Don't overlook the Roth five-year holding requirement

The new, less restrictive rules in effect this year for Roth conversions may have you pondering whether now's a good time to convert your traditional IRA funds to a Roth IRA. While your decision involves many factors, one wrinkle to consider is the five-year holding period for converted assets.

The time limit has nothing to do with distributions of regular contributions from your Roth. As you know, you can withdraw regular contributions at any time, tax- and penalty-free, no matter your age. That's because you deposit those amounts into your Roth using money on which you've already paid income tax.

Rather, the five-year holding period comes into play when you're under age 59½ at the time you make a Roth conversion. In that case, you'll generally have to wait five years (or until you turn 59½, whichever comes first) before you can pull the "conversion assets" out penalty-free.

When you fail to meet the five-year rule, the penalty is the same 10% you'd pay if you took an early withdrawal from your traditional IRA. That's the purpose of the five-year rule - to discourage premature distributions from retirement accounts.

Once you reach age 59½, the 10% penalty disappears, though the five-year holding period for converted assets may still apply. For example, say you use the conversion to fund an initial Roth. During the first five years your new account exists, you'll pay ordinary income tax on withdrawals of the income earned from the converted amounts.

The five-year holding period can also affect your beneficiaries. For instance, if you had no prior Roth account before making a conversion, your beneficiaries will pay ordinary income tax on distributions of earnings. However, they can withdraw converted amounts with no federal income tax or penalty.

Give us a call to discuss this and other Roth conversion rules. We're ready to help.

Maris & Associates CPA's  

10512 19^th Ave SE #101, Everett, WA  98208 ~ 425-338-0414 ~  info@mariscpa.com  
Visit our Website www.mariscpa.com for more resources and information.

How to prevent employee theft

Employee embezzlement and other forms of theft often follow a predictable pattern. First, the employee is faced with significant external pressures such as high gambling debts, mounting medical bills, or substance abuse problems. To relieve this pressure, he or she finds an opportunity to steal from the company, especially if the firm's internal controls are perceived to be weak. From there, it's easy to rationalize fraudulent behavior - "I'll just take some money now, and pay it back later," or "I deserve a raise, but management's stingy, so I'll provide it myself," or "They've got plenty. They'll never miss it."

As a business owner, what can you do to prevent employee embezzlement and theft?

~ Screen job applicants thoroughly. Review a potential employee's criminal history, verify education and past employment, and check references. If an applicant is willing to lie on a resume, why should you trust that person with your business assets?

   

~ Make your policy crystal clear. Your employees should know that theft of any kind will not be tolerated, and managers should model integrity in their interactions with clients, competitors, and government regulators.

~ Segregate duties. If one employee takes in cash, someone else should prepare or oversee preparation of the cash deposit, and another should record transactions in the company books. Although such separation of duties may be hard to establish in a small company, creative owners will find ways to prevent such transactions from being concentrated in the hands of a single employee.

~ Conduct regular audits. Employees should know that their activities are subject to surprise reviews and an annual independent audit. They'll be less likely to steal if they know that someone is following after them, checking their work.

~ Track down customer complaints. If a customer claims that a bill was paid but a credit doesn't show up in the accounting records, an employee might be stealing your business receipts.

Homebuyer tax credit is extended

If you signed a contract before May 1st to buy a home, but have been unable to close the deal, you still have time to apply for the homebuyer tax credit. The deadline for finalizing the paperwork on your new home has been extended through September 30, 2010.
Here's what you need to know:

~ The extension applies only if you already had a contract in place by April 30, 2010. The new deadline is available for first-time homebuyers and long-term residents.

~ The maximum credit remains unchanged ($8,000 for first-time homebuyers and $6,500 for long-time residents) as do other rules for qualifying.

~You can claim the credit on your 2009 or 2010 federal income tax return. You'll have to complete Form 5405, First-Time Homebuyer Credit and Repayment of the Credit, and attach proof that you meet the requirements.

Not sure if you qualify? We can help. Please call 425-338-0414 or email us at info@mariscpa.com for more information.
Maris & Associates, CPA's Inc
www.mariscpa.com