Michael Devault

Yes, the amount converted from a traditional IRA to a Roth IRA is included in gross income for the year in which the conversion is made. That means you will have to pay tax on the amount converted. However, the amount converted does not count in determining whether you can make the conversion. If your adjusted gross income, excluding the anticipated conversion amount, is greater than $100,000, you can't convert to a Roth IRA. Hope this helps.

Sure do! IRS Pub 590 says, "If you file a joint return and your taxable compensation is less than that of your spouse, the most that can be contributed for the year to your IRA is the smaller of the following two amounts: 1. $2,000, or 2. The total compensation includable in the gross income of both you and your spouse for the year, reduced by the following two amounts: a. your spouse's IRA contribution for the year. b. Any contributions for the year to a Roth IRA on behalf of your spouse. This means that the total combined contributions that can be made for the year to your IRA and your spouse's IRA can be as much as $4,000." Hope this helps!

I suspect that Ellie is referring to the provision of the Small Business Job Protection Act of 1996 that permitted multiple salary reduction agreements under section 403(B). The Act section is 1450(a), which amended IRC section 402(e)(3). Prior to this change in law, an employee could only enter into one salary reduction agreement per calendar year. From a practical standpoint, it kept an employee from using lump sum payments such as those you described as a source of TSA contributions. The use of multiple salary reduction agreements effectively solved this problem. Hope this is of some benefit.

Only those amounts that are earned in the most recent one year period of service may be added to includible compensation for purposes of calculating the Exclusion Allowance. The Exclusion Allowance is the IRS' formula for determining how much may be contributed to a TSA. However, once the maximum is determined, the amounts to which you refer may be the subject of a salary reduction agreement, thus a source of funds for making the contribution. Hope this helps!

I'm not sure you can do what you want, if I understand your question correctly. In order to qualify as a Roth IRA, a trust or custodial account has to be established which meets the IRS' requirements. A trustee or custodian has to be established, but not just anyone can serve in that capacity: They have to be a bank, insurance company, brokerage firm, etc., or approved by the Treasury Dept. Once established, the you make your contribution to the trustee or custodian, who in turn purchases the Roth IRA. It this situation, it would seem difficult at best to have stock in a company that is not publicly traded to be part of a Roth IRA. It would require lots of effort, though. Maybe more than it's worth?! Hope this if of some benefit to you. Good luck!

Look at Income Tax Regulations, section 1.401(a)(31)-1, Q&A 6. It says that the adminstrator can reasonably require that the recipient plan provide a statement that it will accept the direct rollover and that the plan is eligible to receive the rollover. If you have that statement from the receiving plan, it would seem that you would have no liability if something goes awry. Hope this helps.

If the accountants need a cite, it's in the Income Tax Regulations, section 1.408A-4, Q&A 7. Maybe they were thinking of recharacterizations, which can be completed before the tax filing date? But not conversions, as Barry pointed out.

You have 60 days from the date of distribution to roll the funds to the Roth IRA. If rolled within the 60 day period, you won't have to pay the 10% premature distribution penalty.

Not under current law. The profit sharing distribution can be rolled to an IRA or to another retirement plan described in section 401(a) or an annuity plan described in section 403(a). Only distributions from another 403(B) plan can currently be rolled into a 403(B) plan. Hope this helps.

If you are married, filing separately AND you did not live with your spouse at any time during the year, you can contribute to a Roth IRA if your modified adjusted gross income is less than $110,000. However, if you live with your spouse at any time during the year, the modified AGI threshhold drops to $10,000. Hope this helps.

You can also check with your IRA custodian. They should be able to help you with these calculations. If you are really adventurous, Internal Revenue Notice 89-25 contains information on how the calculations are performed. Just be aware that the amortization and annuitization methods determine a level amount which must be withdrawn each year. Good luck!

If you roll your retirement distribution into an IRA, you will ultimately have to pay taxes on the funds when you receive them. In addition, you'll have to pay a 10% penalty if taken before age 59-1/2, unless another exception is met. One of the exceptions to the penalty is distributions for first time homebuyer expenses. Qualified first time homebuyers can have up to $10,000 distributed during their lifetime for those expenses without the 10% penalty being imposed. There's no time restrictions on a traditional IRA. However, on a Roth IRA, you have to wait 5 years before first time homebuyer distributions become an exception to the penalty. Also, if you're thinking about a Roth IRA, you need to know that the money will first be put into a traditional IRA, then you can convert it (assuming you meet the AGI requirement for converting). Upon conversion, the amount converted will be taxable, but future growth may be income tax free. You may want to download a copy of IRS Publication 590 from their web site. It has lots of information that may be useful to you. Hope this helps. Good luck!

I agree with you. Cash has to be one of the options. If you have the 2000 edition of Tax Facts 1, look at Q&A 97. In relevant part, it says, "A cafeteria plan generally cannot provide for deferred compensation except that an employee covered by a profit sharing or a stock bonus plan or a rural cooperative plan that has a qualified cash or deferred arrangement may be allowed by the cafeteria plan an election to have the employer contribute on his behalf to the plan." The operative word is "Election." Also, look at PLR 9104050. While it pertains to a corporate plan, the situation allowed employees to contribute to a health plan or a retirement plan. The Service concluded that because an option existed, employees electing health care would have the contributions included in their gross income. Hope this is of some help.

