Michael Devault

Here's a couple of ideas for you to try. 1. Check the North Carolina statutes regarding bankruptcy. They may be on the state's website. 2. Consult with a local attorney on the matter. Or, if you can get a bankruptcy judge to return your call, ask him/her. Good Luck!!

Correct on both issues, assuming the taxpayer is not subject to backup withholding.

It is my understanding that all 403(B) contributions, whether elective or nonelective, reduce the elective deferral limit for qualified 457 plans. I've tried to figure out why this is so, and have concluded that the purpose of 457 plans is to allow employees an opportunity to save money for their retirement when their employer may not be inclined to provide a nice retirement plan due to budget constraints, etc. that state & local governments face all the time. In those instances where employers DO contribute to a retirement plan, it theoretically reduces, on a dollar for dollar basis, the need for the employee to defer their current income. My theory may not be correct, but at least it makes a believable story! Hope this is of some benefit to you.

The details are too sketchy for a detailed answer, but, if the penalty is imposed because of premature distributions, there is an exception that will help out. The 10% penalty is not imposed if separation from service occurs in or after the year in which the participant attains age 55. However, this doesn't appear to be the reason for the penalty. The participant was 59-1/2 in 1998, so there shouldn't be a penalty for 1999. I suggest you get a few more details from the client to see what the penalty is really for. Maybe it's unrelated to the pension plan??

This is covered in Internal Revenue Code section 129(a). To the best of my knowledge, the Treasury hasn't issued regulations on this section yet. However, there's a lot of good information in IRS' Publication 503. Good luck!

According to PLR 9050030, the two accounts don't have to be combined. Here's a quote from question 219 in the 1999 edition of Tax Facts 1 regarding distributions that might be of help. "Individual retirement plans do not have to be aggregated for purposes of calculating these payments. If a taxpayer owns more than one IRA, any combination of the taxpayer's IRAs may be taken into account in determining the distributions by aggregating the account balances of those IRAs. However, a portion of one or more of the IRAs may not be excluded in order to limit the periodic payment to a predetermined amount." In other words, you can base distributions on one of the IRAs, but you can't use a fraction of the second IRA in order to come up with a desired income amount. Hope this is of help to you.

If you need documentation of the $10,500 amount, or would like to see other indexed limits for 2000, look at IRS News Release No. IR-1999-80. You can find the releases on the IRS' web site.

Take a look at IRC section 457©. This section discusses individuals who are participants in more than one plan, and limits the aggregate contribution to $7,500 (indexed to $8,000) per year per taxpayer. Based on this, I would think that the 457/403(B) offsets would be handled on a taxpayer basis each year, regardless of the number of plans under which the taxpayer is covered. Hope this helps!

Your calculations are correct for the "Any Year" catch up, assuming that the $20,000 is the employee's "includible compensation." Please note that the employee doesn't have to have 15 years of service to elect this catch up... it's available anytime. The 15 years of service is applicable to the 402(g) catch up, which allows the regular elective deferral limit ($10,000 in 1999, $10,500 in 2000) to be increased by as much as $3,000 per year.

Have you tried the mortality table shown in reg section 1.72-7©?

The employee's after-tax contributions will be returned to him upon distribution without any income tax consequences, so he can do whatever he wishes with them, including purchasing a new annuity. Assuming the funds were not in an annuity before, there will be no division of pre- and post-TEFRA: the new annuity will be purchased currently, thus subject to LIFO taxation. The earnings on the after-tax contributions are, indeed, eligible for rollover into an IRA when distributed from the plan.