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The new bankruptcy law has added protection to all IRAs in bankruptcy up to $1 Million. The $1 Million limit does not apply to Rollovers from Qualified Plans.

I agree with all of above. Also, the excess or inelligible contribution may be corrected by removing by tax filing date including extensions with no approved extension required. Earnings must be withdrawn also.

MBOZEK, I agree. Failed to realize contribution was made in the window period. It isn't clear.

I believe even in a PSP that the 10% excise tax on non-deductible contributions would apply. In this case the contribution is considered a non-deductible SEP contribution and an excess IRA contribution unless recharacterized as a Traditional IRA contribution up to the limits. The issue of deductibility as a traditional IRA contribution is a matter of AGI as the participant is covered by the SEP.

Mandatory amounts are not eligible for rollover. If rolled, they would be considered inelligible or an excess rollover subject to penalty if not removed.

Here is the Q & A From Notice 87-13 for clarification. Q-20: What additional tax on early distributions from qualified retirement plans applies under section 72(t) (as added by TRA'86)? A-20: Section 72(t) (as added by TRA'86) applies an additional tax equal to 10 percent of the portion of any "early distribution" from a qualified retirement plan (as defined in section 4974© of the Code) that is includible in the taxpayer's gross income. A distribution (including deemed distributions under section 72(p)) is treated as an "early distribution" unless it is described in section 72(t)(2)(A) (taking into account sections 72(t)(3) & (4)). A distribution to an employee from a qualified plan will be treated as within section 72(t)(2)(A)(v) if (i) it is made after the employee has separated from service for the employer maintaining the plan and (ii) such separation from service occurred during or after the calendar year in which the employee attained age 55. A distribution that is an "early distribution" will not be subject to the additional tax to the extent provided under section 72(t)(2)(B) (relating to deductible medical expenses under section 213), section 72(t)(2)© (relating to certain distributions from employee stock ownership plans), or section 72(t)(2)(D) (relating to distributions pursuant to qualified domestic relations orders). The determination of whether the additional tax under section 72(t) applies to a distribution to be made without regard to whether the distribution is treated as a mandatory distribution for purposes of section 411(a)(11) or section 417(e). The payor (or, if applicable, plan administrator) is not liable under section 3405 to withhold any amount on account of the additional income tax imposed under section 72(t). However, the taxpayer may have estimated tax liability with respect to such additional income tax.

Two good links in today's benefit buzz. Ice Miller here Faegre & Benson and here Here

Bankruptcy Bill is Law Effective in 6 Months. Check AP News Wire etc.

The Custodian/Trustee will inform them via form 5498.

Need More Information. How is the account titled. The custodian/trustee should be able to provide your sister with that information.That will determine if she rolled it over, assumed it or left it in her husbands name as an inherited IRA They might not work with you unless you have a Power of Attorney or some other authority to receive the information. Also, When did her husband pass away and had he started distributions? You say he would have been 71 this year. Was he 70 1/2 this year or last. Did he die before 4/1 of the year following attainment of age 70.5 (Required Beginning date) If she has rolled it over or assumed it, no further distributions are required, however as she is under 59 1/2, any distribuions are subject to penalty unless covered by an exception. If she left it in his name as an inherited IRA, then distributions are required depending on the answers to the questions above. See IRS publication 590 for more information or re-post here with information and someone on this board may be able to help you.

Didn't take much time. I noticed that too. Retirement Geek: Was your request for the correct cite?

