A local CPA says various of his clients have been telling him that there is a dollar maximum on the amount that can be accumulated in an IRA. News to him, news to me. Anyone have an idea where this is coming from? My best bet is a life insurance agent or broker giving bogus advice, but I'd be interested in knowing if there's any basis for the rumor.

Thanks.

Mac

Why would you assume that the bogus advice (and it is surely that!) comes from an insurance agent or broker?



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John L. Olsen, CLU, ChFC
Olsen Financial Group
St. Louis, MO

The client is probably referring to excess accumulations - It used to be that, if you didn't make a proper election to grandfather your large IRA on your tax-return ('86 thru '88 I think???) and you took periodic annual distributions in excess of $150,000 or one very large ($650,000???) lump sum distribution (again, I'm not positive on the exact numbers) you would owe an excise tax. This has been repealed. There is still (I think) an excise tax owed by the estate of a deceased IRA holder whose IRA is substantial.

I remember one client whose required minimum distributions put him over the amount for which an excise tax would be owed. Wouldn't that be a great problem to have????

Why would I assume that the bogus advice comes from an insurance agent or broker?

Well, John, I too am a CLU, ChFC, agent and broker, and I would never think of disparaging my peers . However, 1) there are few (around here at least) who know much about the retirement plan laws; 2) many who act as if they know a lot; and 3) many of those can be amazingly creative and convincing. In my experience, a huge amount of misinformation about small plans (IRAs, SEPs, SIMPLEs) is put out there by brokers who truly don't know what they're talking about. I've heard others elsewhere say that the same is often also true of insurance agents.

Mac

The Excise Tax on "excess accumulatons" in IRAs and qualified plans (IRC 4980A) has been repealed.

Mac,

I don't dispute that MANY "financial advisors" life insurance agents, stockbrokers, financial planners - even some accountants and attorneys - who offer opinions on retirement planning, and technicalities therein, are woefully ignorant.

I simply wondered why you were picking on life insurance agents specifically. As you say, the ignorance is widespread.

When it comes down to the technicalities of the distribution rules (our beloved 401(a)(9)), the spread of bum information has reached epidemic levels.



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John L. Olsen, CLU, ChFC
Olsen Financial Group
St. Louis, MO

Well I've just been talking to the "investment adviser" used by my employer for their 403(B) plan (annuities sold through an insurance company). Talk about woefully ignorant! I had, among other things, to tell HIM how much my maximum contribution could be! Of course he's very keen for me to sign on. The plan is dreadful, the costs are high, and employees are trapped in the system because it's too expensive to get out.

He's an insurance salesman, nothing more, with a vested interest in flogging the products on which he receives a commission. How much bad advice is he giving his client companies and their employees? And how much erroneous information is he passing on, based on a very sketchy knowledge of the regulations governing retirement plans? Hmmm ...