Gary Lesser

The rules are similar to the SEP rules. Service counts no matter how short. Thus, an individual that works only one day in each of three plan years (e.g., hired and fired on 12-31) has completed the maximum service requirement allowed in a SEP or SARSEP. There is no such thing as a "3-month" service (or "hours of service" for that matter)requirement in a SEP or SARSEP!

Any amendment that is inconsistant with the notice (previously given for the year) does not become effective until the following year. Thus, in all likelyhood, the amendment cannot be effective util the new year beginning in 2000. If the P/S plan is adopted, effective 11/98, then the 1998 (and 1999)SIMPLE is no longer valid; all SIMPLE contributions are excess contributions and no amount contributed to the SIMPLE is (was) deductible. The SIMPLE becomes a COMPLEX!

It is possible (e.g., real estate limited partnerships), provided, however that the transaction is not prohibited under ERISA and the Internal Revenue Code. It be very carefull, especially when your IRA is getting something for nothing. [This message has been edited by Gary Steven Lesser (edited 12-29-98).]

#3,600+ (see Rev Proc 98-1)plus whatever the submitter charges for preparing the PLR request. However, there is a sufficient number of PLRs out there that a prudent practitioner would not need to "ask again" the same question. Personally, I (GSL Galactic Consulting) have rendered several distrubution letters and let my E&O policy take the risk. The client is charged a flat fee (much less than the $2,100) and receives several possible calculations (methods) and a letter for their tax files. The method is chosen after a discussion with the client or his or her financial advisor. The amount is initially approximated and then finalized on the date that the distribution request is submitted to the financial institutio making theperiodic payments. [This message has been edited by Gary Steven Lesser (edited 01-02-99).] [This message has been edited by Gary Steven Lesser (edited 01-02-99).]

In response to numerous personal mail messages.... A SEP is not a "successor" defined contribution plan for the purposes of Code Section 401(k)(10)(A)(i). The purpose of that section is to prevent participants from gaining premature access to their funds. Requiring transfer into a SEP would accomplish nothing. This position is supported by the regulations under that Code Section. The same rational would apply to a SIMPLE IRA. Furthermore, a SIMPLE IRA plan may not accept rollovers from a qualified plan. In the case of a SIMPLE, the only contributions that are permitted are contributions (i) under a qualified salary reduction arrangement, and (ii)rollovers or transfers from other SIMPLE IRAs (UNLESS subject to the two year restriction, see IRC 408(d)(3)(G)).

Your SEP contribution will remain deductible (keeping you under the $100k limit) even if the underlying IRA is converted to a Roth IRA. A conversion is not the same thing as a recharacterization (and incidently, a SEP can't be recharacterized). So youy should be okay.

No. Required minimum distributions may not be rolled over (.). However, up to $2,000 may be contributed as an annual Roth IRA contribution provided the individual qualifies (and has W-2 or personal service income to support the contribution).

The Roth IRA Answer Book (Panel Publishers, NYC) will be available in January. The Book contains over 450 Q&As and numerous appendices (charts, tables, and so on). For additional information, contact Panel Publishers at 1-800-901-9075.

Has anyone any thoughts (citations appreciated)on whether an executor or executrix can convert a traditional IRA into a Roth IRA on behalf of the deceased? Would the answer change if the executor(trix)were not the beneficiary of the tradirtional IRA?

An individual can only defer 100 percent of what they would have received in cash; thus, an individual need to earn more than $6,000 to defer $6,000.

The employer may request a private letter ruling for approval of its nonmodel arrangement. [see Rev Proc 83-36 and 87-50; PLR 9552055, 9036038] [This message has been edited by Gary Steven Lesser (edited 12-18-98).]

The most recent version of IRS model Form 5305A-SEP is 12-31-97. The instructions require that the new form be adopted by 12-31-98. See "Instructions for the Employer" on the model form.

All W-2 compensation (wages) are considered. In the case of a partner or sole-proprietor, only earned income from personal services (including guaranteed payments) are considered. [iRC Section 401©(2)] The IRS has always believed that they have the right to recharacterize amounts to reflect economic reality. I am not aware of a any objective standard. Perhaps an expert in partnership taxation will have additional thoughts. You might wish to read _Durando v US 19 EBC 2191 (8th Cir 1985). In Durando, an S-Corp, tried to base its plan contribution on what appeared to be dividend income (which is reported on Schedule he K-1). The taxpayer lost. The tax return preparer (accountant) would generally make this determination. Hope this helps.

The provisions in the plan document regarding "amendment" should be followed. Generally, this requires a notice stating that theplan has been terminated and the effect of the amendment; that is, no further contributions will be made by the employer and that any election to defer compensation) (elective contributions will no longer be honored.

A SEP is not a "successor" defined contribution plan. Therefore, the employer may start a SEP after terminating a 401(k) plan. See Treasury Regulation Section 1.401(k)-1(d)(3).

