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Treasury Gunning For $90 Million In IRA-Related Revenue

Expects $30 million from special IRA tax rates by Oct. 31


October 17, 2002
Copyright © 2002 CARIBBEAN BUSINESS. All Rights Reserved.

The Puerto Rico Treasury Department aims to collect $90 million in tax revenue related to individual retirement accounts (IRAs) between now and June 30, 2003.

Assistant Treasury Secretary Ismael Vincenty said the agency still anticipates as much as $30 million in revenue from the special 10% rate on IRA tax prepayments and on IRA withdrawals of up to $20,000 made before Oct. 31.

Vincenty said Treasury will step up its orientation campaign about the advantages of both the prepayment and withdrawal options in the final days before the window closes.

Westernbank Trust Division President Andres Morgado told CARIBBEAN BUSINESS that the prepayment option–which allows IRA holders to pay a 10% tax on their holdings without any obligation to withdraw account funds or to incur withdrawal penalties–makes the most sense to clients who are at or near retirement age.

Vincenty said Treasury has also made a waiver to allow citizens with qualified pension plans [such as 401 (k), 1165 (e), and Keogh] to transfer those accounts into an IRA and thus take advantage of the special 10% tax rate. He said that as long as citizens file their rollover requests before Oct. 31, the requests would be honored.

Morgado cautioned, however, that retired persons are entitled to receive up to $11,000 a year in income from qualified pension plans. The rollover option would therefore be attractive only to persons with sizeable holdings in such plans (on the order of half a million dollars or more).

Vincenty said that during next year’s IRA season, Treasury expects to raise an additional $60 million from persons who choose to roll over their conventional IRAs into the new Roth IRAs.

The Treasury official said that citizens would be allowed to make the rollover at a special 12.5% tax rate until June 30, 2003. Once the 12.5% tax is paid, holders of Roth IRAs incur no additional income tax-related obligations on their accounts.

Morgado added that those who don’t take advantage of the current 10% prepayment tax rate, available until Oct. 31, will have an opportunity at 12.5% through the Roth IRA mechanism.

The Puerto Rico Bankers Association is scheduled to hold a seminar, entitled "Roth IRA: An Alternative to Accumulative Tax-Free Wealth," at the Bankers Club on Oct. 22. The seminar will cover all aspects of the Roth IRA, including rollovers and a comparative analysis with conventional IRAs.

This Caribbean Business article appears courtesy of Casiano Communications.
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