Mary Kay Foss

With an S corporation it would definitely be W-2 income. I was just speaking generically because directors (receiving Forms 1099), consultants, partners and other self-employed people can use Form 1099 income for plan contributions. A partner or LLC member can use K-1 income, if it's SE income, to support the contribution to a retirement plan.

How about Section 410 (a)(2) Maximum age conditions that says that no one can be excluded "from participation (on the basis of age) employees who have attained a specified age."

If you inherit a Roth IRA, you cannot roll it over to your own IRA. Distributions from a Roth IRA are 100% income tax free if the account has been around for 5 years. If the account hasn't been in place for 5 years and it's completely cashed out, the earnings are taxable. The earnings are subject to tax after the Roth contributions and IRA to Roth conversions are withdrawn. The way that market has been lately, many Roth's don't have any earnings at the present time. The rules are different if you inherit a traditional rather than a Roth IRA.

Actually in most situations that I deal with, employees who do not defer into the 401k plan are allocated something from the employer so that the HCEs do not have to take out some of their contributions. I would think that someone who opts out of participating but receives a contribution every year that they're eligible to participate, would be considered an active participant for W-2 purposes. Also I think that particular box on Form W-2 is handled incorrectly more than any other box. We routinely answer IRS correspondence denying an IRA contribution based on that box when the employee was never eligible to participate (under 21, part-time, left after 2 months, etc).

Check the regulations under 1.401(a)(9)-5, Q&A 4(B)(2). The section is titled - Change in marital status.

The S corporation income will not support a 401k or any other kind of retirement plan contribution. There must be earned income; which is generally income subject to social security or self-employment tax. In an S corporation, salary is needed for a retirement plan contribution or 401k deferral.

The final regulations make some of these questions easier to deal with than they used to be. IRA owners use the uniform table to calculate distributions during their lifetime. The identity of the beneficiary is not relevant for the calculations. When the sole beneficiary is a spouse who is more than 10 years younger, the Joint and Last Survivor table is used. Marital status for using this table is determined as of the 1st day of the year. Thus if a younger spouse passed away in 2002, her life could still be used for the 2002 distribution.

If someone is eligible to participate in a 401k plan and decides not to, they are treated as a participant with a 0% deferral percentage. Thus, the box would be checked that they participate in a plan.

It is my understanding that it is a one-time penalty unless the required distribution was the final one using the five-year rule. The statute of limitations will not run on the penalty until you file Form 5329 and report it. The IRS has been very fair in waiving these penalties but one of the requirements for a waiver is that the excess amount be withdrawn.

My understanding is that the deferral (the $11,000) has to be made before 12/31/02. The deferral is supposed to be determined before the income is earned so you're violating the spirit of 401k if you wait until after year end. Clients switching from a SEP or a PS Keogh are having difficulty with the 401k concept because they are making contributions in two calendar years instead of one.

At a seminar that I attended the speaker said that if someone consistenly earned one-half of the Social Security wage base they would receive approximately 70% of the maximum social security benefit. Many of my clients have no faith in the social security system being around to pay them a benefit throughout retirement and are always looking for ways to reduce the social security burden. In addition, clients who are receiving social security are very reluctant to pay more money into the system especially if it cannot increase their benefits. In my experience only individuals who have not worked consistently or are short on the number of coverage quarters are interested in paying social security tax. It is interesting that they want to maximize contributions to a retirement plan at the same time that they're avoiding social security tax. You really can't have your cake and eat it too.

My father was born at home and needed a birth certificate in order to get government security clearance. He didn't know until that point that his birth had not been registered. The state (MN) had a procedure where a birth certificate was filled out, an explanation was attached as to why the birth wasn't registered and a knowledgeable person had to provide a notarized signature. It took school records to find out what year he was born. His sister who was a year older didn't have a birth certificate either and they had argued for years as to which one was born in which year. Anyway they both got birth certificates when they were in there 40s. It might be a good idea for some of these participants because there are many things that require one other than just retirement plans. You would think that the government would have given him clearance right away. Any self-respecting spy would certainly have a birth certificate!

Your beneficiaries will need to begin withdrawals from the Roth by December 31 of the year after you pass away. The five year rule still applies but should not pose a problem unless they cash out the entire account immediately. Earnings are taxed if withdrawn within 5 years but it will take some time for the earnings to materialize. The beneficiaries take distributions based upon their life expectancy. The first distributions are presumed to come out of the amount that you transferred into the account (your basis); income is distributed once all the basis is recovered. If your beneficiaries are young enough it could be that no income is distributed within the five year period. Also if you have a spouse beneficiary, the spouse can roll over the Roth with no current distributions required. If there are relatively large dollars involved you may want to have a tax pro who knows about IRAs do some calculations for you.

Yukon's solution doesn't work everywhere. I formerly lived in Des Moines Iowa where insurance is the major industry. Attorneys were preferred jurors to insurance company employees. I served on more than one jury that had an attorney on it, but all of the file clerks for insurance companies were bounced off even the criminal trials.

