jevd

Thank You, The discussion in the posts helped to understand the problem but there is apparently no clear answer. I haven't been able to get anything from IRS Pubs or rulings etc. Thanks Again.

An employer makes an excess matching contribution to employee who has been terminated. The contribution is subject to 10 % penalty for non-deductible contribution. Is the employee subject to a 6% penalty on an excess IRA contribution and how is the contribution returned to the employer as all SIMPLE IRA contributions vest 100% to employee. My opinion is that the employer reports the contribution as income to the employee and deals with the employee directly and the employee is the only one that can request the distribution from the plan. Am I on the right track? Thanks

Its my understanding that you still need a distribution event and plan termination or discontinuance of contributions is not a distribution event.

You may also purchase the policy for its cash value under a DOL PTE.

Check the instructions for form 5329 and the form. The tax is included on the 1040, so it appears that you could include the extra 10% withholding and use it as a credit against the total tax including amounts due from the 5329.

Aspen Publishers also has a 403(b) answer book check this site http://www.aspenpublishers.com/default.asp Also http://www.403bwise.com/ is another good site for 403(b) information.

That sounds correct to me. The 5305 uses the IRS defaults unless the custodian modifies it. The beneficiary should check with his/her accountant regarding reeporting the under distributions. Generally if they are corrected and there was a reasonable circumstance, the IRS may waive the penalty. See IRS form 5329 & instructions.

It depends what the plan document says. The IRS default is payment over the life expectancy of the beneficiary. If the plan allows or is silent then the L.E. payment applies and it is my understanding that the penalty also applies for missed distributions. Anyone out there with a different understanding.?

Not so fast with that withdrawal. Check the cost of your loan ( low rates & deduction of interest on income tax) vs the expected return of tax free return on your investment if you leave it in the ROTH IRA Include the 10% penalty in your calculations and you may find the loan is cheaper.

Does anyone know where a Basis Calculator for Coverdale ESA's may be found?

Yes. Sep contributions are made to Traditional IRAs. You may make traditional contributions, SEP contributions or even Rollover contributions to the same Traditional IRA account. SEP contributions are reported on form 5498 for the year "in which" they are made regardless of the year "For which" they are made. Although you may co-mingle these contributions, a SEP plan with common law employees is considered an Employee Benefit Plan under ERISA and the co-mingling of these contributions may endanger Title I protection under ERISA. See previous threads regarding this issue.

I Say DRM. "Doesn't Really Matter" Anyone working with this for more than 10 minutes knows what were talking about.

I don't see any out there but I'll keep checking. JEVD

Dave, Great job on the enhanced Federal Register link. Is it possible to do the same for the weekly IRS Bulletin? JEVD

