A Roth is similar to a traditional IRA in that it is a way to set aside the lesser of $2,000 or your earned income per year for your retirement. Both accounts offer certain tax advantages and both offer certain penalties for accessing the money before retirement. In order to contribute to either a Roth or a traditional IRA, you must have earned income. There are additional restrictions on contributions to Roth IRAs if your income is too high.

The general benefit of a traditional IRA is that the contributions are often tax deductible when made. You then pay taxes on the money when you withdraw it. (The theory was always that you would be in a lower tax bracket when you retire than you are when you are working.)

The benefit of a Roth IRA is that, although you don't get a tax benefit when you contribute, if you follow the rules and allow the money to stay in the IRA and grow, you pay no taxes on the money when it comes out. No taxes on any of the capital gains, dividends, earnings, interest, etc... AS LONG AS YOU FOLLOW THE RULES!!!!

The IRS puts out a pulication 590 which you can download from www.irs.ustreas.gov. There is also a web site dedicated to Roth info. I think it's just www.rothira.com[/url. Any mutual fund group, broker or bank can provide you with more information if you need.

Welcome to the world of saving and investing!

[This message has been edited by Kathy (edited 09-07-1999).]

[This message has been edited by Kathy (edited 09-07-1999).]

Health care coalitions are playing more of a role throughout the country in helping to reform the health care systems in their geographical region. As the coalition movement evolves and expands, it is important to better understand what coalitions are all about, how they are structured, what they have accomplished, who their members are, and how they might benefit you as an employee or employer. To this end, we dedicate the Health Care Coalition message board to serve as a means to provide information, encourage dialogue, and answer questions related to this important movement.

Jerry Custer (Jerry99)

Heartland Healthcare Coalition

Have run across an old ('70's) Welfare plan that includes lifetime grouplife insurance death benefits, with premiums paid from VEBA assets. Does anyone know where the law or regs on this Sec. 79 program can be found? The employer is a public school district.

A client's attorney asked an interesting question. "Are there any downside issues related to the use of ERISA prototype plans relative to local government and public school employers?"

The question relates to a case which we are mutually reviewing which requires the public agency to sign a fully ERISA qualified document, including top heavy tests, etc. The plan is an insurance company defined benefit "window" plan used as an incentive to retire older employees. If anyone has seen a case where a downside of any nature, please respond.

I am retired and do not earned income from a job. I do sell some cows and have income from this that I pay taxes on. Can I contribute this income to a ROTH IRA?

A new comp plan has the following classes:

Class A - Owners

Class B - Non-owner division X employees

Class C - Non-owner division Y employees

Class D - Non-owner division Z employees

If the plan fails the ADP/ACP and the employer wants to contribute QNEC to correct, can the document be worded to allow different QNEC contributions to different classes.

Example:

Class B - 2% QNEC

Class C - 1% QNEC

Class D - 0% QNEC

If this is OK, would the document (volume submitter) wording be something like this: The Employer Qualified Non-Elective Contribution used to satisfy the Actual Deferral Percentage tests will be separately determined for each of the classifications of Participants.

In Massachusetts--are we protected from creditors?

Can a cap be put on a matching formula, such as 50% of deferrals capped at 3% of compensation? There is no mention of a cap in the document. Following is the exact wording in the Volume Submitter document concerning the match formula:

"For each Plan Year, the Employer shall contribute to the Plan:

(a).........

(B) On behalf of each Participant who is eligible to share in matching contributions for the Plan Year, a discretionary matching contribution equal to a uniform percentage of each Participant's Deferred Compensation, the exact percentage, if any, to be determined each year by the Employer, which amount, if any, shall be deemed an Employer Non-Elective Contribution.

©.........

(d).........

(e).........

We are advising clients that they can put a cap on the match, based on a percentage of comp for each individual participant, as described above in the first paragraph. I don't think that the document language above allows that, because if a cap is used then the match is no longer a "uniform percentage of each such Participant's Deferred Compensation."

By the way, of course each year the cap we advise them to use may be a different % of comp, whatever puts the most match in the HCEs account.

Adding a cap to a matching formula or varying the cap percentage changes the dollar amount of the match and the allocation to the individual participants. I don't see how this can be definitely determinable. Any ideas about if this is OK.