Here you go CB-NOTICE, PEN-RUL 17,101K, Notice 88-56, I.R.B. 1988-19, 26, May 9, 1988. Notice 88-56, I.R.B. 1988-19, 26, May 9, 1988. Employee stock ownership plans: Diversification requirements: Employer securities: Qualifying ESOP distribution: Tax Reform Act of 1986 The IRS has provided guidance, in the form of questions and answers, with respect to certain provisions of the Tax Reform Act of 1986 concerning the diversification of the investment requirement applicable to employee stock ownership plans under Code Sec. 401(a)(28) and the rules governing the taxation of qualified plan distributions under Code Sec. 72. The IRS will apply these questions and answers in issuing determination letters, opinion letters, and other rulings. Back reference: See "Finding Lists." This notice provides guidance, in the form of questions and answers, with respect to certain provisions of the Tax Reform Act of 1986 concerning the diversification of investments requirement applicable to employee stock ownership plans (ESOPs) under section 401(a)(28) of the Internal Revenue Code of 1986 (Code) and the rules governing the taxation of qualified plan distributions under section 72. Until further guidance is published, the guidance provided by these questions and answers may be relied upon by taxpayers to design and administer plans and to determine the tax treatment of plan distributions. The Service will apply the questions and answers in issuing determination letters, opinion letters, other rulings and in auditing returns with respect to taxpayers and plans. If future guidance is more restrictive than this notice, such guidance will be applied without retroactive effect. No inference should be drawn, however, regarding issues not addressed in this notice which may be suggested by a particular question and answer or as to why certain questions, and not others, are included. Retroactive protection will not necessarily be afforded with respect to any such inferred guidance. A. Code Section 401(a)(28) Q-1: Which employer securities held by an ESOP or a tax credit ESOP are subject to the diversification of investments requirement of section 401(a)(28) of the Code? A-1: Employer securities acquired by or contributed to an ESOP or a tax credit ESOP after December 31, 1986, are subject to the diversification of investments requirement of section 401(a)(28). Thus, for example, dividends paid to an ESOP after December 31, 1986, with respect to employer securities acquired by or contributed to the plan on or before such date are subject to the diversification requirement of section 401(a)(28) if such dividends are either paid in the form of employer securities or paid in cash or other property that is subsequently used to acquire employer securities. However, employer securities acquired by or contributed to an ESOP on or before December 31, 1986, but allocated to participant accounts after such date, are not subject to the diversification requirements. See Q&A-7 and Q&A-8 for an exception to section 401(a)(28) for certain de minimis amounts of employer securities. Q-2: In what circumstances are employer securities actually acquired by or contributed to a tax credit ESOP after December 31, 1986, treated as acquired by or contributed to the tax credit ESOP on or before December 31, 1986? A-2: Employer securities (within the meaning of section 409(1)) acquired by or contributed to a tax credit ESOP after December 31, 1986, are deemed, for purposes of section 401(a)(28), to be acquired by or contributed to the ESOP before January 1, 1987, if: (1) with respect to such securities, a tax credit was calculated under section 41(a) of the Internal Revenue Code of 1954 with reference to compensation paid or accrued before January 1, 1987, by the employer to employees under a tax credit ESOP; (2) the securities were acquired or contributed within the time period provided in section 404(a)(6) plus such additional time period allowed for contributions to a tax credit ESOP under section 41©(2) and 41©(4) of the Internal Revenue Code of 1954; and (3) the securities were allocated as of a date no later than the last day of the plan year ending within the employer's first taxable year ending on or after December 31, 1986. Thus, such employer securities are not subject to the diversification requirements of section 401(a)(28). Q-3: In what circumstances are employer securities actually acquired by an ESOP or tax credit ESOP after December 31, 1986, treated as acquired by or contributed to the ESOP or tax credit ESOP on or before December 31, 1986? A-3: Employer securities acquired by an ESOP or tax credit ESOP after December 31, 1986, will be deemed, for purposes of section 401(a)(28), to have been acquired by or contributed to the ESOP on or before December 31, 1986, in the following circumstances: (A) Cash or other assets derived from the disposition of employer securities pursuant to a corporate reorganization or acquisition attempt (whether or not successful) which are used to purchase other employer securities will be treated as acquired by or contributed to the ESOP on or before December 31, 1986, if the period between the disposition and the reinvestment does not exceed 90 days or such longer period as may be granted by the Commissioner under rules similar to those of Treas. Reg. §1.46-8(e)(10). For dispositions after June 8, 1988, no extensions will be granted unless applied for within 90 days after the disposition. (B) Employer securities acquired by an ESOP or tax credit ESOP after December 31, 1986, which were purchased with contributions made to the ESOP in cash on or before December 31, 1986, (including employee contributions) will be treated as acquired by or contributed to the ESOP on or before December 31, 1986, if such contributions were used to purchase employer securities within 60 days after the date of the contribution. © Employer securities acquired by an ESOP or tax credit ESOP after December 31, 1986, which were purchased with earnings or dividends paid in cash to an ESOP on or before December 31, 1986, will be treated as acquired by or contributed to the ESOP on or before December 31, 1986, if such earnings or dividends were used to purchase employer securities within 60 days from the date of payment to the ESOP. (D) Employer securities acquired by an ESOP after December 31, 1986, which were purchased with the proceeds of an exempt loan (under section 4975) received by the ESOP in cash on or before December 31, 1986, will be treated as acquired by or contributed to the ESOP on or before December 31, 1986, if such proceeds are invested in employer securities within 60 days of the receipt of the proceeds by the ESOP. (E) Employer securities acquired by an ESOP after December 31, 1986, which were purchased with amounts transferred to an ESOP on or before December 31, 1986, pursuant to a section 4980 transaction will be treated as acquired by or contributed to the ESOP on or before December 31, 1986, if the amounts are used to purchase employer securities within the time period prescribed in section 4980©(3)(B). Q-4: If an ESOP does not account for employer securities acquired by or contributed to the plan after December 31, 1986, separately from employer securities acquired by or contributed to the plan on or before December 31, 1986, how are the employer securities subject to diversification determined? A-4: Solely for purposes of section 401(a)(28), it is presumed that unless a plan separately accounts for employer securities acquired by or contributed to the plan after December 31, 1986, the employer securities allocated to participants' accounts after December 31, 1986, consist, first, of those employer securities acquired by or contributed to the plan after December 31, 1986, and second, of employer securities acquired by or contributed to the plan on or before December 31, 1986. Q-5: Do special rules apply for determining employer securities subject to diversification for an ESOP or tax credit ESOP which adopts model plan amendments? A-5: If the sponsor of an ESOP or tax credit ESOP adopts the applicable