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Non-Tech : MB TRADING

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To: tom pope who wrote (4506)	4/12/1999 11:37:00 PM
From: Colin Cody	Read Replies (2) of 7382

Having done a prohibited transaction the IRA is disqualified by the IRS retro-active to January 1st of the year of the prohibited transaction. The penalty for removing all the funds from the IRA after such a prohibited transaction is that the taxpayer needs to pick up all the proceeds as income (no rollover allowed) and if he's under age 50.5 then the 10% penalty needs to be paid. The penalty for NOT removing all the funds from the IRA after such a prohibited transaction is that there is an annual penalty due (about 6% or so per year) until such time as the taxpayer removes all the funds as per above. Only the specific IRA account that had the prohibited transaction is disqualified. That's one reason for having multiple IRA accounts, so you don't taint all your IRAs with one mistake. I have never seen a court case where the taxpayer prevailed under such circumstances, even if it wasn't the taxpayer's fault. Clinton recently has stated that he wants to lighten this rule up to allow consideration for incompetent persons, and certain other taxpayers who can not handle their own affairs. Colin

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