I mistakenly opened my Roth Ira with a deposit of $3400 dollars. My question is this: Does the $2000 per year limit mean just that, or can I put $4000 in this year, and nothing next year? If that is not allowed, do I need to withdraw $1400 now to get to the $2000 threshold? Thanks for an help.

An employee terminates and receives a distribution of his vested account balance. The unvested account balance is forfeited. The participant is rehired two years later and repays the distribution. There are no current forfeitures to use to restore the participant's forfeited amount. The employer contributes the amount necessary to reinstate the participant's prior forfeitures.

Does the contribution used to reinstate forfeitures count toward the 404 deductibility limits? It would seem to me that it should not, since it was counted already for deductibility purposes when it was first contributed to the plan. This just reinstates the original contribution.

[This message has been edited by Richard Anderson (edited 09-05-1999).]

We have an existing profit sharing plan that excludes union members. One union member, who has worked for the employer for 5 years, dropped out of the union last month. The plan has a one-year eligibility requirement. When can this employee enter the plan? A year from the date they left the union? Do we give credit for prior service? Do we exclude all salary paid while the employee was in the union?

Thanks for your assistance.

Do churches have to submit 403(B) Plan Documents for IRS approval? I know church plans are not under ERISA, but is it ERISA that requires the Plan Documents or the 403(B) code? I've gotten very uncertain answers on this. Please help!!

I understand that there are no clear guidelines for terminating a 403(B) plan. If this is so, how does one terminate a plan? And once the plan has been terminated, how can one be sure that the Form 5500 filing requirements are gone? Do the filing requirements continue until the last person has reached 59 and 1/2, etc., or can the plan terminate earlier?

Also, with regard to ERISA statute of limitations, when do they accrue?

Thanks in advance.

Does anyone of you know a good source to obtain information about cost sharing trend nowadays? What I'd like to find is how it has changed from it used to be in the future (used to be fully covered by employers, but not anymore at this time). Thanks in advance.

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Yenni M. Djajalaksana

Is there any authority out there re whether a distribution pursuant to a TEFRA 242(b)election is an "eligible rollover election"? It technically is not a distribution under 401(a)(9).

2 questions:

(1) With respect to APRSC's favorable letter requirement, can a plan sponsor that wishes to correct an ADP violation under APRSC claim that it has a favorable letter if the Prototype Plan Sponsor has an Opinion letter?

(2) Plan sponsor has a 1997 ADP test failure, makes corrective distributions within the appropriate period, but in 1999, based on revised figures, discovers that it has not fully corrected the error. Plan sponsor filed a 5330 to report the excess contributions based on the original tests. Can we now file an amended 5330 to report the additional excess contributions without paying any penalties? We are past the due date for filing for a 1997 failure.

Thanks.

We have a client (former?) who was an attorney. About two years ago he was indicted and sent to prison. While in prison, he was diagnosed with liver cancer and recently died. His defined benefit plan was established roughly five years ago. He took out a loan and there is only $10,000 left in the trust. His two former employees accrued benefits are valued at more than the $10,000. He did not file his 1997 or 1998 Form 5500 to our knowledge. We actually fired him prior to his prison sentence for failure to pay our bill. Now, we're feeling sorry for the employees and would like to get them some money if possible. Is it worth the trouble? Should the IRS be notified? One employee has already filed a complaint with the DOL. Any suggestions would be appreciated.

Has anyone heard anything new on this?

Is it still the IRS position that OBRA '87 FFL bases need to be maintained and new ones set up after 1998 for aggregate funding methods?

A 401(k) plan requires 1 year of service to enter the 401(k) and 2 years of service to become eligible for the profit sharing. When calculating the cross tested profit sharing contribution, should the participants who are eligible for the 401(k) but not yet eligible for the profit sharing be included in the average benefits test? Any help will be appreciated. Thank you.

Is it common for state retirement systems to allow non-governmental employers to participate in the system? For example, I am working with a credit union (covering state employees) that is currently covered under a state retirement system. The credit union is not funded or otherwise controlled by the state. The credit union wants to withdraw from the system, but cannot (according to the state retirement board). Aren't there controlled group or ERISA issues? Otherwise, what would prevent a state retirement system from covering any employer within the state?