Here is 9418034 It appears to allow the spouse beneficiary of a Qualified plan to Roll the plan in the name of a decedent and then allow death distributions to the spouse beneficiary. 4973.02-00 Tax on excess contributions to IRA's, certain 403(B) contracts, and certain individual retirement annuities Excess contributions UIL No. 72.22-00; UIL No. 401.06-01; UIL No. 402.08-05 Taxability of beneficiary of employee's trust, Rollover contributions, By a surviving spouse; UIL No. 4973.02-00 Tax on excess contributions to IRA's, certain 403(B) contracts, and certain individual retirement annuities, Excess contributions This is in response to the *****, request for private letter ruling submitted by your authorized representative on your behalf, as supplemented by letters dated, ***** and, ***** in which you request several letter rulings under sections 72(t), 401(a)(9), 402©(9), and 4973 of the Internal Revenue Code. The following facts and representations have been submitted in support of your ruling request.Taxpayer A died on *****, survived by his spouse, Taxpayer B. Taxpayer A's date of birth was September *****, and he had not attained age 70 1/2 at the time of his death. Taxpayer B's date of birth was *****.At the time of his death, Taxpayer A was a participant in Plan X, a profit-sharing plan which your authorized representative has asserted is qualified under section 401(a) of the Code, and the trust of which is tax-exempt under section 501(a).At the time of his death, Taxpayer A also maintained an individual retirement arrangement (IRA Y) described in section 408(a) for his benefit. Taxpayer B is the beneficiary of IRA Y. Taxpayer A had not begun to receive distributions from either Plan X or IRA Y at the time of his death.IRA Y is maintained with a brokerage firm. Since the firm does not hold assets of the type found in Taxpayer A's account in Plan X, the brokerage firm will be directed to transfer Taxpayer A's IRA Y account balance to IRA Z which will be held with a bank. IRA Z will be in Taxpayer A's name. Taxpayer B will be the beneficiary of IRA Z.Under the terms of Plan X, Taxpayer B is entitled to a preretirement survivor annuity. As beneficiary of Taxpayer A's interest in Plan X, Taxpayer B intends to elect to receive a single sum distribution of the present value of her pretirement survivor annuity. Thereafter, Taxpayer B intends to direct the trustee of Plan X to transfer said present value into IRA Z in a trustee-to-trustee transfer described in section 401(a)(31) of the Code. No portion of said amount consists of after-tax contributions to Plan X. Taxpayer B does not intend to treat IRA Z as her own IRA as permitted under section 1.408-8 of the Proposed Income Tax Regulations, Questions and Answers A-4 and A-6.Taxpayer B intends to begin receiving distributions from IRA Z. Both the transfer of amounts into IRA Z and the commencement of distributions from said IRA will occur prior to December 31, 1994.1. That the amounts directly transferred from Plan X to IRA Z may be excluded from Taxpayer B's income as a rollover contribution from a qualified retirement plan to an IRA pursuant to sections 402©(9) and 401(a)(31) of the Code;2. That the amounts transferred to IRA Z will not constitute an excess contribution under section 4973 of the Code;3. That distributions from IRA Z to Taxpayer B made prior to Taxpayer B's attaining age 59 1/2 will not be subject to the 10 percent additional income tax imposed by section 72(t)(1) of the Code because of section 72(t)(2)(A)(ii) of the Code; and4. That IRA Z will be treated as Taxpayer A's IRA and, thus, will be subject to the distribution rules of sections 401(a)(9)(B)(iii) and (iv) of the Code.With respect to your first ruling request, section 402(a) of the Code provides that, except as otherwise provided in this section, any amount actually distributed to any distributee by any employees' trust described in section 401(a) which is exempt from tax under section 501(a) shall be taxable to the distributee, in the taxable year of the distributee in which distributed, under section 72 (relating to annuities).Section 402©(1) of the Code provides, generally, that if any portion of an eligible rollover distribution from a qualified trust is transferred into an eligible retirement plan, the portion of the distribution so transferred shall not be includible in gross income in the taxable year in which paid.Section 402©(4) of the Code defines "eligible rollover distribution" as any distribution to an employee of all or any portion of the balance to the credit of an employee in a qualified trust except the following distributions:(A) any distribution which is one of a series of substantially equal periodic payments (not less frequently than annually) made--(i) for the life (or life expectancy) of the employee or the joint lives (or joint life expectancies) of the employee and the employee's designated beneficiary, or(ii) for a period of 10 years or more, and(B) any distribution to the extent the distribution is required under section 401(a)(9).Section 402©(8) of the Code defines an eligible