Michael Devault

Section 404(h)(1)© refers to the deductibility of the contribution, which will indeed be increased from 15% to 25%. However, as Belgarath points out, there was not a similar change made to section 402(h)(2)(A), which addresses limitations on employer contributions. It remains at 15%. I agree that it was an oversight (at least I hope it was!). But, until it's fixed by a technical corrections bill, I think we're stuck with 15%.

The 15% limit remains intact, but the limit on compensation that can be used increases from $170,000 (in 2001) to $200,000. SAR-SEPs can use the new elective deferral limit of $11,000. In addition, persons over age 50 may defer an additional $1,000. Hope this helps.

Here are the calculation steps, which must be performed on a monthly basis. 1. Determine the amount of group term life insurance provided for the month. 2. Subtract $50,000. 3. Multiply the difference, if any, by the appropriate Table I rate. 4. Subtract the amount the employee pays for the insurance. In your instance, the insurance in excess of $50,000 is subject to the Table I rates. That amount is then reduced by the 20% of the cost that the employee pays. The rest is taxable income to the employee. Hope this helps.

It's P.L. 107-22. It started out in the Senate as S.1190. Hope this helps.

I think there is an issue of semantics here. Annuities which are issued by an insurance company are included among the allowable investments for IRAs. To the best of my knowledge, there are only two types of annuities: fixed and variable. The only distinction between the two is how the ultimate value of the annuity is determined. However, they are both considered "tax deferred" due to the operation of section 72 of the Internal Revenue Code.

Recommend that you take a look at the annuity contract, or an account statement from the insurance company, to determine what the annuity represents. It could be that it's a non-qualified annuity that the client thinks is an IRA. As benji points out, IRAs are subject to the RMD rules, regardless if the contributions were deductible. However, if it's truly a non-qualified annuity and not an IRA, then the RMD rules don't apply... the client can keep the money there until they die, if desired. Hope this is of some help to you.

As usual, Barry is correct. Thanks for clarifying my response. Mike

Yes, as long as (a) you file a joint return and (B) your adjusted gross income is less than $150,000. Take a look at IRS Publication 590 for more information. It's available on the IRS' website.

The IRS has issueded a new version. It's available on the IRS' website. It is a significant improvement over previous editions. The IRS did a good job of making the information more understandable. The bad news is that it comes out within 6 months of the exclusion allowance's demise, so it will have to be revised again soon. But, in the meantime, there is lots of "non-MEA" stuff that is worth reading.

A quick note to expand on John G's response: Next year, the maximum contribution limit will increase to $2,000 per child.

You might try the following link: http://www.bba.org.uk/html/1704.html For current year rates, look at: http://www.bba.org.uk/html/1757.html Hope this is of some benefit to you.

Section 632(a)(2)(B) of the new Act actually struck section 403(B)(2) from the Internal Revenue Code. Therefore, effective January 1, 2002, section 403(B)(2) no longer exists. But, due to the sunset provisions of the new law, it could re-appear on January 1, 2011. Hopefully, between now and then, Congress will act to make the change (and all others in the new tax law) permanent.

Rev. Rul. 90-24 is not specific as to the source of the funds being transferred. It simply states that money in a 403(B) account may be transferred into another 403(B) account.

That is correct. Revenue Ruling 90-24 applies only to trustee-to-trustee transfers of 403(B) funds from one 403(B) account to another 403(B) account.

No. Revenue Ruling 90-24 is used only when moving funds from one 403(B) account to another 403(B) account. A direct rollover is used to roll money from a 403(B) into an IRA, assuming that a distribution from the 403(B) is permissible under the law.

Actually, Revenue Ruling 90-24 is the authority for moving money from one 403(B) funding medium to another. If you want to move money from a 403(B) account into an IRA, you use a direct rollover. The IRA can be any acceptable vehicle that accepts IRA funds. Keep in mind, however, that in order to make the rollover, you must be eligible to receive a distribution from the 403(B) plan. Generally, you must have separated from service, attained age 59-1/2, or be disabled to receive a distribution. Hope this helps. Good luck!

According to IRS Publication 590, "If a distribution to a beneficiary does not satisfy the requirements for a qualified distribution, it is generally includible in the beneficiary's gross income in the same manner as it would have been included in the owner's income had it been distributed to the IRA owner when he or she was alive." As I interpret this, since the money hasn't been in the Roth IRA for 5 years, it cannot be a qualified distribution. So, the beneficiary will have to pay tax on the earnings, when distributed. Hope this helps.

