Michael Devault

If your former plan is a 457 deferred compensation plan, the money cannot be rolled to an IRA, under current law. However, if it is a qualified pension plan, the funds may be rolled into a traditional IRA. Then, if you meet the requirements for conversion in 2001, that IRA may be converted to a Roth IRA. In order to convert, your adjusted gross income must be $100,000 or less (unless you are married and file separate returns). Also, if you convert, you'll have to pay taxes on the amount converted, after which time the money will grow income tax free. Hope this helps.

You may keep it as a Roth IRA. The AGI limit is a test for making contributions each year. But, once those contributions are made, they can stay in the Roth IRA. Hope this helps.

The IRS imposes no limit, just as long as they are reported properly. Product vendors, however, my impose contractual or adminstrative limits which will vary from one vendor to another. Hope this is of benefit to you.

In response to ssm's question, since the table in the new regs is based on recaculated life expectancies of the employee and a beneficiary 10 years younger, it would seem that the new special rule for a spouse more than 10 years younger would use the same recalculation process. That raises another, related question: If the spouse is more than 10 years younger, is recalculation mandatory?

You are not required to contribute to a Roth IRA each year. However, it's a good idea to do so when possible. The more money you save while you're young, the more you'll have at retirement. If you invested in a mutual fund, the value of the fund will vary with market conditions. As such, it is possible that you will lose some of your principal. However, considering your age, that may not be a great concern. You have plenty of time to recover most losses. Hope this helps.

The last post by alanm needs a bit of clarification on a point I failed to mention in my previous post: You may contribute to a traditional IRA, regardless of the amount of income. However, at the income levels described, the contribution will not be deductible. Because contributions to a Roth IRA are not deductible, either, this may not be an issue. However, there are certainly better options than a non-deductible traditional IRA. With a non-deductible IRA, you basically have a tax deferred account upon which there is an annual contribution limit of $2,000. It also comes with a lifetime of tax reporting. Maybe a better alternative would be a tax deferred annuity. No limit on contributions, no reporting and no mandatory distribution at age 70-1/2. Sorry for not elaborating on this earlier. Thanks to alanm for the reminder.

Since you have made an excessive contribution to a Roth IRA, you have two courses of action that you must take in order to avoid a 6% excise tax. One is to simply withdraw the excess contribution and earnings. The other is to recharacterize the Roth to a traditional IRA, as you suggested. Your 401(k) contributions have no effect on correcting excessive contributions to a Roth IRA. However, you mentioned that you contributed over $15,000 last year. The elective deferral limit was $10,500. Is it possible that you also over contributed to your 401(k)? Good luck!

If the money is in a SEP, the broker is correct. Once contributions are made to a SEP, from that point on, the money is treated just like an IRA. And, you can take money from an IRA once a year, hold it for 60 days, then roll it back into the same or another IRA. Just don't hold it for 61 days, 'cause it then is taxable and not eligible for rollover back into an IRA. Also, distributions from IRAs are not subject to the mandatory 20% withholding. Therefore, the person could "play" with their entire IRA for 60 days.

Tom, life will be much easier with the proposed regs. A belated Christmas present from the IRS. In looking at the preamble, it appears that those taking distributions can switch to the new regs. The first paragraph under "Amendment of Qualified Plans" says: "Alternatively, for distributions for the 2001 and subsequent calendar years beginning before the effective date of final regulations, plan sponsors are permitted, but not required, to follow these proposed regulations in the operation of their plans by adopting the model amendment set forth below." Am I being too optimistic in reading this sentence? Mike

Sure can. In order to avoid the penalties associated with a failed conversion, "you must move the amount converted (including all earnings from the date of conversion) into a traditional IRA by the due date (including extensions) for your tax return for the year during which you made the conversion to the Roth IRA." The text in quotes was taken from IRS Publication 590. Hope this helps.

In order to convert a traditional IRA into a Roth, you must meet the IRS' eligibility, i.e., your modified adjusted gross income must be less than $100,000 (less if you and your spouse file separate returns). If you qualify, you may convert all or part of the traditional IRA to a Roth, but it will create a taxable event. The amount converted will be included in your gross income for the year in which the conversion takes place, and you will have to pay tax on it (no 10% penalty applies, though). From then on, you will enjoy the benefits afforded a Roth IRA. Money distributed from a 401(k) plan or any other pension plan can be rolled to a traditional IRA. Then, that IRA may be converted to a Roth as described above. You cannot make a direct rollover from the pension plan to a Roth IRA. Hope this helps.

Yes, it is. Aggregate contributions to a Roth IRA are limited to $2,000 per year, regardless of the number of actual accounts you have. If you open a new account and place $2,000 in it, you cannot contribute to any other existing account.

