Dear Harry: My IRA is managed by a financial adviser, but the physical possession of my IRA assets is in the hands of a major stockbroker. My wife never liked this adviser, but he seemed to have a good record and he came highly recommended. Back in 2007, he bought 200 shares of stock in a company he said was the next Microsoft. He was wrong. The company filed for bankruptcy in early April. In his monthly review, he said that the loss will be deductible on my 2011 tax return. My tax preparer (who happens to be one of your former students) told me that he's wrong. Is he? He further advised me to transfer about two-thirds of my IRA to my wife. He said that it was to even out our assets. I hesitate to do this for a number of personal reasons. What do you say?
What Harry says: I say get rid of that toad! He is giving you wrong info on the tax aspects of that loss. No deduction in 2011! You'll get some "benefit" in that it will reduce the amount in the IRA that will be taxed when you withdraw your distributions. As to the transfer, his advice will trigger a tax on the transfer as if it were a withdrawal. It will also trigger a penalty of 10 percent if you're not yet 59 1/2. It appears to me that his investment advice is on par with his tax advice.