Michael Devault

Earl, you are correct, but this "two year rule" applies only to profit sharing plans. It is not applicable to other types of defined contribution plans. Thanks for the clarification!

David, it's my understanding that it has been read once in the Senate, but that's the last action taken. Since the Senate is in recess until after Labor Day, don't look for much until then. After that, cross your fingers!

The IRS uses unisex tables, so the life expectancy for men and women are the same for tax purposes. At your father's current age of 71, the IRS' current life expectancy tables show an expectation of 15.3 years. You might check with the product vendor. They may be able to help with the calculation of required minimum distributions. Good luck!

It's tested on a cumulative basis. Incidentally, the 50% is reduced to 25% if the insurance is either term or universal life. Hope this is of benefit to you.

Technically, a distribution from a 401(k) plan should go into a traditional IRA. Then, if you're eligible to convert it to a Roth IRA, you can do so. The reason is that while the rollover to a traditional IRA is not taxable, the conversion to the Roth IRA is. I suggest that you check with the institution where you have your Roth IRA & tell them what has happened. They can either recharacterize the Roth as a traditional IRA or, if you really want the money in a Roth, they can likely take care of the matter internally so that proper reporting to the IRS is made as though you followed the correct procedures initially. Hope this helps you. Good luck

Life insurance may be purchased as part of a 403(B) plan as long as the insurance remains "incidental" to the plan. It is incidental as long as less than 50% of cumulative contributions represent cumulative life insurance premiums. (The 50% test reduces to 25% for term insurance and for universal life.) Revenue Ruling 90-24 permits transfers of 403(B) funds from one account to another, just as long as the new account has withdrawal restrictions at least as rigid as the original account. If life insurance is used, keep in mind that there is a current economic benefit that will be taxed to them each year (referred to as "PS58" costs). Also, remember that life insurance will not generate retirement funds as effectively as other investment vehicles, so it may be financially advantageous to but the life insurance outside of the plan. This is particularly important if the life insurance will be needed after retirement, since it cannot remain in the plan once required distributions begin. Hope this is of some benefit to you. Good luck!

John, there are pension portability provisions in the bill the House passed last week that increases IRA contribution limits. It's the Conprehensive Retirement Security & Pension Reform Bill. It passed the House by an overwhelming 401-25 vote. It will likely be passed by the Senate, as well. However, the President has expressed concern about the fiscal irresponsibility of the bill, but hasn't said outright that he will veto it. If it passes the Senate by the same margin as the House, he'll have a tough time with a veto, since it can be over ruled. It's an election year and fun to watch these things. If I were a betting man, I would say there's a good chance of passage. But, I don't ever win any money in Las Vegas. Hope this is of some help.

I was looking over a version of the House bill passed yesterday which is intended to raise IRA limits. Among other, lesser publicized, provisions of the bill is one that will update life expectancy to reflect more recent mortality for purposes of RMDs. It's not law yet... it still has to get through the Senate and get the President's signature. For reference, the bill is H.R.4843

The amended return should include form 5329, which is used to calculate additional taxes attributable to distributions from IRAs, etc. The IRS will calculate penalties and interest for you. Nice of them, isn't it? One benefit of our tax dollars hard at work. Hope this helps.

You sure can, just as long as the total, aggregate contributions to all accounts does not exceed $2,000. Hope this helps.

The limit for conversion is determined from your MODIFIED Adjusted Gross Income. This is determined by taking your AGI from your income tax return and subtracting any income resulting from the conversion. (Other items are added back in, such as traditional IRA deductions, foreigh earned income, etc.) So, in your example, the $17,000 converted would not be included in Modified AGI for purposes of determining conversion eligibility. Check out IRS Publication 590, regarding IRAs. It's available in PDF format on the IRS' web site. Hope this helps.

The Code, regulations and every interpretation I've seen from the IRS indicates that, in order to escape the 10% penalty using this exception, the employee must separate from service in or after the year in which he or she attains age 55. I've not seen the PLR you cited, nor have seen reference to it in any reference service. But, I am now curious and will attempt to get a copy for review. I wonder if the penaly might have been waived due to another exception? Thanks!

One of the conditions that must be met to convert an IRA to a Roth IRA is that you modified adjusted gross (AGI) income must not exceed $100,000. Modified AGI does NOT include the income created by the conversion. Therefore, in your example, your income for determining eligibility would be $60,000. You might be interested in reviewing IRS Pub 590, which discusses IRAs, including Roth IRAs. It can be downloaded in PDF format from the IRS' website. It's loaded with information that you might find useful. Best of luck to you!

