more information, visit Sid's website or call (800) 417-1141.

Richard Chiozzi Richard E. Chiozzi is a founding principal of Successful Financial Solutions, Inc., a fee-only financial planning and registered advisory investment firm based in suburban Chicago. Richard is a Certified Financial Planner (CFP), and a Registered Securities Principal. He has been in the financial service industry since 1981 and has lectured at NAPFA and ICFP national and regional conferences. Richard is a frequent author on financial planning issues in leading financial publications and also hosts a one-on-one cable television talk show in suburban Chicago. Richard can be reached at his website or call (800) 417-1141.

Questions and Responses

Can I get back the tax I paid for an early IRA distribution?

Did I make a mistake buying a mid-cap fund?

Next volume 
(note: due to the time-sensitivity of some financial questions, earlier volumes of our Q&A have been removed)

Can I get back the tax I paid for an early IRA distribution?

from Christine

Q: In 1997, I had to take $16,000 out of my IRA to pay medical bills and live on a limited budget. I did not report this additional income to the IRS as I didn't know it was taxable. the IRS sent me a letter saying I owed approximate $2,200--including penalties. to pay that off, I took more money out of my IRA. I now realize that my medical expenses could have been an exception to the early distribution tax. What do I do to get my money back? 

I'm in desperate financial straits. I am 41 years old.

How are contingent beneficiaries of an IRA holder taxed?

from Curt

Q: My father had an IRA with my mother as beneficiary and his three sons as contingent beneficiaries. My father was 75 and had chosen a joint life expectancy with my mother, as his election for 1998. My mother died one week prior to my father in 1998. Our ages (contingent beneficiaries) are 49, 50 and 55. How do we treat the proceeds from this IRA account?

I've read that under section 242(b)(2) election that since the oldest beneficiary was more than ten years younger than the participant, that we could use the eldest contingent beneficiary's life expectancy as the basis for our taxable withdrawals. Please let me know if I am correct in this interpretation.

A: (Sid)  Since your father was over age 701/2, and we have assumed that your mother was also over the age 70 ½, they were already subject to the required minimum distribution rules.

You have indicated that the distributions on your father’s IRA were based upon the joint life expectancies of your mother and father.  Under the joint life distribution election, your parents may have elected different payment methods:  term certain or recalculation.

If the recalculation method was utilized, then the remaining account balance needs to be distributed to the beneficiaries (you and your siblings) by December 31^st of the year following the year of death.

If the term certain method was utilized, then the distribution needs to be taken at least at rapidly as payments were being made during your father’s lifetime.

You and your siblings may have the option of dividing the account balance three ways so that each of you can manage your own portion of the account.  If you do, the account should not be retitled.  The account would remain in your father’s name with the F.B.O. (for benefit of) child’s name.  But you will have the same required distribution percentage on all three accounts.

from Lori

Q: I recently came into some money that I invested in mutual funds.  I knew nothing when I started, and am trying to learn quickly.  I have a diversified portfolio, but before I actually invested the money, didn't really know how to research the funds.  There are six funds altogether, and all but one, my mid-cap stocks, are rated average to above average when compared to similar funds.  

The mid-cap stocks, however, are rated way below average and an expert recommended in April that people sell the fund quickly.  I have 15% of my portfolio, or approximately $15,000 invested in this fund.  I only invested this money about a week ago.  

My question is do I get rid of this fund immediately or do I hold it for 6 months or a year and see how it does?  I am not positive about how the commissions work for my financial advisor so do not totally trust him to give me the best advice.  After all, if he were trying to do what was best for my portfolio, why would he have put me in this fund in the first place? 

A: (Richard)  I recommend that you talk with your financial advisor about the reason(s) that he wanted you to invest in the mid-cap fund in the first place.  It is quite possible that the mutual fund remains a solid investment selection even though it may have fallen off some “expert’s” recommendation list.  

The problem with one-size-fits-all recommendations is that they often are given as if the investor holds no other funds.  Perhaps the expert decided to favor large company, growth oriented mutual funds instead of the mid-cap fund.  Such a recommendation may not be appropriate for you if you are already holding one or two large company, growth oriented funds. 

Important Disclaimer

Investing in equities involves a serious principal risk, and no assurance can be given that the techniques described here will be successful. Returns vary and you may have a gain or loss when you sell your shares. Past performance is no guarantee of future results. Index returns shown are historical and include the change in share price, reinvestment of dividends, and capital gains. Indexes are unmanaged and do not reflect the impact of transaction costs. Transaction costs would have reduced the total returns.

International investments, especially those in emerging markets, entail greater risks (as well as greater potential rewards) than U.S. investing. These risks include political and economic uncertainties of foreign countries, as well as the risk of currency fluctuations. These risks are magnified in countries with emerging markets, since these countries may have relatively unstable governments and less-established markets and economies.

Lastly, the questions and responses set forth here are for general informational purposes only and are not intended to substitute for performing your own independent research or contacting your financial or legal professional before making any investment decisions. We make no guarantees as to the performance of any investment strategy you choose and are not responsible for any losses you might incur.