Yes, it does. If the employee separates from service during or after the year in which they attain age 55, the 10% premature distribution penaly won't apply to any distributions. I'm asked frequently if someone separate from service at, say, age 52, then waits three years to take a distribution at age 55, does the penalty still apply. The answer is "yes." Separation must occur at age 55 or later. Hope this helps. ------------------

Yes, spouses may each contribute to their own Roth IRA. Contributions must be made by the due date of your income tax return, NOT including extensions. That means that the contribution must be made by April 17, 2000. And, you can still make the contribution even if you've already filed your income tax return. Good luck!

I would bet that the Quick & Reilly document has since been revised. At one time, it was thought that you couldn't combine contributions to a Roth IRA with Roth conversions, due to withdrawal restrictions. However, the Service has since issued guidance that addresses these issues, making it allowable to combine them. Hope this helps.

Having not read the newsletter, I can't say for certain. However, I suspect that they're talking about surrender charges, withdrawal penalties, back end loads, etc. that a particular funding medium might impose if the money is taken out too soon. The penalty isn't imposed by the Internal Revenue Code, but rather the specific IRA instrument. Hope this helps.

You're wise to start saving for your kids' college education NOW. First of all, you can't set up a Roth IRA for children unless they have earned income. You can, however, set up a Roth IRA for yourself. Although it's not in the Internal Revenue Code, IRS Publication 590 says you can withdraw money from a Roth IRA for secondary education expenses for you, your spouse, or your children. An educational IRA is OK, but the current contribution level of $500 per year is too low to do much good. You might look at some of the tax credits available, or see if your state has a qualified tuition program. They're nice if you have one available. Bottom line: start saving now, on a regular basis, regardless of the vehicle. You'll be glad you did. Hope this is of some help to you. Good luck!

Yes, you can open a Roth IRA and, after five years, make a qualified first time homebuyer distribution. The lifetime limit for such is $10,000, and the distribution can be used to pay acquisition costs of the principal residence of you, your spouse or any child, grandchild or ancestor. A Roth IRA cannot be transfered to another persons name while living. Hope this helps.

Kent, I know of no other firm that provides documents without accompanying services. Some TPAs around the country provide plan documents as part of their service, but it's generally combined with their overall administration package. Ellie knows EVERYTHING about the TSA business. Give her a call.

I believe that Corbel in Jacksonville, Florida provides such a document and service. Good luck.

Yes, you can. Your contribution to a Roth IRA doesn't affect the contribution limit you can make to a 403(B). To determine the maximum contribution you can make to a 403(B), look at IRS Pub 571. If that information is confusing or there's something you don't understand, find a local financial planner that knows the "ins and outs" of the exclusion allowance calculations. If you need help, feel free to e-mail me. Hope this helps. Good luck.

Your understanding is correct. Keep in mind that a deemed distribution is for tax purposes only. The plan can't reduce the participant's account balance to clear the loan until a qualifying event occurs, such as separation from service. When that happens, an "offset" distribution is made, whereby the loan balance is actually cleared. Until that time, interest on the loan continues to accrue and is added to the loan. The participant can pay interest and/or principal after the deemed distribution, which creates cost basis. But, according to proposed regulations, the loan remaining after the deemed distribution is no longer a loan for section 72(p) purposes, meaning that accruing interest doesn't create additional deemed distributions. The remaining loan does, however, have to be included in determining any future loans. If you have access to them, look at the proposed section 72 regulations. They're in Q&A format and will give you a pretty clear understanding of how loans work. Hope this if of some benefit to you!

I believe that the $1800 of earnings would be taxable in the year of conversion to the Roth IRA. Once it's established as a Roth, future earnings could be recovered tax free, if the required holding period, etc. is met. Have you checked with the custodian that issued the 1099-R to get their side of the story? They may have issued it incorrectly and need to re-issue it. Good luck.

Sandi, the Income Tax regulations are pretty clear that the excess deferrals are considered "made available" to the employee in the year in which the amounts were deferred. As such, they will be included in taxable income that year. Look at section 1.457-1(B)(2)(B)(iii), examples 5 and 6. To my knowledge, there is nothing in the Code or Regulations that specifially address how excess deferrals are to be handled. They are not "in service" distributions, as such, since those types of distributions are limited to those who haven't participated in two years and have small account balances. However, it could be argued that they should be refunded (similar to excess deferrals under 402(g)). Code section 457(d) says that a 457 plan's distribution requirements can't make amounts available to participants before the earlier of (a) separation from service (B) age 70-1/2 or © in an unforeseeable emergency. Initially, this would seem to infer that the money can't be distributed. However, the operation of the regulations have already made the amounts available because they are excessive deferrals. Thus, it would seem that the plan could make available amounts that have already been made available. Does the language of the plan document address this situation? If so, you can be guided by that language. Otherwise, a call to the IRS might be in order. I wouldn't think that they would object to distributions of excessive deferrals, but it doesn't help to check. Hope this is of benefit. Good luck!