Michael G. Bunney - Page 8

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               Recognition of community property interests in an IRA for              
          Federal income tax purposes would conflict with the application             
          of section 408 in several ways.  As an initial matter, an account           
          imbued with a community property characterization would have                
          difficulty meeting the IRA qualifications.  Section 408(a)                  
          defines an IRA as a trust created or organized “for the exclusive           
          benefit of an individual or his beneficiaries”.  (Emphasis                  
          added.)  An account maintained jointly for a husband and wife               
          would be created for the benefit of two individuals and would not           
          meet this definition.  See Rodoni v. Commissioner, 105 T.C. 29,             
          33 (1995) (“as its name suggests, the essence of an IRA is that             
          it is a retirement account created to provide retirement benefits           
          to ‘an individual’”).                                                       
               Secondly, recognition of community property interests would            
          jeopardize the participant’s ability to roll over the IRA funds             
          into a new IRA.  Section 408(d)(3)(A)(i) provides that                      
          distributions out of an IRA “to the individual for whose benefit            
          the account * * * is maintained” are not taxable under section              
          408(d)(1) if the entire amount received is paid into an IRA “for            
          the benefit of such individual” within 60 days.  (Emphasis                  
          added.)  The rollover of a community-owned IRA would doubly fail            
          because both the distribution and contribution would involve two            

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Last modified: May 25, 2011