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Overcoming rollover fears and anxieties
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Dear Boomer Bucks,
I have an interesting dilemma.

I have a significant amount of stock in a hometown bank that I was given by my parents over time (estate planning). It has done very well and I do not plan to sell over the next 20 years; otherwise my family will never live it down. At the same time I'm interested in investing in real estate.

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I have an IRA and I am wondering if I can somehow transfer that stock to my IRA and get back cash without incurring taxes on the stock. Can I get a loan from my IRA and pay it back with stock? Do you have any suggestions?
-- Atlanta Geek

Dear Atlanta,
It's an interesting dilemma indeed if you receive stock as a gift, but can't sell it for 20 years.

Unfortunately, you can't sell stock that you own to your IRA. That would be a prohibited transaction. You also cannot borrow from an IRA, except for a short 60-day period, if you request a distribution for rollover purposes. However, it's generally a bad idea to borrow these funds for such a short period because of the risk that you won't complete the rollover within that 60-day window. You can take an early withdrawal from an IRA, but would have to pay taxes plus a 10-percent penalty if you're younger than age 59½.

You can invest in real estate with IRA proceeds if you select an IRA custodian that allows you to do so, points out financial planner Michael Kitces. "Not that it's an avenue I really encourage because it's full of pitfalls," he says, "but if the reader has cash available in the IRA for investing, he could choose to invest in real estate using the IRA funds."

Some IRA custodians that allow you to do this include Pensco, Equity Trust Co. and Entrust. Be wary of administration fees; they're much higher than you'd pay in an IRA account held with a broker.

My suggestion: If the stock has appreciated nicely, and you'd like to use the proceeds to invest in real estate, sell at least some of it and pay long-term capital gains tax. (You'll have to use your parents' cost basis to determine the taxable amount. If your parents had waited until after their death to give you the stock as an inheritance, your basis would be the fair market value of the shares on the date of death.)

The gift you received obviously has strings attached. See if you can cut them by talking to your folks about your financial needs or preferences. Also, I recommend that you consult a financial planner who can best advise you about diversification and the liquidity issues you may have.

Dear Barbara,
I am planning to retire from Kraft Foods on Oct. 1, 2006. I have the option of taking a monthly sum for the rest of my life as well as my wife. They also offer a lump-sum option. The pension plan pays about 6.33 percent. If I take the lump sum option it looks like the best I can do is 5 percent.

I would like to take the retirement in monthly payouts, but after reading your report on pensions is it wise to take this option? Can they stop my retirement payments once I have retired? Any advice you can give me is appreciated.
Thank you.
-- B.R.

 
 
Next: "Congress has been working on a pension reform bill. ..."
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