Money Management Q&As

February 3, 2006

How IRA distributions affect Roth conversions

Q. I expect that my adjusted gross income will be about $90,000 in 2006, so I'd be permitted to convert my traditional IRA to a Roth account. But because of my age, I have to take a $15,000 minimum distribution from the IRA this year. Would that bar the conversion?

A. No. Although you'll have to include all of the money in your 2006 income, you'll still qualify for a Roth conversion if your other AGI doesn't exceed $100,000. Be sure to withdraw the $15,000 from the account before you initiate the conversion, however. The regulations don't allow you to transfer a required minimum distribution from a traditional IRA to a Roth.

Q. I booked a vacation trip to Quebec through an online travel service and learned after I came home that visitors to Canada are entitled to a refund of the 7 percent visitor tax on accommodations. The travel service says it has no authority to give me the refund. Am I out of luck?

A. Maybe. An official Canadian brochure states that it's likely "your tour organizer has already credited the tax refund in the price of your tour package. In this case, you cannot claim the tax refund. Check with your tour organizer to find out." The fine print on your travel voucher may clarify your eligibility, but many services duck the subject. If you have receipts for your Canadian hotel bills, go to http://www.craarc.gc.ca/E/pub/tg/rc4031 and follow the instructions for submitting them.

If your spouse leaves you shares of stock

Q. When my husband died last year, I inherited some stock he'd bought about 20 years ago. Both our names are on the stock certificate. The shares were worth $40,000 at his death, but I can't find anything in his papers showing the date he bought them or what he paid, and the brokerage firm he used has long been out of business. If I sell the stock for $50,000, do I report a $10,000 capital gain?

A. It depends where you live. For federal tax purposes, you each owned half the shares before your husband's death. If the two of you lived in a community-property state, the date-of-death value applies to both halves, so your present cost basis is $40,000 and your taxable gain would be $10,000. But under IRS regulations, in a common-law state only his half gets the date-of-death value. Then your present cost basis would be $20,000 plus half the original purchase price.

In that case, you'll need to determine the purchase price to figure your gain. The registration date shown on the stock certificate will give you the date you need; your current broker or the issuing company's investor services department may be able to tell you the share price on that date. If not, check out a printed source like Standard & Poor's Daily Stock Price Record, available in some reference libraries, or a website like finance.yahoo.com or http://www.marketwatch.com.

Providing for a backup to handle your finances

Q. If I ever become incapacitated, I'd want my brother to handle my affairs. How can I make sure the financial institutions where my assets are located would allow him to take over for me?