model plan amendments contained in Notice 87-2, 1987-2 IRB 17, on or before the date specified in section 1140 of the Tax Reform Act of 1986, the portion of a qualified participant's account balance attributable to employer securities acquired by or contributed to the ESOP after December 31, 1986, may be determined under either Q&A-4 of this notice or by multiplying the number of shares of employer securities allocated to a qualified participant's account by a fraction, the numerator of which is the number of shares of securities acquired by or contributed to the plan after December 31, 1986, and allocated to participant accounts, and the denominator of which is the total number of shares held by the plan at the plan valuation date nearest to the date on which the participant becomes a qualified participant. In addition, see Q&A-17 in the case of a plan which determined the employer securities subject to the diversification requirement in conformity with the model plan amendments on or before June 8, 1988. Q-6: May an ESOP or tax credit ESOP allocate employer securities acquired by or contributed to the ESOP after December 31, 1986, to participant's accountants on a different basis than employer securities acquired by or contributed to the ESOP before January 1, 1987? A-6: Yes. However, the plan's allocation method must meet the requirements of section 401(a)(4). Thus, an ESOP or tax credit ESOP that allocates among participants both employer securities acquired by or contributed to the ESOP after December 31, 1986, (post-86 securities) and employer securities acquired by or contibuted to the ESOP before January 1, 1987, (pre-87 securities) will fail to satisfy section 401(a)(4) if such plan uses an allocation method that disproportionately allocates post-86 securities in favor of the employees described in section 401(a)(4). Q-7: What amount of employer securities held by an ESOP or tax credit ESOP constitutes a de minimis amount of employer securities that is not subject to the diversification of investments requirement of section 401(a)(28)? A-7: If the fair market value (determined at the plan valuation date immediately preceding the first day on which a qualified participant is eligible to make a diversification election) of the employer securities acquired by or contributed to an ESOP after December 31, 1986, and allocated to a qualified participant's account is $500 or less, then such employer securities wil be considered to constitute a de minimis amount of employer securities that is not subject to the diversification of investments requirement of section 401(a)(28). A plan may elect to use a de minimis amount of less than $500. For purposes of determining whether the amount of employer securities acquired by or contributed to an ESOP after December 31, 1986, and allocated to the account of a qualified participant exceeds the de minimis amount described above, employer securities held in accounts of all ESOPs or tax credit ESOPs maintained by an employer corporation and by members of the controlled group of corporations (within the meaning of section 414(b), ©, (m) or (o)) which includes the employer corporation shall be considered as held by the same plan. Q-8: What amount of employer securities held by an ESOP or tax credit ESOP is subject to diversification if the fair market value of the employer securities acquired or contributed after December 31, 1986, exceeds the de minimis amount? A-8: If the fair market value of the employer securities acquired by or contributed to the plan after December 31, 1986, and allocated to the account of a qualified participant exceeds the de minimis amount for any year of a participant's qualified election period, then all shares allocated to the account of a qualified participant which were acquired or contributed after December 31, 1986, shall be subject to the diversification requirements of section 401(a)(28) in each remaining year of a participant's qualified election period. Q-9: What portion of a qualified participant's account is subject to the diversification of investments requirement? A-9: The portion of a qualified participant's account subject to the diversification election in all years in the qualified election period, other than the final year of such period, is equal to: (1) 25 percent of the total number of shares of employer securities acquired by or contributed to the plan after December 31, 1986, that have ever been allocated to a qualified participant's account on or before the most recent plan allocation date; less (2) the number of shares of employer securities previously distributed, transferred, or diversified pursuant to a diversification election made after December 31, 1986. See Q&A-7 and Q&A-8 regarding the exception for de minimis amounts. The resulting number of shares may be rounded to the nearest whole integer. With respect to a qualified participant's final diversification election, "50 percent" is substituted for "25 percent" in determining the amount subject to the diversification election. The following example illustrates the rules of this Q&A: Employee (E), a participant in a calendar year ESOP maintained by Corporation X, is first eligible to make a diversification election in 1989. The fair market value of X corporation stock was $10 per share on December 31, 1988. As of December 31, 1988, E's account contains 100 shares of X stock which were contributed to the plan after December 31, 1986 (post-86 stock). The X stock in E's account is subject to the diversification requirements of section 401(a)(28) because the fair market value of the post-86 stock exceeds $500 (See Q&A-7, supra). The ESOP must permit E to elect to diversify up to 25 shares of the post-86 stock allocated to his account (25% of 100 shares). E must be eligible to make this election through March 31, 1989. E elects prior to April 1, 1989 to receive a distribution of 25 shares of X stock. During 1989, X corporation contributes X stock to the ESOP. E's account receives an allocation of 10 shares of X stock with respect to the 1989 employer contribution. As of December 31, 1989, E's account contains 85 shares of post-86 stock (110 shares --25). The portion of E's account subject to diversification following the 1989 plan year is calculated as follows: 25% of 110 shares is subject to the diversification election (271/2 shares). This amount is then reduced by the number of shares E has previously elected to diversify. Thus, E must be able to elect diversification with respect to an additional 21/2 shares of post-86 stock (271/2 less 25) through March 31, 1990. This number may be rounded to 3 shares of post-86 stock. Q-10: Which shares of employer securities must be diversified pursuant to a diversification election? A-10: The shares of employer securities that are diversified pursuant to a diversification election need not consist of securities acquired by or contributed to the ESOP after December 31, 1986. This is the case even though the determination of the number of shares that must be available for diversification under section 401(a)(28) is based on the number of employer securities acquired by or contributed to the ESOP after December 31, 1986 (See Q&A-9). However, the shares of employer securities that are diversified pursuant to a diversification election must consist of employer securities that, immeditely prior to diversification, are subject to the requirements of section 409(h). Also, in the case of an ESOP that permits participants to receive distributions of employer securities that have been held by the plan for at least 84 months in circumstances other than those described in section 409(d)(1)-(3), section 401(a)(28) overrides the 84-month rule of section 409(d) only to the extent that the shares of employer securities allocated to a qualified participant and diversified pursuant to a diversification election actually consist, first, of employer securities that have satisfied the 84-month rule and, thereafter, of employer securities that continue to be subject to the 84-month rule and have been held by the plan for