France’s New 75% Tax Rate

I do not recall ever talking about French taxes on this blog, but this morning I saw something that stunned me.

France has announced a 75% income tax rate.

Now, think about that for a moment. You would be giving-up 75 cents on the dollar, just for the privilege of setting an alarm clock, cutting sleep short, incurring dry cleaning, sitting in traffic and – finally – stressing at work. This move is driven by economic pressures in the European Union. We are familiar with the debt crisis of Greece, but Spain is also facing difficult times. Italy is hot on their heels. Germany is pulling this sled, and France likes to think that it is closer to the lead dog than the rear. Germany allows France to think that.

The EU has restrictions on allowable member deficits, and France is looking to narrow its deficit from 4.5% to 3% next year. It is doing this by raising 30 billion euros. Unfortunately, it seems to have escaped French President Hollande that one way to save money is to spend less of it. Hollande has announced that the money will be used for – among other things – thousands of new civil servant jobs. Brilliant!

The French government has softened the blow by announcing that the tax will be in effect for only two years.

On the other hand, for two years France will have the world’s highest tax rate.

French income tax applies on worldwide income for individuals who reside in France. The key word here is “reside.” Nonresidents are generally taxed only on French-source income. This is not the U.S. system, where a U.S. citizen is taxed on worldwide income, irrespective of where he/she lives. A U.S. expat living in Thailand for the last twenty years is still required to file an annual U.S. income tax return. On the other hand, a French citizen can avoid French tax by not residing in France, although I anticipate that the French tax authorities would aggressively dispute the issue of residence, where possible.

Seems to me that – if I made enough money to be subject to this new tax – I would have enough money to leave France for a couple of years. Why would I work for twenty five cents on the dollar? Short answer: I wouldn’t.

New Kentucky Tax Amnesty Program

Kentucky has rolled-out a tax amnesty. It exists for a very short period of time: from October 1, 2012 to November 30, 2012. If this applies to you, you will have 61 days to apply.

The amnesty applies to taxes for periods…

·         after November 30, 2001 and

·         before October 1, 2011

You will be eligible if …

·         you did not file a return

·         you did file but are now amending a return

·         you did file but still have an outstanding tax liability

That last one is amazing. It indicates that Kentucky wants money, and it is willing to cut a break on assessed tax already due.

Certain taxes are not eligible, such as ...

·         your real estate taxes (as they are collected locally)

·         motor vehicle taxes (collected by county clerks)

·         tangible property taxes (again, collected locally)

What do you gain? You still owe the tax, of course, but Kentucky will waive one-half the interest and ALL the penalties.

What is the hitch? Kentucky wants your cash, so you will have to write them a check. There is a very limited exception for hardship, but even there you will have to pay-off Kentucky in full by May 31, 2013.

Consider this program if you have nexus with Kentucky but never filed, or if you have unfiled or unpaid sales taxes.

For more information you can contact Kentucky at 1-855-KYTAXES.

When Is a Loan a Sale?

Sometimes I am amazed at the lengths to which some people will go to not pay taxes.

I was reading Sollberger v Commissioner, recently decided by the Court of Appeals for the Ninth Circuit.

Before getting into Sollberger, let’s talk about Derivium Capital.  Derivium was based in Charleston, South Carolina, and was headed by Charles D. Cathcart, an economist whose resume included a University of Virginia Ph.D., a stint at the CIA and a term at Citicorp working with derivatives.  Derivium presented a way for taxpayers to dispose of significant stock positions without triggering immediate tax. At least that was their pitch. They would lend up to 90% of a stock position on a nonrecourse basis. Nonrecourse means that the borrower could walk away from the debt. If memory serves, their deals generally ran approximately three years, and their loans did not require interest payments. Rather the interest was added to the loan. At the end of the term, the borrower could repay the loan, plus interest, and get the stock back. It goes without saying that one would do this only if the stock had appreciated. Otherwise the borrower would simply walk away from the loan.

Derivium would immediately sell the stock, providing money for the loan back to the borrower. In addition, they wrapped the loans using offshore lenders, first using a company in Ireland and then another company in the Isle of Man. This was apparently a good deal for Derivium, as it received approximately $1 billion in stock, originated $900 million in loans, kept $20 million and sent the rest to the offshore lenders.

Nice payday, when you can get it.