retirement plan as (i) an individual retirement account described in section 408(a), (ii) an individual retirement annuity described in section 408(B) (other than an endowment contract), (iii) a qualified trust, and (iv) an annuity plan described in section 403(a).Section 402©(3) of the Code provides, generally, that section 402©(1) shall not apply to any transfer of a distribution made after the 60th day following the day on which the distributee received the property distributed.Section 402©(9) of the Code provides, generally, if a distribution attributable to an employee is paid to the spouse of the employee after the employee's death, section 402© of the Code will apply to such distribution in the same manner as if the spouse were the employee except that the spouse shall transfer such distribution only to a section 408(a) individual retirement account or a section 408(B) individual retirement annuity.Section 401(a)(31)(A) of the Code provides that a trust shall constitute a section 401(a) qualified trust only if the plan of which such trust is a part provides that if the distributee of any eligible rollover distribution--(i) elects to have such distribution paid directly to an eligible retirement plan, and(ii) specifies such eligible retirement plan to which such distribution is to be paid (in such form and at such time as the plan administrator may prescribe),such distribution shall be in the form of a direct trustee-to-trustee transfer to the eligible retirement plan so specified.Section 401(a)(31)(B) of the Code provides that subparagraph (A) shall apply only to the extent that the eligible rollover distribution would be includible in gross income if not transferred as provided in subparagraph (A) (determined without regard to sections 402© and 403(a)(4)).The term "eligible rollover distribution" when used in section 401(a)(31) of the Code has the same meaning as when used in section 402© of the Code.The term "eligible retirement plan" when used in section 401(a)(31) of the Code includes IRAs defined in sections 408(a) and 408(B) of the Code.Generally, a direct trustee-to-trustee transfer described in section 401(a)(31) of the Code constitutes a "direct rollover" of an "eligible rollover distribution" and is entitled to tax-deferred treatment pursuant to section 402© of the Code.Section 1.402©-2T of the Temporary Income Tax Regulations, Question and Answer 10, provides, generally, that if a distribution attributable to an employee is paid to the employee's surviving spouse, sections 402© and 401(a)(31) apply to the distribution in the same manner as if the spouse were the employee. Q&A 10 further provides that only IRAs described in sections 408(a) and (B) of the Code are treated as eligible retirement plans for purposes of receiving distributions made to surviving spouses of deceased employees/plan participants.Section 1.408-8 of the proposed regulations, Question and Answer A-6, provides, in pertinent part, that a surviving spouse of an employee who rolls over a distribution from a section 401(a) qualified plan into an IRA may elect to treat the IRA as the spouse's own IRA in accordance with the provisions of Q&A A-4.Section 1.408-8 of the proposed regulations, Q&A A-4, provides that a surviving spouse is the only individual who may elect to treat a beneficiary interest in an IRA as the beneficiary's own account. Q&A A-4 further provides, in pertinent part, that an election will be considered to have been made by a surviving spouse if either of the following occurs: (1) any required amounts in the account (including any amounts that have been rolled over or transferred, in accordance with the requirements of section 408(d)(3)(A)(i), into an IRA for the benefit of such surviving spouse) have not been distributed within the appropriate time period applicable to the decedent under section 401(a)(9)(B), or (2) any additional amounts are contributed to the account (or to the account or annuity to which the surviving spouse has rolled such amounts over, as described in (1) above) which are subject, or deemed to be subject, to the distribution requirements of section 401(a)(9)(A). The result of such an election is that the surviving spouse shall then be considered the individual for whose benefit the trust is maintained.In this case, Taxpayer B will receive, or be treated as having received, a distribution of the full amount due her from Plan X. She will then roll over, or transfer pursuant to section 401(a)(31) of the Code, the distribution into IRA Z. She does not intend to make the election described in section 1.408-8 of the proposed regulations, Qs and As A-4 and A-6.Q&A A-6 of section 1.408-8 of the proposed regulations provides that a surviving spouse may elect to treat an IRA of her deceased's spouse as her own. Q&A A-4 lists the actions by which a surviving spouse makes said election. The cited questions and answers indicate that a surviving spouse's rolling over a distribution from a deceased's employee's qualified retirement plan into his IRA in and of itself need not constitute an election to treat the IRA as her own.In this