longer periods of time than other employer securities subject to the 84-month rule. Q-11: May an ESOP permit the diversification of amounts in excess of those required by section 401(a)(28)(B)? A-11: Yes. However, amounts in excess of the minimum amount required to be available for diversification under section 401(a)(28)(B) are not treated as available for diversification or as diversified pursuant to section 401(a)(28)(B). Thus, employer securities subject to section 409(d) and in excess of the minimum amount required to be available for diversification under section 401(a)(28)(B) may not be diversified to the extent that such securities may not be distributed under section 409(d). Also, amounts subject to the requirements of section 409(h) and in excess of the minimum amount required to be available for diversification under section 401(a)(28)(B) remain subject to section 409(h) even if such amounts are diversified. Notwithstanding the foregoing, if a plan permitted the diversification of amounts in excess of the minimum amount required by section 401(a)(28) with respect to employer securities acquired by or contributed to the plan after December 31, 1986, such excess diversification will be treated as required by section 401(a)(28)(B) for purposes of applying sections 409(d) and 409(h) if such diversification was implemented no later than June 8, 1988 and reflected a reasonable interpretation of section 401(a)(28). Q-12: When is a participant eligible to make diversification elections with respect to his ESOP account? A-12: Pursuant to section 401(a)(28)(B), a qualified participant must be able to elect to diversify the appropriate portion of his ESOP account balance (as determined under Q&A-9 of this notice) within 90 days after the close of each plan year during the participant's "qualified election period." A "qualified participant" (as defined in section 401(a)(28)(B)(iii)) means any employee who has completed at least ten years of participation under the plan and has attained 55 years of age. Generally, a participant's qualified election period consists of the 5 plan year period beginning with the plan year after the plan year in which the participant first becomes a qualified participant. However, the qualified election period of any employee who became a qualified participant before January 1, 1987, shall not begin before the first plan year beginning after December 31, 1986 and shall continue thereafter for a complete 5 plan year period. For example, a participant in an ESOP (which uses a calendar plan year) who becomes a qualified participant during 1987 will first be eligible to make a diversification election within the first 90 days of 1989 (within 90 days following the close of the first plan year beginning after 12/31/87). The qualified participant's qualified election period begins in the 1988 plan year and ends with the 1992 plan year. The qualified participant's last diversification election will be within the first 90 days of 1993. Similarly, for example, in the case of an employee who first became a qualified participant in 1986 or any prior year, the participant's qualified election period would begin with the 1987 plan year and close with the 1991 plan year. The qualified participant must first be given a diversification election within the first 90 days of 1988. Notwithstanding the foregoing, in the case of an employee who became a qualified participant before January 1, 1987, a plan will not fail to meet the requirements of section 401(a)(28)(B) if such qualified participant is eligible to make the first diversification election no later than September 6, 1988. In addition, for purposes of this paragraph, an employee who became a qualified participant in 1987 and who was treated under the plan, prior to April 9, 1988 as eligible to make the first diversification election on or before June 8, 1988 may be treated as an employee who became a qualified participant before January 1, 1987. Q-13: What methods can be used by an ESOP or a tax credit ESOP in order to satisfy the diversification of investments requirement with respect to a qualified participant? A-13: An ESOP or tax credit ESOP will be treated as satisfying the diversification of investment requirement of section 401(a)(28) if: (A) the portion of the participant's account balance that is subject to the diversification election under section 401(a)(28)(B)(i) is distributed to the participant (or made available for distribution under Q&A-15) within 90 days after the last day of the period during which the election can be made; (B) the plan offers at least 3 distinct investment options (which are not inconsistent with regulations prescribed by the Secretary) with respect to the portion that is subject to the diversification election to each participant making an election under section 401(a)(28)(B)(i) and any investment option selected by the participant is implemented no later than 90 days after the last day of the period during which the election can be made; or © the plan offers the option to direct the plan to transfer the portion of the participant's account that is subject to the diversification election to another qualified defined contribution plan of the employer that offers at least 3 distinct investment options in accordance with (B) above, provided that the transfer is made no later than 90 days after the last day of the period during which the election can be made. Such transfer must comply with applicable qualification requirements, including sections 414(1), 411(d)(6) and 401(a)(11). The diversification of investments requirement for a year will be satisfied if the number of employer securities distributable under the plan during the 90 days after the last day of the period in which a diversification election can be made equals or exceeds the number of employer securities subject to diversification for the year. Thus, for example, if a tax credit ESOP provides for distribution of employer securities 84 months after allocation, and such employer securities are distributed during the 90 days after the last day of the period in which a diversification election can be made, such distribution may be used to fulfill the diversification requirement if it is equal to 25% (50% for the last year) or more of the employer securities subject to diversification under section 401(a)(28)(B). Q-14: To what extent is a distribution in satisfaction of a participant's diversification election subject to certain other provisions of the plan or Code governing distributions? A-14: Amounts that are required to be available for diversification and are diversified by means of distribution, as permitted under A-13(A), generally are treated as amounts that are not held by an ESOP. Thus, a distribution in satisfaction of a diversification election is not subject to the right to demand employer securities requirement of section 409(h) and may be made notwithstanding the 84 month holding period requirement of section 409(d). However, a distribution in satisfaction of a diversification election is subject to the provisions of section 409(h) concerning the exercise of a put option by participants to the extent that the distribution consists of employer securities. Also, see Q&A-10 for special rules applicable to the interaction of sections 401(a)(28) and 409(d). Finally, a distribution in satisfaction of a diversification election does not fail to satisfy section 411(d)(6) merely because it is not available in the form of employer securities or it is available only as a single sum distribution. However, a distribution or transfer in satisfaction of a diversification election is eligible for the special exception for ESOP benefits under section 401(a)(11)©. See, however, Q&A-16 with respect to the inapplicability of this special ESOP benefit exception for distributions of amounts previously diversified pursuant to section 401(a)(28) in accordance with either Q&A-13(B) or Q&A-13©. Finally, a distribution in satisfaction of a diversification election must satisfy section 411(a)(11) concerning the consent of the participant