You can guess how this tuned out. Derivium was investigated by the IRS and the state of California and then filed for bankruptcy. Once the IRS stepped-in, they began looking at the other side of the transaction, which meant looking at the individual returns of the people who had transacted with Derivium.

Enter Kurt Sollberger. He transacted with a company called Optech, not Derivium, but it was a Derivium-inspired deal. Sollberger was president of Swiss Micron, which adopted an Employee Stock Ownership Plan (ESOP). In 2000 he sold his shares to the ESOP for a little more than $1 million. With the money he bought floating rate notes (which is pretty esoteric by itself). In 2004 he entered into the loan deal with Optech. That deal was pretty sweet. Optech loaned him 90% on a seven year nonrecourse debt, with the option of adding interest into the loan. Optech would collect interest from the notes (at least, until Optech sold them) and in turn charge Sollberger interest. If there was net interest due, Sollberger could pay the interest or add it into the note. He could not prepay the loan for seven years, however, at which time he could get retrieve the notes by repaying the loan with accrued interest.  That would be awkward for Optech, seeing how it had SOLD the notes.

Then it gets weird.

Sollberger received quarterly statements from Optech for less than one year. He diligently paid the net interest due. Then Optech quite sending statements and he quit paying interest.

Sure, happens all the time. When was the last time Fifth Third forgot to bill the interest on your loan?

The IRS audited Sollberger, said he sold the notes in 2004 and sent him a bill for $128,979, plus interest and penalties.

Sollberger went to Tax Court, which recognized the Derivium-inspired deals. It did not go well. After losing there, Sollberger petitioned the Ninth Court of Appeals. The Court had some trenchant observations:

If the FRN’s lost value after Sollberger transferred them to Optech, he would have been foolish to repay the nonrecourse loan at the end of the loan term, as he had no personal liability for the principal or interest allegedly due.”

Sollberger’s and Optech’s conduct also confirms our conclusion that the transaction was, in substance, a sale. Although interest accrued on the loan, Sollberger stopped receiving account statements and making interest payments after the first quarter of 2005, less than one year into the seven-year term. Thus, neither Sollberger nor Optech maintained the appearance that a genuine debt existed for long.”

Although the transaction is byzantine, the tax concept involved is simple: how far can someone push the limits of a “loan” before a reasonable person simply concludes that there was a sale. A seven-year nonrecourse loan looks very aggressive, and stopping interest payments less than a year into the loan sounds like tax suicide. The Ninth Circuit decided against Sollberger and told him to pay the taxes.

My Take: Let me see. Sollberger received a little over $1 million and the IRS wanted approximately $129,000. This leaves him approximately $871,000, although there is still state tax. For this he enters into a complicated scheme involving folded interest, a “put” seven years out and bankers from Ireland and the Isle of Man?

A word of advice from a tax pro: one does not tax shelter at a 15% tax rate. The government could virtually eradicate tax shelters (and many tax advisors) by lowering the tax rate to a flat 15% and requiring everyone to pay-in their fair share.

Good grief, man. Just pay the tax.

Ballad of Accounting

I have a fondness for English folk and celtic music. The following song is titled "Ballad of Accounting," and it is performed by Karen Casey.

It has nothing to do with accounting.

Sometimes that is a good thing.

Joe Kennedy and Generation-Skipping Trusts

We recently had an issue with the generation-skipping tax (GST). What is it? First of all think gift or estate tax. Pull your thoughts away from income taxes. Gift or estate tax is assessed when you either (a) gift property or (b) die with property. One would think would be sufficient, but there was a loophole to the gift and estate tax that Congress wanted to fix. That fix was the generation-skipping tax.

Let’s explain the loophole through a story. Joseph P. Kennedy (1888-1969) was a bank president by age 25. He made his chops through insider trading before the government ever thought of a Securities and Exchange Commission (SEC). He had the foresight to unload his stocks before 1929, and then added to his fortune by shorting stocks during the Great Depression. Frankly, this guy was THE Gordon Gekko of his time. Today he would be in jail with Bernie Madoff. In an example of the irony that is Washington D.C., he became the first chairman of the SEC.

Let’s continue. By the mid-thirties his fortune was closing in on $200 million. Joe had a problem: he wanted to pass the money on to his descendants, but the estate taxes were usurious. For much of his wealth years, estate taxes were 70% or more. Granted, there was an exclusion amount, but Joe had long since accumulated substantially more than any exclusion amount. What was Joe to do?

