Protecting IRA account assets

Oct. 1, 2003
Recently I read an asset-protection article recommending the transfer of an IRA account into a qualified retirement plan. Is this legal in Ohio?

Charles Blair, DDS and John McGill, MBA, CPA

Recently I read an asset-protection article recommending the transfer of an IRA account into a qualified retirement plan. Is this legal in Ohio?

Yes, there is no state law prohibiting the transfer of assets from an IRA account into a qualified retirement plan, since federal law (ERISA) governs. However, doctors should be aware that not all amounts in IRA accounts can be transferred.

As a general rule, only taxable amounts in IRA accounts can be rolled over into a qualified plan. Accordingly, amounts contributed to an IRA through either nondeductible contributions or through Roth contributions cannot be transferred into a qualified plan for asset-protection purposes.

Furthermore, doctors should note that some states do afford limited and/or full-creditor protection to IRA accounts. In these states, this move may not be necessary to protect these assets from the claims of creditors. For a state-by-state listing of IRA protection laws, send a stamped (66 cents), self-addressed envelope to Blair/McGill & Company, 2810 Coliseum Centre Drive, Suite 360, Charlotte, NC 28217, and request "State Laws Regarding IRA Creditor Protection."

Recently, I read that my wife could be paid a $15,000 salary annually and that since she is over the age of 50, she could contribute a $12,000 regular salary-deferral contribution and a $2,000 "catch-up" contribution to my practice's 401(k) profit-sharing plan. I thought contributions to retirement plans were limited to no more than 15 percent of pay.

This is no longer true. Recent tax laws have substantially changed retirement-plan rules. One of these changes allows employees to make salary deferrals of up to 100 percent of their pay, subject to the annual deferral limits. Accordingly, salary-deferral contributions to 401(k) profit-sharing plans are no longer limited to any certain percentage of paid compensation.

Last year, I bought a new car through my practice and used it 30 percent of the time for business and 70 percent of the time for personal reasons. I turned in my records to my accountant, but he says that I am not entitled to a business deduction for my automobile since I did not use the car at least 50 percent of the time for business purposes. Is this correct?

No, falling below the 50-percent limit does not eliminate business-car deductions, although it does prohibit you from using accelerated-depreciation methods and the Section 179 expensing allowance available for the purchase of certain business cars. You are still entitled to deduct 30 percent of your actual business car expenses (gas, oil, repairs, maintenance, insurance, title, tags, etc.), as well as 30 percent of the depreciation on the car using the straight-line method. Alternatively, you can use the flat per-mile deduction amount (36 cents for 2003, plus tolls and parking) for any business driving.

I just finished reviewing my 2002 corporate income-tax return and noticed that my CPA deducted only 50 percent of amounts listed as "travel and entertainment," causing me to lose $8,000 in deductions. Included in the total amount was money that I had spent for travel, meals, lodging, and tuition for various continuing-education courses, as well as in-office meals for staff meetings and staff luncheons and retreats. Did my accountant handle this correctly?

No! Don't fire your accountant — shoot him! Unfortunately, he's working for the IRS, but being paid by you!

While Section 274 of the tax law does impose a 50 percent limitation on some of these expenses, it applies only to certain "meals and entertainment" expenses. Travel, lodging, and tuition related to continuing-education courses are 100 percent deductible and should be categorized separately. Moreover, the cost of in-office meals for staff meetings — as well as recreation and social expenses incurred primarily for the benefit of the staff — also are 100 percent deductible under Section 274.

Once you have fired your current CPA, have your new CPA file an amended tax return in order to claim the 100 percent deduction for those items listed above for the 2002 tax year, as well as for the two previous years. This will allow you to obtain a refund for any taxes that you have erroneously overpaid.

Dr. Blair is a nationally known consultant and lecturer, and is a member of the American Academy of Dental Practice Administration. Mr. McGill is a tax attorney, CPA, and MBA, and is the editor of the Blair/McGill Advisory, a monthly newsletter helping dentists to maximize profitability, slash taxes, and protect assets. The newsletter ($195 a year) and consulting information are available from Blair/McGill and Company, 2810 Coliseum Centre Drive, Suite 360, Charlotte, NC 28217, or call (704) 424-9780.

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