Can't close MM IRA

About three years ago I transferred ( directly into a CD at my bank) 100% of a Roth IRA MM account at Profunds and last year I got some small less than one $ balance. The same thing happened to my Rollover Ira. I naturally called them up and asked what was going on and that they were creating tax problems - could they not just discard the amounts etc. This year I get a statement from Profunds for $0.18 for my rollover and $0.44 for the Roth.

To keep my taxes simple - what should I do - if anything. (Should I start trading into 20 different funds with one or two cents in each?)

Reply to
RC
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Are you saying you rollovered your account but somehow 18 cents left behind (maybe dividends or interest received after the rollover)? What is the statement -- is it just account information or some kind of 1099 form?

Reply to
removeps-groups

Account Statement, under heading of "Dividends and ST Cap Gains".

I'm 69 if that makes any difference.

Reply to
RC

Remind them that IRA accounts don't have form 1099 reportable amounts such as the above. Only contributions, withdrawls, and year-end balances are reportable (on Form 5498).

Reply to
D. Stussy

Then it looks like you just have a little bit of money left in the account (probably interest credited after you did the rollover). As this is not a 1099 form, it doesn't affect your taxes. Technically it affects your RMD because you have an extra 18 cents in the account, so your RMD, which might be like 5% of your total traditional IRA's depending on your age, will be higher. As long as it doesn't cost you anything, you could withdraw that 18 cents penalty free or roll it to your main IRA -- that would eliminate one account and save you junk mail. Remember a stamp costs 44 cents, so if you have to mail anything then it's not worth it. Or you could probably just ignore the account.

Reply to
removeps-groups

On Jan 18, 10:33 am, RC wrote: ...

Well, I would just ask them to do a full distribution of the IRAs to you.

That would add $0.18 to you taxable income for the year, and since you are 69 there wouldn't even be the 10% penalty on the distributions.

We had something similar happen when doing an IRA rollover, where the dividends arrived later. It was too small an amount for the new custodian to accept as a contribution, so we just took the ~$40 distribution and paid the $4 penalty, plus an extra buck to California. That was the simplest solution for us.

Reply to
Tom Russ

How do we know that the same problem will not exist next year - except for a smaller amount. Would there even be a 1099 for taxable amounts less than $500 or?? No need to report anything less than $1 Not sure what goes these days.

Reply to
RC

Well, I suppose that theoretically there could be, but if I interpret "MM IRA" to mean money market, I think it would take a long time for the interest on 0.18 or 0.44 to actually make it up to a full cent. Especially in the current interest rate environment. So I expect it to solve the problem. ;)

Reply to
Tom Russ

FYI - I am both an EA and a Registered Representative (investment guy). I see this all the time, here's the scoop.

This is caused because of something I call "Residual Distributions" (that may not be the real name, but its easy to understand my way). When you own an investment that pays - either interest or dividends - at some point they issue a payment to you. If you close out or transfer an account AFTER they've decided you're entitled to a payment but BEFORE you actually get that payment - your account will close then get reopened when they receive the payment.

This gets even more fun when you're using a brokerage that charges an account closing fee (I won't get into why some charge this, but some do). So you close your account, pay the closing fee and the next year find out that you now have $0.18 CENTS in your account. You tell them to close the account and they try to charge you another fee (one house I know of charges $110 to close small accounts). I don't know any one who wants to pay $110 to get 18 CENTS. So sometimes these accounts simply get ignored under the "screw that" mindset. Another year goes by and now you get an "Inactivity Fee" assessed against your account - because you did nothing during the year. So you try to resolve this, and the cycle starts all over again.

This is just one reason why its important to know the declaration date, record date and payment date AND to check back on the original investment to make sure you didn't get any of these.

This problem is also part of the "held in street name" concept -

Initially when someone bought stock they would get the physical certificate to hold themselves. When they wanted to sell that investment they had to deliver the actual security to a clearing house, have it validated, then sold. You can imagine missing out on some ups in the market because you couldn't do this very quickly. So the came up with the "street name" concept.

Essentially (and oversimplified), when an investment is held in the street name, its the brokerage house whose name is on the investment. For example, ABC Brokerage may already own 1,000 shares of XYZ company stock. I open an account with ABC and buy 100 shares of XYZ stock - on ABC's ledgers they assign ownership of 100 shares to me. XYZ pays the dividends to ABC and ABC pays them to me. This is why ABC sends me a 1099 instead of getting one directly from every company in my portfolio.

The up side is that when I want to sell all I have to do is tell ABC - they already have the certificates in their hands, know they are valid, and can trade almost immediately. The down side is that XYZ may not know or care that I exist. It is this system that leads to "residual distributions" and causes the brokerage house to continually re-open a closed account.

If you rattle your sabre loud enough they will close the account for you for no charge.

Gene E. Utterback, EA, RFC, ABA

Reply to
Gene E. Utterback, EA, RFC, AB

When you close a money market or savings account you should always remind them to calculate the accrued interest. Some banks do this automatically.

Gary

Reply to
Gary Goodman

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