Here is what Joe did: he had multiple generations skip the estate tax entirely. How?

Joe did this by using trusts. In 1926 Joe set up his first trust for Rose and the children. He created another in 1936, and then another in 1949. This last trust was the one through which Joe would transfer to his 28 grandchildren. We have talked about dynasty trusts in the past, and Joe was apparently a believer. A dynasty trust will run as long as state law will allow (there is a legal doctrine called the “rule against perpetuities”). A dynasty trust can go to the grandkids, then the great-grandkids, then the great-great…. Well, you get the idea.

John F. Kennedy (JFK) was Joe’s son and a trust beneficiary. He was also the 35th President of the United States. JFK’s trust provided him income for life, as well as the right to withdraw up to 5% of the trust principal annually. It must have been a fairly sizeable income, as JFK donated his presidential salary to charity. Upon JF’s death, his interest in Joe’s trust was not taxable to his estate (which is pretty much the point of a skip trust). Joe’s trust then skipped to JFK’s children, John F. Kennedy Jr and Caroline Kennedy. By the way, JFK had never updated his will, and upon his death he left no provision for his children. It is possible that – had he lived – JFK would have settled his own skip trust, and then his children would have had TWO generations of skip trusts providing them income.

Eventually this technique came to Congress’ attention, and in 1976 they passed their first attempt at the GST. The law was very poorly drafted, and Congress kept postponing the law until they ultimately repealed it – retroactively – in 1986. In its place Congress substituted a new-and-improved GST.

What is it about the GST? First, it is not the easiest reading this side of Joyce’s Ulysses. Second, much of estate planning is done using trusts. This introduces trust techniques such as fractionalization (i.e., assets going to multiple individuals), control (i.e., the beneficiary can request but the trustee can reject), and timing (i.e., the grandchildren have to wait until the children are deceased).  Third, unlike the gift or estate tax, the GST may not be payable at the time of gift or death. The GST can spring up years later when the trust distributes or terminates. Try having that conversation with a client….

Let’s go through some examples.

(1)    You gift your grandchild $100,000 as a down-payment on a house.

a.       OK, that seems pretty simple. You have a skip.

b.      Let’s step through the taxation of this transaction:

                                                               i.      You are out the $100,000.

                                                             ii.      You paid the gift tax.

                                                            iii.      What happens if you pay the GST for your grandchild?

1.       SPOILER ALERT: The recipient (not the payer) is liable for the GST.

2.       Your payment of the GST is treated as an ADDITIONAL gift!

(2)    You set up a trust for your grandchild. You settle it with $100,000.

a.       On its face I would say you have a skip.

(3)    Let’s modify the trust. Say that you give a life estate to each of your two children. Your three grandchildren are residual beneficiaries.

a.       Is there a skip? Yep.

b.      How do you value the skip?

                                                               i.      Let’s do ourselves a favor and “skip” that question for a moment.

c.       When do you value it?

                                                               i.       At the time the trust is created?

                                                             ii.      When the children both pass away (leaving only the grandchildren)?

                                                            iii.      When the trust actually distributes to a grandchild?

ANSWER: at the death of the second-to-die child

(4)    Let’s press on. The grandchildren are not yet born when you fund the trust. Attorneys refer to them as “contingent” beneficiaries.

a.       Is there a skip? Probably.

                                                               i.      Probably? What kind of weasel answer is that?

1.       The truth is that there may never be grandchildren, or the grandchildren may not live long enough to benefit under the trust. In that situation, there is no skip. Otherwise there would be a skip.

b.      How do you value the skip?

                                                               i.      I tell you what I would do: I would allocate $100,000 of my GST exemption to the trust when settled. I would file a gift tax return and prominently announce to the IRS that I am allocating $100,000 of my exemption. This makes the trust GST exempt, now and forever. It will not matter how much the trust appreciates in the future, or if, when or to whom it distributes.

c.       When do you value it?

                                                               i.      If you followed my advice, when you funded the trust.

Now before you worry about the GST, remember that one has to skip a certain amount of money to even step onto the GST field. For 2012 you would have to skip more than $5 million. If there is no change in the tax law, in 2013 that amount will drop to $1 million. Still, $1 million will keep most of us out of GST trouble.

