BPickerCPA

Keep in mind that EGTRRA now permits the IRS to extend the 60 day deadline, so it appears (absent any guidelines to the contrary) that a custodian could accept the late rollover while the taxpayer goes for a ruling as to its acceptability.

Appleby, This has nothing to do with logic, as you state, and everything to do with conversations with people in Washington at the IRS. I personally spoke to the author of the Rev Rul and was told that you could either take the previous computed amount, or the exact RMD amount. This was in October. I tried again in the middle of December and received a phone call on Christmas Eve from one of the top people in this department at the IRS, who specifically stated that if your RMD amount was $40,000 and your original computation was $100,000, and you had already taken $70,000, you then had to take the balance of $30,000 to avoid the 10% penalty. I WANTED your answer; I didn't get it and I have to go with what my own ears heard. Regards.

Appleby, If you compute the RMD to be $30,000 and you already took $50,000, then you did NOT take the RMD for the year since you took too much, and you therefore cannot use the RMD method for 2002. The RMD method, despite it's name of "minimum distribution" is NOT a minimum, it is an EXACT amount, and it cannot be exceeded without it being considered a modification. Anyone who took more than the computed RMD amount for 2002 needs to take the correct amount under their OLD method, and then switch in 2003.

Any 1998 conversion can be withdrawn this Thursday (1/2/03) without penalty.

He can make it in 2003 or any time thereafter. Once the switch is made, you can't go back.

At this point the only thing he can do is withdraw the balance of the $100,000. If he stops at $50,000, he's blown the 72t and will be subject to penalties. He can switch to the MRD method for 2003. Note that for the MRD method, you must take the exact amount of the MRD. You don't have the option of taking more, like you do when you're over 70½.

Deadline was 10/1/02. End of story. You might as well open it for 2003 at this point.

When you have an excess contribution, you have to compute the "applicable income". In your case the income is negative, so the amount you have to withdraw is substantially less than the $3,500 you put in. You need not, and in fact should not, empty the account. You should also consider recharacterizing the contribution as a traditional IRA contribution, rather than withdrawing it.

Upon retirement, they become liable for an RMD, based upon the prior year's year-end value. Since you cannot rollover a RMD, the participant has to take the RMD before rolling over the balance. Since most people err while handling this, the solution is to compute the RMD on the company plan, and take it from the IRA in 2002.

Contributions to a Roth IRA can be withdrawn tax and penalty free at any time. Converted funds are subject to the 10% penalty, unless an exception applies, within the first five years. The five years in the case of converted funds applies separately to each conversion. Withdrawals are deemed to come first from contributions, and then from conversions on a first-in first-out basis.

The earnings are taxable.

Even if she didn't have beneficiaries she would use the uniform distribution table. Account holders never use the single life table.

It's been many years since I looked into this (meaning the law may have changed or the memory may be wrong), but my recollection is that you surely lose the deduction for 2001 since the deposit was late, and you cannot claim the deduction for 2002 since it relates to 2001 so it does not qualify as a 2002 expense.

You're too late.

There is not enough info to determine the taxability of your conversion. When you say you converted a $4,000 non-deductible IRA, was that your only IRA? You have to use form 8606 to determine how much of the conversion was taxable, and you have to include all of your IRAs in the calculation. However, the statute of limitations to receive a refund of overpaid 1998 income tax has expired. So that part is moot. However, if you still have traditional IRAs, you still need to do the calculation to see how much basis you still have in those IRAs.

Gary, I'm confused. If the SEP contribution was made in 2002, and SEP contributions are not coded by year, then for 2001 you deduct the maximum deductible, and the excess is automatically a 2002 contribution. There is no need to withdraw any excess, because there is NO excess (assuming that the 2002 maximum contribution is greater than the amount considered a 2002 contribution). Therefore, no 10% penalty, no 6% penalty, no problem at all.

Appleby, I don't agree with your last paragraph. I believe that a spouse can roll the decedent-spouse's QRP assets into an IRA in the decedent-spouse's name, and take penalty free beneficiary distribtutions. But I would not suggest doing this without a PLR.

According to my recollection, SEP contributions are NOT coded by year, they are suppose to be reported in the year received by the custodian, and it's up to the taxpayer to report it for the proper year. Any contribution made between 1/1 and 10/15/02 can be for either 2001 or 2002, and the taxpayer does not have a problem at all, unless the income for 2002 cannot support the contribution made.

I don't know if we lost more than we gained, but we surely did not gain what we had hoped to gain.

What I am saying is that if there is a 401k in the deceased husband's name, with the wife as sole beneficiary, the wife can roll the funds into a beneficiary IRA with she as the husband's beneficiary. This would allow her to take penalty free IRA withdrawals. She could conceivably then roll it into her own IRA at a later date. I am basing this on wording in the final regs, and a couple of different PLRs. The PLRs are somewhere in my PowerPoint presentation that I give at seminars, but I don't remember the numbers by heart.

Based upon a technical reading of the regs, and a previous PLR, I believe it can be done. However, you will probably need your own PLR to convince the custodian to permit it.

Appleby, As an aside, while the contributions must be in cash, distributions can be made in kind. I have seen many people who are not using the money to contribute to IRAs, who liquidate investments because they believe they need to distribute cash. In many cases, they then use the funds to buy stocks in their regular account, thus incurring double commissions.

John, The amount of the mandatory distribution is quite small, on a $14,000 account balance. Once the distribution is taken, and taxed, the individual can use the funds to fund a traditional IRA, a Roth IRA, or anything else that they chose to do (within the limits of the law). It would make sense, in my opinion, to take a distribution larger than mandatory, for the sole purpose of funding an IRA.

An inherited account cannot be converted to a Roth. It makes no sense to take a distribution to make a Roth contribution.

Daniel, The reason you compute the income is to determine the amount to recharacterize, not to compute taxable income. When you recharacterize, you need to include the income. In your example, you converted $10,000. The income is now a negative $5,000. Therefore you need to recharacterize $5,000 ($10,000 minus the $5,000 of negative income), in order to eliminate the $10,000 conversion. Of course, in a case where you convert into a new account, and recharacterize the entire account back to a traditional IRA, you cancel the entire conversion.