to a distribution, but is not subject to the rules, under section 401(a), restricting the distribution of plan benefits before the termination of employment (in the case of a pension plan) or the occurrence of certain other events (in the case of a profit-sharing plan). Q-15: Has a plan satisfied the distribution option described in A-13(A) of this notice with respect to a qualified participant's diversification election for a given year if the qualified participant does not elect to receive a distribution from the plan? A-15: Yes. An ESOP or a tax credit ESOP has satisfied the diversification of investments requirement with respect to a qualified participant for a given year when the plan has made available to a qualified participant a distribution of the portion of the qualified participant's account subject to the diversification election (as determined under Q&A-9 of this notice) regardless of whether the qualified participant actually elects to receive a distribution of employer securities. Thus, the diversification election has been satisfied where a distribution to a qualified participant has not been made solely because of the failure of a participant to elect such distribution (or of a participant's spouse to consent to the distribution if such consent is required). This result is the same as the result under A-13(B), which requires only that the ESOP offer 3 distinct investment options (and not that a qualified participant actually elect to diversify). Q-16: To what extent is a distribution of amounts previously diversified pursuant to section 401(a)(28) in accordance with either Q&A-13(B) or Q&A-13© subject to certain other provisions of the plan or Code governing distributions? A-16: Amounts that have been diversified pursuant to section 401(a)(28) in accordance with either Q&A-13(B) or Q&A-13© are treated as amounts that are not held under an ESOP. Thus, section 409(h) does not apply to a distribution of such amounts. Similarly, section 411(d)(6) is not violated if such amounts are not available for distribution in the form of employer securities. Finally, in the case of an ESOP that is a money purchase pension plan, amounts that have been previously diversified in accordance with either Q&A-13(B) or Q&A-13© may not be distributed prior to the participant's separation from service and fail to qualify for the special ESOP benefit exception under section 401(a)(11)©. Q-17: Has an ESOP failed to satisfy the requirements of section 401(a)(28) with respect to diversification elections offered to qualified participants before the issuance of this notice if it offered such elections in accordance with a reasonable interpretation of section 401(a)(28)? A-17: No. An ESOP which offered diversification elections which do not fully conform with this notice before the issuance of this notice has not failed to satisfy the requirements of section 401(a)(28) where: (1) the non-conforming diversification election was first offered to qualified participants before June 8, 1988, and (2) the non-conforming diversification election was based on a reasonable interpretation of the statute. However, any diversification election offered after June 8, 1988 must be in compliance with the requirements of this notice. An ESOP which offered qualified participant a diversification election before June 8, 1988, which did not comply with the requirements of this notice, may offer qualified participants a diversification election which conforms to the requirements of this notice within the period ending on September 6, 1988. For purposes of this provision, operation in conformity with the model plan amendments contained in Notice 87-2, 1987-2 IRB 17, will be treated as based on a reasonable interpretation of the statute. In addition, a calendar year ESOP which offered, within the first 90 days of 1988, a diversification election to a person who became a qualified participant during the 1987 plan year will be treated as operating on the basis of a reasonable interpretation and therefore has not failed to comply with section 401(a)(28)(B) even though such a participation is not required to be given a diversification election pursuant to the statute until the first 90 days of 1989. B. Code Section 72(t) Q-18: For purposes of section 72(t)(2)©, when have a majority of assets in an ESOP, or benefits distributed to participants, been invested in employer securities for the five plan year period preceding a distribution? A-18: For purposes of determining whether a plan has had a majority of its assets invested in employer securities (as defined in section 409(1)) for the preceding five plan year period under section 72(t)(2)©(i), or for purposes of determining whether a distribution is a "qualifying ESOP distribution" (See Q&A-21 of Notice 87-13) under section 72(t)(2)©(ii), assets of the plan will not fail to be treated as invested in employer securities solely because of the transactions described in this Q&A-18. (A) Cash or other assets derived from the disposition of employer securities pursuant to a corporate reorganization or acquisition attempt (whether or not successful) which are used to purchase other employer securities will be treated as invested in employer securities at the time acquired by the plan if the period between the disposition and the reinvestment does not exceed 90 days or such longer period as may be granted by the Commissioner under rules similar to those of Treas. Reg. §1.46-8(e)(10). For dispositions after June 8, 1988, no extensions will be granted unless applied for within 90 days after the disposition. (B) Cash contributions made by the employer to a tax credit ESOP will be treated as invested in employer securities at the time acquired by the plan if such contributions are used to purchase employer securities within the time periods after contribution provided by the applicable statutory or regulatory provisions governing the requirements for the tax credit. © Any other contributions made to an ESOP in cash (including employee contributions) will be treated as invested in employer securities at the time acquired by the plan if such contributions are used to purchase employer securities within 60 days after the date of the contribution. (D) Earnings or dividends attributable to employer securities paid in cash to an ESOP will be treated as invested in employer securities at the time acquired by the plan if such earnings or dividends are used to purchase employer securities within 60 days from the date of payment to the ESOP. (E) Proceeds of an exempt loan (under section 4975) received by the ESOP in cash will be treated as invested in employer securities at the time acquired by the plan if such proceeds are invested in employer securities with 60 days of the receipt of the proceeds by the ESOP. (F) Amounts transferred to an ESOP pursuant to a section 4980 transaction will be treated as invested in employer securities at the time acquired by the plan if the amounts are used to purchase employer securities within the time period prescribed in section 4980©(3)(B). In addition, benefits held in cash or cash equivalents are to be treated as invested in employer securities to the extent that the value of such benefits allocated to a participant does not exceed 2 percent of the value of the employer securities allocated to such participant under the ESOP or tax credit ESOP. Reliance This document serves as an "administrative pronouncement" as that term is described in section 1.6661-3(b)(2) of the Income Tax Regulations and may be relied upon to the same extent as a revenue ruling or revenue procedure. Drafting Information The principal author of this notice is John T. Ricotta, of the Office of the Chief Counsel, Employee Benefits and Exempt Organizations Division. For further information regarding this notice please contact the Employee Plans Technical and Actuarial telephone assistance service between the hours of 2 p.m. and 4 p.m., Eastern Time, Monday through Friday at (202) 566-6783/6784 (not a toll-free call). Nr. Ricotta can be contacted at (202) 566-3459 (not a toll-free call).