The estate tax was Congress’ effort to slow-down the accumulation of familial wealth, and the GST was an effort to close a loophole in the estate tax. Its purpose was to ensure that accumulations of great wealth were taxed at least once every generation. Congress did not want the establishment of an inherited class, somewhat like the House of Lords in England. How many Paris Hiltons – or William Kennedy Smiths – do we as a nation want to tolerate?

The irony of GST tax law is that wealthy had little incentive to establish dynasty trusts before 1986. There were several states, including Idaho and Wisconsin, which allowed trusts to be perpetual. Many states have since followed suit, liberalizing their state statutes to allow long-lived (although maybe not perpetual) trusts in an effort to attract the high-wealth investments out there. There was a study in the mid-2000s which estimated that more than $100 billion had flowed into states allowing these long-lived trusts. It appears that Congress has created a bit of a cottage industry.

The Estate of Marilyn Monroe

There is a saying among tax pros: “do not let the tax tail wag the dog.” The point is to not let taxes so influence the decision that the final decision is not in your best interest. An example is failing to sell a profitable stock position for the sake of not paying taxes. Seems a good idea until the stock market – and your stock – takes a dive.

This past week I was reading about the estate of Marilyn Monroe. Did you know that her estate was the third highest-earning estate in 2011?  Her estate earned $27 million and came in behind the estates of Michael Jackson and Elvis Presley. What is driving this earning power?

What is driving it is “rights of publicity.” For example, the website Squidoo.com reports that Marilyn Monroe posters remain one of the top-sellers for students decorating their dorm rooms. A “right of publicity” exists at the whim of state statute. There is no federal law equivalent. Indiana is considered to have one of the most far-reaching statutes, recognizing rights to publicity for 100 years after death.

Marilyn Monroe divorced Joe DiMaggio in October, 1954. She then left California for New York. In 1956 she married Arthur Miller, and the couple lived In Manhattan’s Sutton Place. Marilyn still considered this her home when she died in Brentwood, California in August, 1962.

The executors of her estate had a tax decision to make: was her estate taxable to California (where she died) or New York (where she maintained the apartment and staff). They decided it would be New York, primarily because California’s estate taxes would have been expensive. By treating her as a New York resident, they were able to limit California to less than $800 in taxes.

Let’s go forward three or four decades, and states like California and Indiana now permit celebrities’ estates to earn large revenues, in large part by liberalizing property interests such as publicity rights. Some states have not been so liberal - states such as New York.

You can see this coming, can’t you?

Let’s continue. In 2001 The New York County Surrogate’s Court permitted the estate to close, transferring the assets to a Delaware corporation known as Marilyn Monroe LLC (MMLLC). The licensing agent for MMLLC is CMG Worldwide, an Indiana company that also manages the estate of James Dean. Is the selection of Indiana coincidental? I doubt it, given what we discussed above.

Marilyn is an iconoclastic image, and her photographs – and the rights to those photographs – are worth a mint. Enter Sam Shaw, who took many photographs of Marilyn, including the famous photo of her standing over a subway grate with her skirt billowing. The Shaw Family Archives (SFA) got into it with MMLLC, with MMLLC arguing that it exclusively owned the Monroe publicity rights.  SFA sued MMLLC in New York, and the court granted SFA summary judgment. The court noted that Marilyn Monroe was not a domiciliary of Indiana at her time of death, so her estate could not transfer assets to Indiana and obtain legal rights that did not exist when she died. She was either a resident of New York or California, and neither state recognized a posthumous right of publicity at her time of death.

MMLLC had no intention of rolling over. It called a few people who knew a few people.

In 2007 Governor Schwarzenegger signed into law a bill creating a posthumous right of publicity, so long as the decedent was a resident of California at the time of death. Even better, the law was made retroactive. The law could reach back to the estate of Marilyn Monroe. Wow! How is that for tax planning!

Now the estate of Marilyn Monroe started singing a different tune: of course Marilyn was a resident of California at her time of death. That entire issue of making her a New York resident was a misunderstanding. She had been living in California. She loved California and had every intention of making it her home, especially now that California retroactively changed its law 45 years after her death.

You know this had to go to court. MMLLC did not help by aggressively suing left and right to protect the publicity rights.