What if the employee refused to calculate the RMD? The plan is still required to make distributions in amounts that satisfy section 401(a)(9). That seems to put the burden back on the employer, making it a plan expense. I'm not sure there is a correct answer. However, if I were the plan administrator, I would think it advisable for the TPA to perform the calculations, at the plan's expense, just to ensure that the amount distributed is correct. $50 is a small price to pay to make sure plan benefits are paid properly. Plus, it's a deductible expense to the company, reducing the after-tax cost.

The mere fact that you want to move money from a mutual fund to an annuity would not prohibit you from transferring the money. However, since the money in the 401(k) is "trusteed," or owned by the trust, the plan has to permit current investments in the annuities, or allow participants to use wide discretion in the investment choices for their accounts. Check with your plan administrator on this matter. They will be able to provide you with guidance. Good luck!

Good question... tough to answer. What does the plan document say (if anything) about administrative charges? Does the agreement between the TPA and employer address this issue? If it's a mandatory charge, I would think that it would be a plan expense. In other words, if the employee chooses to calculate his or her own RMD to save the $50, but the TPA insists on performing their own calculations, it would likely be a plan expense. If, however, the TPA will accept the employee's numbers, it would seem that the TPA is offering the employee a service and could charge them the fee for such. Sorry I don't have any more difinitive information. Maybe others will provide you with more solid replies.

There is no such time limit. In fact, most IRA custodians can make the conversion immediately after receiving the money in the tradtional IRA. It will appear to be a simultaneous transaction to you, but indeed will be two separate transactions for tax purposes. One final note: Make sure you're eligible to convert from a traditional IRA to a Roth IRA to avoid the necessity of un-winding the conversion at the end of the year! Good luck!

Only a traditional IRA may be converted to a Roth IRA. Therefore, you must first put your 403(B) distribution into a traditional IRA (which is not a taxable event), then convert the IRA to a Roth (which IS a taxable event). Moreover, before you can put your 403(B) into an IRA, you have to be eligible for a distribution from the 403(B). Generally, this requires that you have a "qualifying event," such as attaiment of age 59-1/2 or separation from service. Death and disability are also qualifying events, but highly inconvenient. Hope this helps. Good luck!

I believe that the proposed regulations pertaining to section 72 refer to participant and BENECIARY in several instances. It infers that a beneficary can initiate a loan, so I would wonder why a beneficary couldn't continue a loan. A complete distribution of the decedent's account will have to be made within 5 years, since the beneficiary is not the spouse. Until distributions begin, I would argue that acceleration of the loan is not a requirement. Hope this helps.

The Tax Sheltered Annuity Examiniation Guidelines refers to this. Section 13.5.2.1 says, in relevant part, "Once made, the election is irrevocable. This means that no other special election may be made for any future year WITH THE SAME EMPLOYER (or and employer that is aggregated under section 415), although a participant may always rely on the general rule." (Emphasis was added.) Although this is what the exam guidelines say, the Regulations still advise to the contrary, as does Publication 571. I would excercise caution in this area until the Regs and/or Pub 571 are/is changed. Hope this helps.

Section 403(B)(11) contains restricitions on making withdrawals from 403(B) accounts that are the result of salary reduction contributions. That section says that withdrawals are prohibited unless you: are 59-1/2, separated from service, dead or disabled. Hardship distributions are also acceptable. This provision does not apply to an account balance in effect on 12/31/88. Therefore, unless you meet one of these exceptions, withdrawals cannot be made, even though you are willing to pay taxes and penalties. Sorry. Hope this helps.

The contribution in this case would be considered an excess contribution. The excess contribution and it's earnings needs to be withdrawn on or before the due date (including extensions) for filing your income tax return. If not withdrawn, a 6% excise tax applies to the excess contribution. Hope this helps. Good luck!

You may keep your Roth IRA as is. Contributions to a Roth IRA (and traditional IRAs) are not mandatory. Simply make contributions in those years when you are able. Good luck!

When a traditional IRA is converted to a Roth IRA, the amount converted is included in gross income for the year in which the conversion takes place. Taxes are paid on the amount converted, but the 10% premature distribution penalty does not apply. Once in the Roth IRA, the funds grow with the possibility of income tax free distributions. Look at IRS Publication 590. It will give you the correct information. Good luck!

Actually, you can't roll a distribution from a 401(k) directly into a Roth IRA. What likely happened is that your friend rolled the distribution into a Traditional IRA. This rollover is not a taxable event. Subsequently, the Traditional IRA was converted to a Roth IRA. This is a taxable event... the amount transferred is included in gross income, but the accumulation in the Roth IRA can be tax free. There was a special "deal" for conversions to Roth IRAs made during 1998. The income tax could be spread out over four years. In 1999 and after, income taxes must be paid on the entire amount converted for the year in which the conversion is made. Hope this helps.