Pub. 7 2017-2018 Issue 4

O V E R A C E N T U R Y : B U I L D I N G B E T T E R B A N K S - H E L P I N G C O L O R A D A N S R E A L I Z E D R E A M S January • February 2018 23 preserve potential income averaging and capital gains tax treatments (if eligible). IdentifiableRetirement PlanAssets Some savers keep their retirement plan assets separate in a conduit IRA for their own recordkeeping. Keeping them separate also may benefit those who seek bankruptcy protection. Under the Bankruptcy Abuse Prevention and Con- sumer Protection Act of 2005, certain qualifying assets can be exempted from an individual’s estate for bankruptcy protection. IRA assets are protected up to $1.28 million (subject to adjustment every three years). Retirement plan asset exemption is unlimited, even after being rolled over to an IRA. Those with more than $1 million in plan assets could roll the assets over to a conduit IRA to more easily track for this purpose. Capital Gains and Income Averag- ing Tax Treatments Capital gains and income averaging are federal tax treatment options only available to certain retirement plan dis- tribution recipients whowere born before January 2, 1936. These special formulas are used to figure a separate tax on the distribution and may result in a smaller tax for the recipient. IRAdistributions do not qualify for these tax treatments. These tax treatments remain available for retire- ment plan assets in a conduit IRA that are later rolled back over to a retirement plan because they were not commingled with other IRA assets. Capital gains tax treatment is avail- able for the portion of a lump-sumdistri- bution attributable to plan participation before 1974. Income averaging, which the IRS calls the “10-year tax option,” allows eligible individuals to determine their tax using tax rates that were in effect for single taxpayers in 1986. These tax treatments are explained in IRS Form 4972, Tax on Lump-Sum Distributions. Value Is in Customer Service Not many individuals will find value in the dying conduit IRA. Few circum- stances require the use of a conduit IRA, and those circumstances only affect plan participants in their 80s. The real value your organization can offer is great cus - tomer service. You can provide conduit IRA benefits without sacrificing resourc - es in promoting a product that many will not need. An individual can create a “conduit” IRA simply by opening a new IRAwithhis retirement plan rollover and not otherwise contributing to it. If your clients ask about the conduit IRA bene- fits, educate themas you feel comfortable and encourage them to see a competent tax advisor. By doing so, you’ll help your clients understand whether they will benefit from a conduit IRA. Stephanie Swanson, Copywriter, Ascensus Stephanie Swanson started her career with Ascensus in 2011. As a copywriter, Stephanie contributes to Ascensus’ online and printed publica- tions, education materials, and client communications. She researches and writes on a variety of retirement and savings plan topics, including IRAs and HSAs. She has earned the Certified IRA Professional (CIP) designation and holds a Bachelor of Science Degree in Marketing Communications and Mass Communications from Bemidji State University in Bemidji, MN. n About Ascensus Ascensus helps more than 7 million Americans save for the future—retirement, college, and health- care— through service and technology solutions. With more than 35 years of experience, the firm offers tailored solutions that meet the needs of banks, credit unions, states, governments, financial professionals, employers, and individuals. Ascen- sus supports over 50,000 retirement plans, more than 4 million 529 college savings accounts, and a growing number of ABLE savings accounts. It also administers more than 1.5million IRAs and health savings accounts. For more information about Ascensus, visit www.ascensus.com .