Just because the client is covered by a qualified plan doesn't make the IRA contribution non-deductible. However, if the client is maxing out the 401(k) contribution, it is likely that his AGI is over the limit.

Are you aware that if we died tomorrow, the company that we are working for would easily replace us in a matter of days. But the family we left behind will feel the loss for the rest of their lives. Come to think of it, we pour ourselves more into work than into our own family, an unwise investment indeed, don't you think? What is behind the story? Do you know what the word FAMILY means? FAMILY = (F)ATHER (A)ND (M)OTHER (I) (L)OVE (Y)OU

The distribution is a prorata share of taxable and non-taxable amounts.

The $ 450 refers to compensation for the year of participation. Any compensation earned in the qualifying years (up to 3 of previous 5) counts as a year of service.

At last a guy has taken the time to write this all down. Finally, the guys' side of the story. We always hear "the rules" from the female side. Now here are the rules from the male side. These are our rules! Please note... these are all numbered "1" ON PURPOSE! 1. Learn to work the toilet seat. You're a big girl. If it's up, put it down. We need it up, you need it down. You don't hear us complaining about you leaving it down. 1. Sunday sports. It's like the full moon or the changing of the tides. Let it be. 1. Shopping is NOT a sport. And no, we are never going to think of it that way. 1. Crying is blackmail. 1. Ask for what you want. Let us be clear on this one: Subtle hints do not work! Strong hints do not work! Obvious hints do not work! Just say it! 1. Yes and No are perfectly acceptable answers to almost every question. 1. Come to us with a problem only if you want help solving it. That's what we do. Sympathy is what your girlfriends are for. 1. A headache that lasts for 17 months is a problem. See a doctor. 1. Anything we said 6 months ago is inadmissible in an argument. In fact, all comments become null and void after 7 days. 1. If you won't dress like the Victoria's Secret girls, don't expect us to act like soap opera guys. 1. If you think you're fat, you probably are. Don't ask us. 1. If something we said can be interpreted two ways and one of the ways makes you sad or angry, we meant the other one. 1. You can either ask us to do something or tell us how you want it done. Not both. If you already know best how to do it, just do it yourself. 1. Whenever possible, please say whatever you have to say during commercials. 1. Christopher Columbus did not need directions and neither do we. 1. ALL men see in only 16 colors, like Windows default settings. Peach, for example, is a fruit, not a color. Pumpkin is also a fruit. We have no Idea what mauve is. 1. If it itches, it will be scratched. We do that. 1. If we ask what is wrong and you say nothing," we will act like nothing's wrong. We know you are lying, but it is just not worth the hassle. 1. If you ask a question you don't want an answer to, expect an answer you don't want to hear. 1. When we have to go somewhere, absolutely anything you wear is fine ... Really. 1. Don't ask us what we're thinking about unless you are prepared to discuss such topics as sports, the weather, or hunting. 1. You have enough clothes. 1. You have too many shoes. 1. I am in shape. Round is a shape. 1. Thank you for reading this. Yes, I know, I have to sleep on the couch tonight; but did you know men really don't mind that? It's like camping. Pass this to as many men as you can - to give them a laugh. Pass this to as many women as you can - to give them a bigger laugh!!