Yes, if you qualify, you may contribute $2,000 to your Roth IRA and $2,000 to your wife's Roth IRA. Since Roth IRAs have to be set up for individuals, you can't establish a joint Roth IRA. At any time between now and April 16, you can each contribute $4,000. $2000 would be considered the contribution for 2000 and the remainder the contibution for 2001. If you do this, make sure that the IRA custodian knows the tax year for which the contribution is being made so that they can report it properly. If you send in $2,000 this year, they will automatically "code" it as a 2001 contribution unless you tell them otherwise. The benefit of making a late contribution for 2000 will be found when you retire or take money from your Roth IRA. There will be an additional $2,000 plus interest that won't be there if you don't make the contribution. Hope this helps. Good luck!

The main tax benefit of a Roth IRA is that the interest earned by the Roth IRA can eventually be taken out income tax free. This is a unique feature, since most other alternative methods of saving money require you to pay taxes on interest earnings. If you contribute $4,000 now, it would cover your contribution for 2000 and 2001. The advantage of making your 2001 contribution now is the extra time to earn interest on it. Over a number of years, compounding of this interest can make quite a significant difference in your account. Hope this helps. Good luck to you!

$2,000, reduced by any contributions made to a traditional IRA.

The deadline for making a Roth IRA contribution for 2000 is April 16, 2001. You've got an extra day this year 'cause April 15 falls on Sunday. Good luck!

Transfers from one 403(B) account to another are performed under the authority of Revenue Ruling 90-24, not IRC section 1035. Rev. Rul. 90-24 is "permissive," meaning that while you're allowed to make transfers, product vendors are not required by law to participate in the transfer. Transfers of 403(B) accounts with loans have an added layer of difficulty. Unless you are 59-1/2 or separated from service, income tax regulations prohibit the product vendor from reducing your account balance in order to pay off the loan. Some companies use this as an excuse not to make transfers. This is compounded by the fact that most vendors cannot establish a new 403(B) account with an existing loan (inflexible computer systems generally is the reason why they won't). An idea to consider is to pay off the existing loan, make the transfer, then take out a new loan with the new vendor. First, check to make sure the existing company will make the transfer if you re-pay the loan. If that idea doesn't work, see if they will make a partial transfer of the account balance that is not securing the loan. It's not a complete solution to the problem, but it may give you some relief. Hope this helps. Good luck.

Since April 15 falls on Sunday in 2001, you have an extra day: April 16, 2001 is the deadline for opening and contributing to a Roth IRA for the 2000 tax year.

Yes, you can, just as long as your modified Adjusted Gross Income is less than $150,000. You might want to download Publication 590 from the IRS' website. There's lots of information on Roth IRAs in this publication on pages 36-43. Happy New Year!

I see no reason why it can't be done. Once the SEP contribution is made, it is treated no differently from any other IRA. Therefore, once the money is in the IRA, it can be converted to a Roth IRA, assuming that the $100,000 modified adjusted gross income threshold is not exceeded. And, they will have to pay tax on the amount converted. This would be different for contributions made to a SIMPLE IRA, due to the two year withdrawal restrictions. Hope this helps.

You might want to review IRS Notice 89-25, Q&A 10. The cash surrender value is generally the fair market value EXCEPT in cases where the policy reserves "...represent a much more accurate approximation of the fair market value of the policy than does the policy's stated cash surrender value." In other word, distribution of the policy when the cash value is low may not avoid income taxes.

I believe the commentator is a bit too eager. The increased funding limit was approved by the House, but never got out of the Senate. Keep your fingers crossed. The new Congress may take the issue up again. If so, it's likely that President Bush will sign it into law.

I think so. Section 72(t)(4)(ii) refers to recapture of the 10% penalty if "the series of payments under such paragraph are subsequently modified (other than by reason of death or disability)" (NOTE: The "paragraph" mentioned in this quote is 72(t)(A)(iv), which is the substantiall equal periodic payments exception to the 10% penalty.) It would seem that the recapture applies only if the modification is not due to death or disability. Hope this is of some help.

Not yet. It's part of HR5203 that is supposed to be addressed when Congress returns after recess. It's been passed by the House, but is still awaiting floor action from the Senate. Personally, I wouldn't expect anything to happen in light of the election questions. I suspect that nothing will happen until the new Congress convenes next year.

If your total income for the year will be $100,000, you will quite likely be able to contribute $2,000 to a Roth IRA. However, as I mentioned in my previous post, it depends on your filing status and your AGI. Take a look at IRS Publication 590 (available on the IRS' web site) for complete details.