case, Taxpayer B will accomplish a direct rollover of the amount due her from Plan X into IRA Z. Your authorized representative has asserted that said rollover will meet the requirements of sections 402©(9) and 401(a)(31) of the Code. After the rollover is accomplished, IRA Z will continue to be maintained in the name of Taxpayer A as Taxpayer B will not affirmately elect to treat IRA Z as her own IRA. We believe that such a scenario is described in section 402©(9).Therefore, with respect to your first ruling request, we conclude as follows:1. That the distribution from Plan X to IRA Z may be excluded from Taxpayer B's income as a rollover contribution from a qualified retirement plan to an IRA pursuant to sections 402©(9) and 401(a)(31) of the Code.With respect to your second ruling request, section 4973(a) of the Code provides, generally, that with respect to individual retirement accounts (within the meaning of section 408(a)) and individual retirement annuities (within the meaning of section 408(B)), there is imposed for each taxable year a tax in the amount equal to 6 percent of the amount of the excess contributions to such account or annuity (determined as of the close of the taxable year). The amount of such tax for any taxable year shall not exceed 6 percent of the value of the account or annuity (determined as of the close of the taxable year).Section 4973(B)(1) of the Code defines, in relevant part, the term "excess contributions" as the sum of--(1) the excess (if any) of--(A) the amount contributed for the taxable year to the accounts or for the annuities (other than a rollover contribution described in section 402©, 403(a)(4), 403(B)(8), or 408(B)(3)) (should be section 408(d)(3), over(B) the amount allowable as a deduction under section 219 for such contributions.In short, an amount distributed from a section 401(a) of the Code qualified retirement plan and contributed to an IRA which is not described in section 402© is an excess contribution for purposes of section 4973.We concluded with respect to your initial ruling request that Taxpayer B's proposal to "roll over" her Plan X distribution into IRA Z falls within the scope of section 402©(9) of the Code. Thus, with respect to your second ruling request, we conclude:2. That the amounts transferred to IRA Z will not constitute an excess contribution under section 4973 of the Code;With respect to your third ruling request, section 72(t)(1) of the Code provides that if any taxpayer receives an amount from a qualified retirement plan (as defined in section 4974©), the taxpayer's tax under this chapter for the taxable year in which such amount is received shall be increased by an amount equal to 10 percent of the portion of such amount which is includible in gross income.Section 4974© of the Code defines "qualified retirement plan" to include individual retirement accounts described in section 408(a) and individual retirement annuities described in section 408(B).Section 72(t)(2)(A) of the Code lists several types of distributions which are not subject to the section 72(t)(1) tax. Section 72(t)(2)(A)(ii) provides that distributions made to a beneficiary (or estate of the employee) on or after the death of the employee constitute one type of distribution on which the section 72(t)(1) tax will not be imposed.In this case, as noted above, Taxpayer B will receive a distribution from Plan X. Taxpayer B proposes to contribute said distribution to IRA Z as a rollover contribution, and then begin receiving distributions from said IRA. As noted with respect to your first ruling request, Taxpayer B's contributing the Plan X distribution to the IRA and her decision to continue to treat IRA Z as the IRA of Taxpayer A falls within the scope of section 402©(9). As a result of her actions, even after Taxpayer B accomplishes the rollover, she does not become the owner of the IRA but remains the beneficiary thereof for purposes of sections 402 and 72 of the Code.Thus, with respect to your third letter ruling request, we conclude:3. That distributions from IRA Z to Taxpayer B made prior to Taxpayer B's attaining age 59 1/2 will qualify for the section 72(t)(2)(A)(ii) of the Code exception to the 10 percent additional income tax imposed by section 72(t)(1) of the Code since they will be treated as having been made to a beneficiary as that term is defined in section 72(t)(2)(A)(ii) on or after the death of an employee.With respect to your fourth ruling request, section 401(a)(9)(A) of the Code provides, generally, that section 401(a) qualified plans must provide that the entire interest of each employee/plan participant will be distributed, beginning not later than the required beginning date, in accordance with regulations, over the life of such employee or over the lives of such employee and a designated beneficiary (or over a period not extending beyond the life expectancy of such employee or the life expectancy of such employee and a designated beneficiary).Section 401(a)(9)© of the Code defines "required beginning date" as April 1 of the year following the year in which the employee attains age 