JOHN G Treas Reg 1.408A-3 Q & A # 3 Example 2 appears to imply an ordering rule exists. This was pointed out to me by one of my co-workers. However, when all is said and done, it seems to me that before tax filing date + extensions, it wouldn't matter how it was corrected. Any thoughts? JEVD Q-3. What is the maximum aggregate amount of regular contributions an individual is eligible to contribute to a Roth IRA for a taxable year? A-3. (a) The maximum aggregate amount that an individual is eligible to contribute to all his or her Roth IRAs as a regular contribution for a taxable year is the same as the maximum for traditional IRAs: $2,000 or, if less, that individual's compensation for the year. (b) For Roth IRAs, the maximum amount described in paragraph (a) of this A-3 is phased out between certain levels of modified AGI. For an individual who is not married, the dollar amount is phased out ratably between modified AGI of $95,000 and $110,000; for a married individual filing a joint return, between modified AGI of $150,000 and $160,000; and for a married individual filing separately, between modified AGI of $0 and $10,000. For this purpose, a married individual who has lived apart from his or her spouse for the entire taxable year and who files separately is treated as not married. Under section 408A©(3)(A), in applying the phase-out, the maximum amount is rounded up to the next higher multiple of $10 and is not reduced below $200 until completely phased out. © If an individual makes regular contributions to both traditional IRAs and Roth IRAs for a taxable year, the maximum limit for the Roth IRA is the lesser of -- (1) The amount described in paragraph (a) of this A-3 reduced by the amount contributed to traditional IRAs for the taxable year; and (2) The amount described in paragraph (b) of this A-3. Employer contributions, including elective deferrals, made under a SEP or SIMPLE IRA Plan on behalf of an individual (including a self-employed individual) do not reduce the amount of the individual's maximum regular contribution. (d) The rules in this A-3 are illustrated by the following examples: Example 1. In 1998, unmarried, calendar-year taxpayer B, age 60, has modified AGI of $40,000 and compensation of $5,000. For 1998, B can contribute a maximum of $2,000 to a traditional IRA, a Roth IRA or a combination of traditional and Roth IRAs. Example 2. The facts are the same as in Example 1. However, assume that B violates the maximum regular contribution limit by contributing $2,000 to a traditional IRA and $2,000 to a Roth IRA for 1998. The $2,000 to B's Roth IRA would be an excess contribution to B's Roth IRA for 1998 because an individual's contributions are applied first to a traditional IRA, then to a Roth IRA. Example 3. The facts are the same as in Example 1, except that B's compensation is $900. The maximum amount B can contribute to either a traditional IRA or a Roth (or a combination of the two) for 1998 is $900. Example 4. In 1998, unmarried, calendar-year taxpayer C, age 60, has modified AGI of $100,000 and compensation of $5,000. For 1998, C contributes $800 to a traditional IRA and $1,200 to a Roth IRA. Because C's $1,200 Roth IRA contribution does not exceed the phased-out maximum Roth IRA contribution of $1,340 and because C's total IRA contributions do not exceed $2,000, C's Roth IRA contribution does not exceed the maximum permissible contribution.

There is a two year wait or a 25% penalty may be imposed. However, see the NESTEG bill re-introduced in the Senate. This will remove the 2 year wait among other things.

Did you ever realize that the only time in our lives when we like to get old is when we're kids? If you're less than 10 years old, you're so excited about aging that you think in fractions. "How old are you?" "I'm four and a half, going on five.” You get into your teens, now they can't hold you back. You jump to the next number ... or even a few ahead. "How old are you?" "I'm gonna be 16!" You could be 13, but hey, you're gonna be 16! And then the greatest day of your life … You BECOME 21. Even the words sound like a ceremony. But then you TURN 30. (Makes you sound like bad milk.) You BECOME 21, you TURN 30, then you're PUSHING 40. Whoa! Put on the brakes ... it's all slipping away. Before you know it, you REACH 50 ... and your dreams are gone. But wait!!! You MAKE IT to 60. You didn't think you would! So you BECOME 21, TURN 30, PUSH 40, REACH 50 and MAKE IT to 60. You've built up so much speed that you HIT 70! After that it's a day-by-day thing; you HIT Wednesday! You get into your 80s and every day is a complete cycle; you HIT lunch; you MAKE IT to 4:30; you REACH bedtime. And it doesn't end there. Into the 90s, you start going backwards ... "I Was JUST 92." Then a strange thing happens. If you make it over 100, you become a little kid again. "I'm 100 and a half!" . These simple suggestions will help us all be youthful for life. 1. Throw out nonessential numbers. This includes age, weight and height. Let the doctors worry about them. That is why you pay "them!" 2. Keep only cheerful friends. The grouches pull you down. 3. Keep learning. Learn more about the computer, crafts, gardening, whatever. Never let the brain idle. 4. Enjoy the simple things. 5. Laugh often ... long and loud. Laugh until you gasp for breath. . 6. The tears happen. Endure, grieve, and move on. The only person who is with us our entire life, is ourselves so Be ALIVE while you are alive. 7. Surround yourself with what you love whether it's ... family, pets, keepsakes, music, plants, hobbies, whatever. Your home is your sacred refuge. 8. Cherish your health. If it is good, preserve it. If it is unstable, improve it. If it is beyond what you can improve, get help. 9. Don't take guilt trips. Take a trip to the mall… even to the next county ...to a foreign country, but NOT to where the guilt is. 10. Tell the people you love that you love them ...at every opportunity.

