Letters

About the Recalculation Option

I believe the article, “How to Maximize IRA Accumulations” (JofA, Dec.00, page 32), contained a number of inaccuracies. The most significant was that a CPA should not recommend recalculation when figuring the client’s mandatory IRA distribution.

The article states that “recalculation is not an option for non-spouse beneficiaries.” This could not be further from the truth. IRS Publication 590 clearly states this is an acceptable option and even gives an example using this technique.

Each client’s situation is different. However, if the goal is to stretch the IRA for the longest possible time period, recalculation is the right way to accomplish it.

Chris E. Peterson, CPA
Littleton, Colorado

Author’s reply: My statement “Recalculation is not an option for non-spouse beneficiaries” is not inaccurate. The IRA owner’s life expectancy can be recalculated, as can the spouse’s when the owner’s spouse is the sole beneficiary. However, if there is a non-spouse beneficiary, then the owner’s life expectancy can be recalculated each year, but the designated beneficiary’s life expectancy cannot in determining the joint life expectancy of the IRA owner and the designated beneficiary.

Advising CPAs not to use the recalculation method was intended to prevent the problems associated with the owner’s life expectancy’s becoming zero after his or her death when the recalculation method is used. If the owner recalculates and there is a non-spouse beneficiary, then, beginning in the year after the IRA owner dies, the owner’s life expectancy is recalculated to zero. Consequently, all future distributions are based on the remaining single life expectancy of the designated beneficiary, shortening the distribution period.

There can be similar problems when the owner recalculates and the spouse is the sole beneficiary. Should the spouse die first, when the owner dies the distribution period will be shortened when the owner’s life expectancy is recalculated to zero in the following year. Although in certain situations recalculation can slightly extend the distribution period, it is not without risks and it could significantly shorten the distribution period.

Linda M. Johnson, CPA
Kennesaw, Georgia

Editor’s note: On January 11 of this year, the Treasury Department issued new proposed regulations on distributions from IRAs and other retirement plans. The proposed regulations, effective January 1, 2002, will change some of the rules that are described here.

A Different Opinion on Buybacks

Contrary to the FERF study findings reported in “Survey Says Stocks Show Large Gains in Buybacks” (JofA, Oct.00, page 23), stock buybacks indicate poor management and an alarming indifference to the shareholders’ interests.

It’s hard to believe that a stock buyback, which entails paying out millions or billions of dollars from the corporate treasury to selected shareholders, could possibly cause subsequent increased profitability, growth or stock price. It puts the cart before the horse.

A stock buyback is management’s confession that it has no profitable internal asset investment program for the existing “excess” cash inflow. Unfortunately, instead of distributing the excess cash to all shareholders in cash or liquidating dividends, all the money goes to a very few. Adding insult to injury to the remaining 95%-plus of the shareholders, the management—instead of buying up the maximum number of shares possible at low bargain prices—directs its buyback toward the top of the market to boost the price and thus ends up acquiring the fewest shares. I believe shareholders deserve a reversal of priorities from these companies.

Carl Olson
Fund for Stockowners Rights
Woodland Hills, California

Forget the Money—Give Me Flex-Time

Another missed opportunity! In “Pay Your Staff for Performance” (JofA, Dec.00, page 63), once again, someone missed the chance to show that incentives and rewards for performance should be based on more than money.

In the first paragraph, the “effectiveness of flexible work arrangements” as a motivator was mentioned as second only to cash bonuses, yet the article never addressed them again. I suppose the last sentence, “Cash, anyone?” summed it all up.

I’ve been in public accounting for 14 years, although the average stay for women is only about four years. The one thing I have virtually had to plead for was a flexible work arrangement.

I came to my current firm from a very small one where I had the opportunity to maintain a flexible schedule—the demands I put on myself were more than the firm required. It was an absolutely wonderful situation.

When I moved to the larger firm, I did not expect or anticipate anything but the overwhelming full-time-plus schedule that is usual in the accounting profession. Again, I was surprised to be given the option of a flexible work schedule (although it was not as flexible as at the smaller firm). However, I have to deal with being labeled “undercommitted” and believe I’ve not been offered a “move up the ladder” because of it.

When will this profession learn? I am facing my 15th tax season—I work fewer hours than most, but more than full time. The thought of putting my life and my son’s on hold for another three-and-one-half-month period literally makes me ill. I am contemplating offering to give up a bonus, a probable raise and part of my fringe benefits in exchange for working fewer hours.

Give me my life, not more money! Get it?

Lynette Jo Anderson, CPA
Asheville, North Carolina