BPickerCPA

1. It's possible that the IRS will permit you to lower the payout. I have a ruling request into them now. Ruling requests cost several thousand dollars for professional and filing fees. 2. Otherwise, it would be better to stop now and pay the penalty up to this point. You could then start a new program next year with the lower payout.

Rick, I think you missed the point. At the time the original account owner dies and the account is inherited by a non-spouse, the payout period is set and cannot be extended. So if, as in txdd's example, the payout period is 32 years, the account will be paid out in no more than 32 years whether the beneficiary survives that long or dies sooner.

Taking the additional distribution this year will destroy the payout scheme and subject all distributions to the 10% penalty. There is also an additional amount to compensate the govt for interest on the prior years' penalty. Once done, you can always set up a new scheme next year, but you cannot just go back and continue the old scheme as if nothing ever happened.

Some states use the federal number.

You are correct that limitations come into play in the amount you can DEDUCT. But there are no limitations, based upon participation, on the amount you can CONTRIBUTE. That's what you said in your first message.

Being active in a qualified does NOT preclude one from contributing to a traditional IRA. Only age does.

While the new law permits the rollover of after tax amounts, the 10% penalty only applies to any amount that is included in income. Since no part of the distribution of after tax amounts would be included in income, no 10% penalty is imposed. For the record, ignorant custodians who spout misinformation really P*SS ME OFF!

They would have no idea what you're taking out. It's up to you to explain it to the IRS.

An improper Roth is an improper Roth. That determination can be made at any time. The SoL on penalties only run if the penalty form (5329) is filed. Hence, IRS can disallow the Roth and impose the early withdrawal and excess contribution penalties.

No tax, no penalty, no harm, no foul.

The income limit for conversion is $100,000 period. If you file married filing separate then there is no income limit since you will then be prohibited from converting.

The rule is that you have to take your annual required distribution before you can convert to a roth. The required minimum cannot be converted. If, after taking the minimum, your income is still no greater than $100,000, you can convert. I give no public opinions as to whether it's advisable in individual cases.

No change in Roth income limits.

None, if you withdraw or recharacterize the excess. Recharacterization is the better option.

An IRA is permitted to own stock in a corporation. However, the S Corporation rules do not permit an IRA to be a shareholder, so if the IRA acquires stock, the corporation will cease to be an S Corporation. Keep in mind that there are self dealing rules that would prohibit the IRA from owning stock in a corporation that you control. You also need a custodian willing to invest in a closely held corporation. Since the IRA has to be valued each year, most custodians won't go near it, and the ones that do will charge high fees.

Arnold did not involve a 60 day rollover question. I think there is no problem because if it's rolled over, it's not considered a taxable distribution. However I have to speak to the IRS in DC tomorrow, and I will try to remember to raise this question.

A SEP account IS an IRA account. You can combine it with your other IRA account(s) if you wish.

Probably yes, but if you miss the 60 days, you've screwed up the entire payout series. Is it worth the risk?

Not yet. We're waiting for final regs, which will hopefully have the answer. Last I heard, in about a month.

While John is correct that you can't "cherry pick", I think Paul's question referred to the account as a whole. If so, you CAN decide at the end of the year if you want to recharacterize the entire conversion, if, for example, the value went down, while keeping the conversion if the account, as a whole, went up. Of course, there is no guarantee that even if the account is up at the end of 2002, it couldn't go down later. This happened to a lot of people who converted in 1998.

Correct, I missed that part. The deduction, assuming the IRA is deductible, is the full $2,000.

No.

You have no deductible loss. Sorry.

I would strongly suggest you get your own private letter ruling, especially if the dollars are big enough. If you go for a PLR, the IRS will approve the method of computing the new distributions. Less chance for an error, IMO.

Being a New Yorker, I don't have much to add, but I did see a statement in an accounting newspaper which stated that some employers are not permitting the higher deductions to avoid the problems with the state. I also saw a statement that some plans will that do allow the higher limits will be in violation of state law and that the plan could be disqualified. That's BULL. The plans are qualified under FEDERAL law and will remain so, no matter how any state treats the contributions for state income tax purposes.