Last week the Ninth Circuit Court of Appeals (that is, California’s circuit) ruled that The Milton Greene Archives can continue selling photographs of Marilyn Monroe without paying MMLLC for publicity rights. The court noted that the estate claimed Monroe was a New York resident to avoid paying California taxes. The estate (through MMLLC) cannot now claim Monroe was a California resident to take advantage of a state law it desires.

NOTE: This is called “judicial estoppel,” and it bars a party from asserting a position different from one asserted in the past.

The appeals judge was not impressed with MMLLC and wrote the following:

"This is a textbook case for applying judicial estoppel. Monroe’s representatives took one position on Monroe’s domicile at death for forty years, and then changed their position when it was to their great financial advantage; an advantage they secured years after Monroe’s death by convincing the California legislature to create rights that did not exist when Monroe died. Marilyn Monroe is often quoted as saying, 'If you’re going to be two-faced, at least make one of them pretty.'”

What becomes now of MMLLC’s rights to publicity? Frankly, I do not know. It is hard to believe they will pick up their tent and leave the campground, however.

I am somewhat sympathetic to the estate and MMLLC’s situation. It was not as though the estate made its decision knowing that property rights were at stake.  At the time there were no property rights. It made what should have been a straightforward tax decision. Who could anticipate how this would turn out?

On a related note, guess whose case will also soon come before the Ninth Circuit on the issue of post-mortem publicity rights?  Here is a clue: he was from Seattle, had a four-year career and died a music legend. Give up?

It’s the estate of Jimi Hendrix.

IRS to Snoop On Your IRA

Let’s talk about IRAs – Individual Retirement Accounts.

Why? By mid-October the IRS is to report to Treasury its plans to increase enforcement of IRA contribution and withdrawal errors. TIGTA projects that there could be between $250 million and $500 million in unreported and uncollected IRA annual penalties.  This is low-hanging fruit for a Congress and IRS looking for every last tax dollar.

So what are the tax ropes with IRAs? Let’s talk first about putting money into an IRA.

IRA CONTRIBUTIONS

For 2012 you can put up to $5,000 into an IRA. That amount increases to $6,000 if you are age 50 or over. You can put monies into a regular IRA, a Roth IRA or a combination of the two, but the TOTAL you put in cannot exceed the $5,000/$6,000 limit. That $5,000/$6,000 limit decreases as your income increases IF you are covered by a plan at work. If you have a 401(k)/SIMPLE/SEP/whatever at work, you have to pay attention to the income limitation.

What errors happen with contributions? Let me give you a few examples:

(1)   Someone is over the income limit but still funds an IRA.

(2)   Someone funds their (say 2011) IRA after April 15 (2012) of the following year. An IRA for a year HAS to be funded by the following April 15^th. There is no extension for an IRA contribution, even if the underlying tax return is extended. If you make an IRA contribution on April 20, 2012, that is a 2012 IRA contribution. It is not and cannot be for 2011, because you are beyond the maximum funding period for 2011. Say that you fund your 2012 IRA again by April 1, 2013. Congratulations, you have just overfunded your 2012 IRA. The IRS will soon be looking for you.

(3)   You have no earned income but still fund an IRA. What is earned income? An easy definition is income subject to social security. If you have income subject to social security (say a W-2), you may qualify for an IRA. If you don’t, then you do not. If I am looking at a return with a pension, interest, dividends and an IRA deduction, I know that there is a tax problem.

What happens if you over-fund an IRA? Well, there is a penalty. You also have to take the excess funding out of the IRA. The penalty is not bad – it is 6%. This is not too bad if it is just one year, but it can add-up if you go for several years. Say that you have funded $5,000 for seven years, but you actually were unable to make any contribution for any year. What happens?

Let’s take the first year of overfunding and explain the penalty. You overfunded $5,000 in 2005. The first penalty year for 2005 would be 2006. Here is the math:

            2005 IRA of $5,000

                        2006                $5,000 times 6% = $300

                        2007                $5,000 times 6% = $300

                        2008                $5,000 times 6% = $300

                        2009                $5,000 times 6% = $300

                        2010                $5,000 times 6% = $300

                        2011                $5,000 times 6% = $300

                        2012                $5,000 times 6% = $300

So the penalty on your 2005 IRA of $5,000 is $2,100.

Are we done? Of course not. Go through the same exercise for the 2006 contribution. Then the 2007 contribution. And 2008. And so on. Can you see how this can get expensive?

