Avoid Losing Tax-Deferred Status on Your IRA

Has your father, or another blood relative, ever asked you to trade securities on behalf of his or her individual retirement account?

If so -- and you earned even as little as a $1 commission -- the transaction is considered prohibited under federal tax laws.

That's because a long-ignored glitch in the tax code gives the Internal Revenue Service the authority to recognize the entire account balance as a distribution, rendering the balance, as of the first day of the year, subject to income tax, according to Sy Goldberg, a Jericho, N.Y.-based attorney and national expert in retirement-distribution planning.

While the provision is largely unenforced, the IRS could declare possibly hundreds of thousands of IRA accounts illegal and invalidate their tax-deferred status, a scenario that worries Goldberg. A lot of innocent people could get hurt because they don't know the rule, he says. ...