70 1/2.Section 408(a)(6) of the Code provides that under regulations promulgated by the Secretary rules similar to the rules of section 401(a)(9) shall apply to IRAs.Section 401(a)(9)(B) of the Code sets down the required distribution rules where the employee dies before his entire interest is distributed. Section 401(a)(9)(B)(i) of the Code provides that if the distribution of the employee's interest has begun in accordance with subparagraph (A)(ii), then the remaining portion of such interest will be distributed as least as rapidly as under the method of distribution being used as of the date of death.Section 401(a)(9)(B)(iii) of the Code, which sets down the operative rules in those cases where distribution of the employee's interest had not begun in accordance with subparagraph (A)(ii), provides generally that distributions to the designated beneficiary of such a deceased employee may be paid over the life or life expectancy of such a beneficiary and must begin no later than one year after the date of the employee's death or such later date as the Secretary may by regulations prescribe.Section 401(a)(9)(B)(iv) of the Code provides an exception to the general rule in (iii) above applicable to surviving spouses. If a surviving spouse is the designated beneficiary of a deceased employee, distributions to such a spouse need not begin until the date on which the employee would have attained age 70 1/2.As noted above, Taxpayer B's proposal to contribute her Plan X distribution into IRA Z will not be treated as an election on her part to treat the IRA as her IRA. Thus, she remains the beneficiary thereof for purposes of section 401(a)(9). As a result, distributions from said IRA to Taxpayer B will be subject to the rules of section 401(a)(9)(B) of the Code.Therefore, with respect to your fourth ruling request, we conclude:4. That since IRA Z will be treated as Taxpayer A's IRA it will be subject to the distribution rules of sections 401(a)(9)(B)(iii) and (iv) of the Code.These letter rulings are based on the assumption that Plan X is qualified under section 401(a) of the Code and its trust tax-exempt under section 501(a) at the time distributions from it are made to Taxpayer B. Furthermore, the rulings are based on the assumption that IRAs Y and Z will meet the applicable requirements of section 408 at all times relevant thereto. Additionally, the letter rulings are based on the assumption that the direct rollover of amounts from Plan X to IRA Z meets all of the rules applicable to direct rollovers found in sections 402 and 401(a)(31) of the Code. Finally, although not required under section 401(a)(9)(B), the letter rulings assume that Taxpayer B will begin to receive distributions from IRA Z no later than December 31, 1994.Please note that, in accordance with the factual representations made herein, the letter rulings also assume that IRA Z will be maintained in Taxpayer A's name at the time Taxpayer B receives her initial distribution therefrom, and that her receipt of distributions from IRA Z will be as a beneficiary thereof.Please also note that Taxpayer B's receipt of her initial distribution from IRA Z on which she does not pay the 10 percent additional income tax imposed by section 72(t)(1) at a time when IRA Z is maintained in the name of Taxpayer A will constitute an irrevocable election on her part to not treat IRA Z as her own IRA as permitted under section 1.408-8 of the proposed regulations, Qs and As A-4 and A-6.Pursuant to a power of attorney on file in this office, a copy of this ruling letter is being sent to your authorized representative. Sincerely yours, John G. Riddle, Jr., Acting Chief, Employee Plans, Rulings Branch --------------------------------------------------------------------------------

There are also PT Exemptions for the purchase and sale of Life Insurance from the plan. 77-8 & 92-6amends 77-8

Here is a site with a number of links on the subject. http://www.lifetimesavingsaccount.com/

Make SEP contribution and remove SIMPLE contributions as ineligible by tax filing date.

The Link is in my last post.

Check This Link http://www.washingtonpost.com/wp-dyn/artic...6-2003Feb6.html

"Who moved my cheese?" We all should read it or re-read as the case may be.

Mike Preston, Its great to hear there's an Allen Sherman fan still out there. Maybe my LPs are worth something. Lets All Call Up ATT & Protest to the President March! jvd

This makes for great discussion but the expected timing on this is impossible. Congress has to Digest, Debate, Decide & Deliver this legislation before the end of the year so the general public can notify their trustees/custodians to convert existing accounts to take advantage of four year tax break on the conversion. Not to mention that the DEMS will say this is just another break for the rich. I also wonder where that loose 30k/yr is coming from?

Check Out IRS Employee Plans News Bulletin at this site http://www.irs.gov/pub/irs-tege/se0103.pdf It stated that 5500EZ instrux will not be out til 1/31/03

Check This link http://www.benefitslink.com/cgi-bin/qa.cgi...e=qa_distribtax Thanks