As bad as the penalty may be on excess IRA funding, it is nothing compared to the under-distribution penalty. To better understand the under-distribution penalty, let’s review the rules on taking money out of an IRA.

IRA WITHDRAWALS

The first rule is that you have to start taking money out of your IRA by April 1st of the year following the year you turn 70 ½.

From the get-go, this is confusing. What does it mean to turn 70 ½? Let use two examples of a birth month.

            Person 1:         March 11

            Person 2:         September 15

We have two people. Each celebrates his/her 70th birthday in 2012. Person 1 turns 70 ½ in 2012 (March 11 plus 6 months equals September 11), so that person must take a minimum IRA withdrawal by April 1, 2013.

Person 2 turns 70 ½ in 2013 (September 15 plus 6 months equals March 15). Person 2 must take a minimum withdrawal by April 1, 2014.

I am not making this up.

Say you are still working at age 70 ½, and the money we are talking about is in a 401(k). Do you have to start minimum distributions? The answer is NO, as long as you do not control more than 5% of the company where you work. What if you roll the 401(k) to an IRA? The answer is now YES, because the exception for working is a 401(k)-related exception, not an IRA-related exception.

Let’s make this more confusing and talk about withdrawals from inherited IRAs. We are now talking about a field littered with bodies. These are some of the most bewildering rules in the tax code.

Inherited does not necessarily mean going to a younger generation. A wife can inherit, as can a parent. The mathematics can change depending on whether you are the first to inherit (i.e., a “designated” beneficiary) or the second (i.e., a “successor” beneficiary).

There are several things to remember about inherited IRAs. First, the surviving spouse has the most options available to any beneficiary. Second, the IRA beneficiary (usually) wants to do something by December 31st of the year following death. Third, a trust can be the beneficiary of an IRA, but the rules get complex. Fourth, your estate is one of your worst options as your IRA beneficiary.

Did you know that you are supposed to retitle an inherited IRA, being careful to include the original owner’s name and indicating that it is inherited, e.g., Anakin Skywalker, deceased, inherited IRA FBO Luke Skywalker? Did you know that a common tax trap is to leave out the “deceased” and “inherited” language? Without those magic words, the IRS does not consider the IRA to be “inherited.” This can result in immediate tax.

Having gone though that literary effort, it seems understandable that you are not to commingle inherited IRAs with your other IRAs. Heck, you may want to keep the statements in a separate room altogether from your regular IRAs, just to be extra safe.

Forget about a 60-day rollover for an inherited IRA. A rollover is OK for your own IRA but not for an inherited IRA. Mind you, you can transfer an inherited IRA from trustee to trustee, but you do not want to receive a check. You do that – even if you pay it back within 60 days - and you have tax.

Let’s say you inherit an IRA from your mom/dad/grandmom/granddad. Payments are reset over your lifetime.  You must start distributions the year following death. What if you don’t distribute by December 31st of the following year? The IRS presumes you have made an election to distribute the IRA in full within five years of death. So much for your “stretch” IRA.

Confusing enough?

One more example. You have IRA monies at Fidelity, Vanguard, T. Rowe Price, Dreyfus and Janus. When you add up all your IRAs to calculate the minimum distribution, you forget to include Dreyfus. What just happened? You have under-distributed.

How bad is the penalty for not taking a minimum distribution, you ask? The penalty is 50% of what you were required to take out but did not. 50 PERCENT!!! It is one of the largest penalties in the tax code.

EXAMPLE: Let’s say that the Dreyfus share of your minimum distribution was $1,650. Your penalty for inadvertently leaving Dreyfus out of the calculation is $825 ($1,650 times 50%).

The IRS has traditionally been lenient with the under-distribution penalty. Perhaps that is because the intent is to save for retirement, and this penalty does not foster that goal. Perhaps it is because a 50% penalty seems outrageous, even to the IRS. However, will a Congress desperate for money see low-hanging fruit when looking at IRAs?

CONCLUSION

If you are walking into an IRA situation, consider this one of those times in life when you simply have to get professional advice. The rules in this area can bend even a tax pro into knots. I am not talking about necessarily using a tax pro for the rest of your life. I am talking about seeing a pro when you inherit that IRA, or when you close in on age 70 ½. Be sure you are handling this correctly.