Ned, How often do you visit Phil?? Just 2/2 or do you live there. Its been our traditon to see you every 2/2.

MEMORANDUM TO: File FROM: ERM DATE: February 7, 2005 RE: Consequences of reducing the cash-out limit from $5,000 to $1,000 to avoid automatic rollovers Matters not changed • Spousal consent. The plan need not obtain spousal consent for a voluntary distribution of $5,000 or less or for a loan secured by benefits of $5,000 or less. 1.401(a)-20 Q&A-8(d) and Q&A-24(a)(1); 1.417(e)-1(b)(2)(i); and Notice 2005-5, Q&A-13. • Restricted employees. The restricted employee rules do not apply to a voluntary distribution of $5,000 or less. 1.401(a)(4)-5(b)(3)(iv)©. • Increasing the cash-out limit. The plan may later be amended to increase the cash-out limit to $5,000. 1.411(d)-4 Q&A-2(b)(2)(v). Matters changed • Investment responsibility. The plan investment fiduciaries retain investment responsibility for the benefits of participants remaining in the plan because of lowering the cash-out limit. • Missing participants. The plan might have more missing participants. • Current availability. The unavailability of payment forms other than a lump sum for benefits of >$1,000 to $5,000 might violate the current availability requirement. See 1.401(a)(4)-4(b)(2)(ii)©. • Vesting on plan termination. Partially vested participants remaining in the plan because of lowering the cash-out limit will fully vest on plan termination. • Disregarding service under IRC § 411(a)(7)(B). The plan will not be able to use the following safe harbors to disregard service under IRC § 411(a)(7)(B) where the participant delays, beyond the safe harbor period, receiving a distribution that could have been cashed out within the safe harbor period under a $5,000 cash-out limit: "A distribution shall be deemed to be made on termination of participation in the plan if it is made not later than the close of the second plan year following the plan year in which such termination occurs." (1.411(a)-7(d)(4)(ii)) "For purposes of paragraph (d)(4)(i) of this section, a distribution shall be deemed to be made due to the termination of an employee's participation in the plan if it is made no later than the close of the second plan year following the plan year in which such termination occurs, or if such distribution would have been made under the plan by the close of such second plan year but for the fact that the present value of the nonforfeitable accrued benefit then exceeded the cash-out limit in effect under Sec. 1.411(a)-11©(3)(ii)." (1.411(a)-7(d)(4)(vi)) Where a participant's service for which the participant has received a distribution is not disregarded under IRC § 411(a)(7)(B), the participant's accrued benefit may be offset by the participant's accrued benefit attributable to the distribution, if the plan so provides. 1.411(a)-7(d)(6)(i). • 401(a)(26) testing of former employees. Participants remaining in the plan because of lowering the cash-out limit and whose vested accrued benefits are $5,000 or less may not, for purposes of 1.401(a)(26)-4©, be treated as excludable employees under the rule in 1.401(a)(26)-6©(4). 1.401(a)(26)-4(d)(2). • Forms 5500 and 5500-EZ; service providers' per participant charges; VCP fee. Participants remaining in the plan because of lowering the cash-out limit count as participants for purposes of: • The differing rules for completing Form 5500 for large plans and small plans. A small plan has 99 or fewer participants at the beginning of the plan year (120 or fewer if the plan's Form 5500 was filed as a small plan for the prior plan year). Small plans: • Are exempt from filing Schedules C (Service Provider Information) and G (Financial Transaction Schedules) • File Schedule I (Financial Information--Small Plans) rather than Schedule H (Financial Information) • Are eligible for exemption from the requirement to file an Accountant's Report • The ability to file Form 5500-EZ. • Service providers' per participant charges. • The VCP fee, which generally is: Number of participants 20 or fewer 21 to 50 51 to 50 101 to 500 501 to 1,000 1,001 to 5,000 5,001 to 10,000 More than 10,000 Fee $ 50 1,000 2,500 5,000 8,000 15,000 20,000 25,000

There is no requirement other than the 1099R to report any distribution from a plan. The requirement to report that an RMD is due is only for IRAs. No such requirement exists for qualified plan trustees.

If the contributions are being deposited to IRA accounts, the trustee/custodians should be informed that they are SEP contributions so the 5498 reporting will be correct. If not, the participants could be questioned about the contributions being in excess of annual traditional IRA limitations. Normally the check or a cover letter from the employer indicates to the receiving trustee/custodian that the deposits are SEP IRA contributions. I don't think that the employer would have any liability but I'm not an attorney.

Another problem is Title I protection under ERISA. If SEP contributions are co-mingled with traditional Annual IRA contributions, the employee will lose Federal protection under Title I.