You basically have two options. The first is to take the distribution in cash. You will receive 80% of your account balance, because 20% will be withheld for federal income taxes. In addition to paying taxes, you may be subject to a 10% premature distribution penalty. So, for example, if your account is $1,000, you will receive $800. The remaining $200 will withheld for FIT. Next April 15, you'll have to pay taxes on the $1,000, plus a penalty of $100. So, if you're in a 15% tax bracket, your taxes due to the distribution would be $250. Since $200 has been withheld, you would owe an additiona $50. The second option is to roll it to a traditional IRA. In that event, the money is rolled directly into the IRA and it doesn't create a taxable event. You'll owe taxes when the money is ultimately withdrawn from the IRA, presumably at age 65. Once in the IRA, you may be able to convert it to a Roth IRA. If you meet the eligibility rules for the conversion, you'll pay tax on the amount converted from the IRA to the Roth. But, there will be no 10% penalty. Once in the Roth IRA, future growth will be income tax free. Keep in mind that you can't take the distribution from your 401(k) plan and roll it directly into a Roth IRA; it has to be rolled to a traditional IRA first, then converted to a Roth. Hope this is of some benefit to you. Best wishes.

Wow... what a thorny problem! You might take a look at Letter Ruling 8833043. In that ruling, the 60 day period began when the taxpayer received the distribution, even though the check was issued 10 months earlier but delivery was delayed due to an incorrect address. Also, Letter Ruling 8804014 held that the 60 day time period began when the client signed the registered mail delivery receipt. The distribtion was sent while the taxpayer was away from home, so he took delivery some time after the date the distribution was made. If you can't get the guy to respond, I bet I can find several volunteers to take the money:) Hope this helps. Good luck!

Under current law, if the IRA contains funds from other sources, it may not be rolled into the 401(k) plan. Only IRAs in which all funds are attributable to a rollover of an eligible rollover distribution from a qualified plan can be rolled back into another qualified plan. This may change if the proposed tax bill becomes law. It should be a relatively easy task to determine the source of funds in the IRA. Ask the vendor to provide a statement showing the contribution history of the IRA. If there are contributions other than the rollover, it can't be rolled back into a 401(k). Hope this is of some benefit to you. Good luck.

The Internal Revenue Code has no minimum amount, but product vendors might. You should select some potential vendor candidates and check with each to determine if they have a minimum contribution. If they do, you may want to set money aside until you have the minimum saved up, then make your contribution. You're to be commended for wanting to establish an IRA at such an early age. Very few 17 year olds have the wisdom to save money. You're forward thinking will pay off for you in the future. Keep at it and best wishes to you.

Your understanding of the current rules is correct. After reading section 409 of HR10, I believe that it provides that distributions will become subject to the 10% premature distribution penalty, unless one of the exceptions in section 72(t)(2) applies. Further, distributions from a 457 plan will become eligible for rollover to an IRA (currently, they can't be rolled to anything other than another 457 plan). In short, if the new bill becomes law, distibutions from 457 plans will be treated like distributions from other types of retirement plans. Hope this helps.

Yes, it is. The penalty is imposed only on the amount of the distribution that is included in income, which would include employer contributions, employee contributions made before tax, and all earnings. Hope this helps.

In my opinion, you should not keep the money for the employer. In the event the IRS decides to audit your plan, you would want to be able to show that all contributions have been made properly. I also beleive thet the money should be contributed to a proper 403(B) funding vehicle. If the employees subsequently decide to withdraw the funds, the vendor will be responsible for sending Form 1099-R, properly coded to reflect the nature of the withdrawal. I suggest that you contact the affected employees individually to determine how to handle each situation. If they rolled their original distributions into an IRA, perhaps the IRA custodian will accept the 403(B) contribution and immediately roll it into the IRA. If the employee rolled the distribution into another 403(B) vehicle, it can likely accept the additional contribution. Good luck!

I, too, wish this question had a clear, definitive answer. Without one, however, I tend to agree with Carol's position. Keeping in mind that contributions to a 403(B) plan are held by neither the employee or the employer, but rather the custodian or insurance company, the issue of the mechanics of the transfer comes into play. Amounts contributed to a 403(B) plan (that are not subject to vesting schedules) are non-forfeitable and non-transferrable. In most instances, the funds in the custodial account or annuity contract are held in the name of each individual employee. In this instance, by what right can the custodian transfer funds, which are owned by an individual move funds, when directed to do so by the individual's current or former employer? I wonder how most custodians would react to such a request? Also, the authority for moving money from one 403(B) account to another is Rev. Rul. 90-24. This ruling indicates that transfers may be made by an employee, a former employee or the beneficiary of an employee. It doesn't seem to permit employers to transfer funds. This may be an oversight, but it likely is due to the ownership issue discussed in my last paragraph. If so, there would seem to be no authority for an employer to move funds. Maybe some vendors can give us some insight into how they would respond to such a request? It would certainly be valid input into this issue.