{duplicate message deleted} - gsl [This message has been edited by Gary Steven Lesser (edited 12-18-98).]

A SIMPLE IRA may be started in the year following the termination of an active 401(k)plan. For the purpose of the "sucessor plan rules applicable upon termination of a 401(k) plan, a successor plan is any defined contribution plan AS DEFINED IN CODE SECTION 414(i), but EXCLUDES an ESOP and a SEP. See treasury Regulations Section 1.401(k)-1(d)(3). [see, too, SIMPLE, SEP, and SARSEP Answer Book, 4th edition, Q&A 15:4] The referance in the regulations is nonstatutory but makes sense from a policy standpoint; that is, the purpose of IRC 410(k)(10)(A)(i) is to prevent participants from gaining premature access to their funds (which would not occur in a SEP).

In the case of an LLC/LLP an owner employee's compensation is their earned income _plus_ any W-2 income. Thus, both are considered. The W-2 income has an effect on the amount of self-employment tax that reduces the earned income component for calculation purposes. If you are using QP-SEP Illustrator software, use the noncorporate version (KEO-SAR); enter the earned income in column "W;" enter the W-2 compensation in column "AY" to be considered for SE tax purposes (the reduction) and again in column "BB" to be treated as plan compensation (since entity is a single/controlled business). The circular and interdependant calculations are all handled automatically; that is "instant answers" with no math!! The 1998 and 1999 versions of that software are available by calling (317) 846-7704 (during business hours).

Yes, a SEP contribution can be effectuated by the executor who steps into the shoes of the Plan Administrator. A regular (annual traditional) IRA contribution, however, can not be made on behalf of a dead person.

You are correct; a model SEP can no longer be used with a qualified MP pension plan. Many sponsor's (mutual Fund & Ins. Company's) have _prototype_ documents that allow for a tandem MP plan. Actually, they _can_ use the model plan, BUT the plan carries no IRS reliance as to form, nor may the alternate disclosure requirments (that is, the notices contained on the model form) be used to exempt the plan from ERISA coverage.

The most comprehensive treatment of SEPs and SIMPLEs is contained in the SIMPLE, SEP, and SARSEP Answer Book by Panel Publishers. To order, call 800-638-8437. The treatment in that book is far more comprehensive than the treatment contained in the IRA Answer Book. The SIMPLE, SEP, and SARSEP Answer Book also contains SOFTWARE for crunching illustrations for sole-proprietors and partnerships.

Your message was clear, concise, and well written. After reading both of the grace period rules under IRC 408(p) [iRC Sections 408(p)(2)©(i)(II) and 408(p)(D)(iii)] I believe that your answer is more correct than mine; that is, B does not have to adopt the SIMPLE plan under rules similar to IRC 410(B)(6)©. I too am concerned, however, by the use of the phrase "another such employer." The reason I am willing to due a _guarded_ 180 degree turn is Notice 98-4 (portions follow). -------------------cut here--------------- Q. B-3: Can an employer make contributions under a SIMPLE IRA Plan for a calendar year if it maintains another qualified plan? A. B-3: Generally, an employer cannot make contributions under a SIMPLE IRA Plan for a calendar year if the employer, or a predecessor employer, maintains a qualified plan (other than the SIMPLE IRA Plan) ... However, an employer can make contributions under a SIMPLE IRA Plan for a calendar year even though it maintains another qualified plan if either: (1) The other qualified plan maintained by the employer covers only employees ... covered under a collective bargaining agreement.... (2) The other qualified plan is maintained by the employer during the calendar year in which an acquisition, disposition or similar transaction occurs (or the following calendar year); the requirements of this Q&A B-3 would have been satisfied if the transaction had not occurred (and thus the employer maintaining the SIMPLE IRA Plan had remained a separate employer); and only individuals who would have been employees of that "separate" employer are eligible to participate in the SIMPLE IRA Plan. Although we are probably _both_ tax lawyers, neither of us are expressing a legal opinion and readers/lurkers should only consider this discussion as one source of information. In other words, they should consult with their own attorney as to whether this discussion answers their particular question and fact pattern. [Personally I think that the quoted phrase was a poor choice of words, and that the quoted matter in the last line of the Q&A was intended to clarify the poor draftsmanship contained in the Code.] Thank you for participating. Who are you? (qpsep@pixpc.com)

Panel Publishers (NYC) will soon release the Roth IRA Answer Book. The book is currently in press and will be available in about 6 to 8 weeks. It is rather comprehensive and will answer all of the mysteries of life, have millions of examples, and so on.

Doesn't seem like an "investment."

There are those that do not believe an individual can have but one sole proprietorship (although I do not agree when the business are totally different). Does the accountant file two schedule Cs? The Schedule C instructions seem to suggest that a sepatate form is required for "each" trade or business. Are the businesses in some way treated separately? The 50/50 group is not controlled because of the more than 50% rule (IRC 414). However, the entities could be affilliated under subsections (m) and (o) of Code Section 414.