A loss is available if you cash out ALL IRAs that you have and the total amount that you receive is less than your basis. The loss is treated as an itemized deduction subject to the 2% limitation -- this is a category that most taxpayers do not get to deduct. If you're subject to AMT, this loss is not deductible. In other words, you're better off to wait and see if there's a recovery or do a Roth conversion than to try to take the loss.

1998 could be a closed year for California if you filed your 1998 return before 10/15/99. Since you extended the return, 1998 is still open. What California means by recovering basis first is that the out-of-state basis is taken off before you start Form 8606. That means that the conversion is $84,000 then you take into account the after-tax basis on Form 8606 of $4,000 to determine the taxable conversion. The examples in FTB Pub. 1005 assume that your IRA consists totally of contributions plus earnings. The way the examples work the excess over the contributions is treated as earnings. If your IRA was totally invested in bank CDs, that's the answer that you would get. By "share of income picked up in those years" I meant the taxable portion of the Roth conversion.

Sorry Ed but CA law changed for 2002. The FTB publication referred to gives the answer mentioned above but that is for 2001 returns. The Franchise Tax Board has put together some good examples of the new law in the latest newsletter. Go to www.ftb.ca.gov to see if you can find Tax News. The general rule when you move to CA is that you pay tax on all income received after you become a resident. The top CA rate is 9.3% (which most everyone gets to) so you may want to convert before you move here.

California changed the way they calculate basis for IRAs as of 1/1/2002, you are lucky that you made the conversion when you did. The California rule (before 2002) was that your basis in a contributory IRA was the fair market value when you moved to the state. This basis is recovered first. This means the 1998 Form 540 should be amended to reduce the total taxable amount of the Roth conversion and then amend 1999 and 2000 for the share of income picked up in those years. If you can figure this out on time, you can take the adjustment on your 2001 original return. Califorina has a four year statute of limitations so if you extended the 1998 return until 10/15/99 you have some time to recover 1998 taxes. Even if 1998 is a closed year for you, you should amend it to determine the proper amount of reduced income for 1999, 2000 and 2001. When a 401k or any employer plan is rolled to an IRA as a nonresident, California has never given any basis to taxpayers. If your rollover IRAs and contributory IRAs were combined before you moved to CA it will be difficult to determine your basis. Another way that individuals have CA basis in their contributory IRA relates to the years 1982-1986. For those 5 years, an IRA (maximum $2,000) was allowed as a federal deduction if you were covered by an employer plan. CA did not conform to this so taxpayers who took the maximum deductions have a $10,000 ($2,000 for 5 years) basis for state purposes. Also CA residents not covered by an employer plan could only deduct $1,500 for those 5 years; taxpayers in that category have a possible $2,500 basis for CA. This basis is also recovered first, before any IRA is subject to state tax. IRA basis arising in 1987 or later is recovered pro-rata using Form 8606 just like on the federal return. Good luck. Too bad you didn't think about his earlier.

The 20% withholding is for payments that could be rolled over to an IRA or another qualified plan but are not, so that does not apply in this situation. The 10% withholding that you refer to is voluntary. In many states if the federal voluntary withholding is requested, state withholding is required.

Apparently the retiree wants the loss made up in such a way that he can roll the benefits paid over to an IRA tax free. I don't think it can happen. Section 402 requires that amounts must be distributed by an employee's trust under 401(a) to be eligible for rollover. I can't see how a payment whether deductible or not could be made to the plan in order to satisfy this requirement. When some employers were offering early retirement packages in the 90's they would often "sweeten the deal" for younger participants in a DB plan who hadn't earned a full pension by giving them a lump sum. Unfortunately, they couldn't roll it over even though they thought it was part of the retirement package.

Form 990 is due 4.5 months after year end. May 15 is the due date for a calendar year entity. An extension of 3 months can be requested with another 3 months later; the last date for filing (with approved extensions) would be November 15.

The U.S. Supreme Court in Egelhoff V. Egelhoff held that ex-spouse was beneficiary despite a state law terminating employer benefits to a former spouse. The Texas Court of Appeals followed Egelhoff in Heggy v. American Trading Employee Retirement Acct. Plan by saying the beneficiary card controlled without regard to state law. These were both 2001 cases.

You are correct. The "spouse as sole beneficiary" is mentioned in the regs as a requirement for the deemed election, for use of the joint rather than uniform table and for the delay until decedent would be 70.5 for starting RMDs. A spouse can roll over an actual distribution within 60 days of receipt whether or not he or she is the sole beneficiary. In this case, the spouse can take a distribution and roll it over before the 9/30 cutoff leaving just the children as beneficiaries at the determination date. Alternatively, the account could be split by 9/30 and the spouse could roll over his/her share at any time after that.

Try the following: Roberta Schmalz 408/725-0420; Phil Robinett 408/779-6326: Len Williams 408/736-1566 or Karen Goodfriend 650/833-5900 I'm not sure if they're taking new clients but they all are tax or financial planning experts.

The MPPP could be terminated and rolled to an IRA (no spousal consent for beneficiaries) and then the dentist could start a SIMPLE IRA plan. My clients who have gone from a SEP to a SIMPLE were able to cover fewer employees and get a larger contribution themselves. However, the simplicity of the SEP has many positives especially now with the 25% limitation.