Appleby

Also, if an employer maintains a SEP in the same year that the employer maintain a qualified plan, the SEP cannot be a 5305-SEP…instead, it must be a prototype or individuallya designed SEP.

The five year rule applies only if the participant died before RMDs were required to begin…so it would not apply in this case. If separate accounting is established by 12/31/2006, each beneficiary may use his/her own life expectancy to determine post-death RMD amounts for his/her inherited portion. If not, the life expectancy of the oldest beneficiary must be used. Not sure what you mean about the IRA…but the same rules apply.

Ain't that the truth! The most recent I have seen… Client hired attorney to dispute custodian’s explanation that taxes withheld from a Roth conversion is treated as a regular distribution (not as a conversion) and therefore subject to the 10% additional tax, unless an exception applies. From the attorney's letter, it is evident he does not even know what a Roth conversion is....custodian must respond by X date or be prepared to discuss the matter in court....makes you wanna holler and throw up your hands!!

There was someone... I will check my files and references sources...was hoping to save some time if someone else had it readily available. I will post if I find it.

Hi MJB The custodian is asking…I agree on the obvious. Explanations that have been provided to the IRA owner include: ----This is a QDRO, which applies to qualified plans, such as profit sharing, 401(k), money purchase pension and target benefit plans. For IRAs, the documentation requirement is a divorce decree or legal separation agreement ----As stated in the document ( the QDRO) it applies to a plan under Section 401(a) of the Code. Section 401(a) describes qualified plans. This is an IRA as described under Section 408(a) of the Code. ----The document explains that the requirements under 414(p) of the Code applies. For this account, Section 414(p) cannot apply. Instead, Section 408(d)(6) applies. I was still hoping to get a copy of the case.

...understand that a QDRO is for a qualified plan- not an IRA…but I am looking for a specific case/ruling where it was specifically addressed ,that a QDRO that was issued for a qualified plan (QP)could not be used for the IRA to which the assets were rolled ( from the QP). Thanks

If the daughter and the estate are name as beneficiaries, the daughter would be able to use her life expectancy if the estate distributes its share by September 30 of the year following the year of death…or if the assets are segregated into separate inherited IRAs by December 31 of the year following the year of death, the daughter would be able to use her life expectancy and the estate would be eligible to use the remaining life expectancy of the decedent. If both individuals are designed beneficiaries, each could use their one life expectancies if the assets are segregated into separate inherited IRAs by December 31 of the year following the year of death…unless the partner is older than the IRA owner, in which case, the partner would use the remaining life expectancy of the IRA owner. I am not qualified to address the issue of which is better from a tax-perspective.

Check the instructions for Form 8606- that should resolve the issue

…and if your tax/financial advisor, along with your, determine that you should close the accounts and write off the losses, you need not close your traditional IRAs. For this purpose, traditional and Roth IRAs are treated separately .

I agree. This is a recharacterization. It sounds like the only contribution that was made to the Roth IRA is the 2005 contribution. If so, it will be an easy fix, as all your wife needs to do is recharacterize the entire balance to her traditional IRA. The recharacterization must include the earnings, as technically, she would be treating the contribution as if it was made to the Traditional IRA initially- therefore, all associated earnings/losses must be moved to the Traditional IRA. The IRA custodian should have a special form that is used for that purpose…or a simple letter of authorization, stating that she wants to recharacterize her entire Roth IRA balance to her traditional IRA may suffice. She should check with the custodian to determine their documentation requirements. She would then reflect the contribution on her Tax return as a Traditional IRA contribution. If she made other contributions or conversions to the Roth IRA ( which does not appear to be the case), then a special calculation formula must be used to determine applicable earnings/losses. The formula is provided in TD 9056 at available http://www.irs.gov/pub/irs-regs/td9056.pdf

Excellent!! Thanks

Thanks Bird- the only other thing I could find that seemed to provide a somewhat of a solution was to file Form 941c and Form 843. This do not specifically address such as situation, but I guess that’s because no one would anticipate such a thing occurring or it does not happen often enough for it to be addressed.

Client’s qualified plan account was not flagged as ‘exempt’ in error for a few months during the previous year. as a result, taxes were withheld from some dividends paid to the account. Since these amounts should be tax-deferred, how can employer reclaim the amounts that were withheld? Account is now flagged as ‘exempt’. Denise

Responses much appreciated. The basis for no longer working is that the employer resigned (quit). However, the employee will still be receiving compensation fur the duration of the leave period, and will receive compensation and beneficiaries as if she is still employed. In other words, has she taken the leave in previous years, she would still be actively working up to a certain date as she would have already used-up her leave. But since she did not, and plans to retire, she needs to use the leave to complete her service.

Hi John----That’s what I though. I based my response on that assumption (that by Roth Deduction jimbro meant the 4-year spread for the conversion).

From my experience, the IRS has always waived the penalty for individual who miss the RMD once or twice. From what I understand, they may not be as lenient with those who habitually miss their RMD. The recommendation is to pay the penalty and request the waiver. However, a CPA friend of mine says she usually doe not have client pay the penalty. Instead, she makes sure the RDM is withdrawn very early the next year, and attach a letter of explanation to the IRS, along with proof that the RMD has been satisfied- such as a copy of the account statement, and the IRS has not provided an unfavorable response to date.

The remedy would be to file an amended return for 2000 and include the income for that year. However, according to the IRS “You generally must file Form 1040X to claim a refund within three years from the date you filed your original return, or within two years from the date you paid the tax, whichever is later”. Talk to a tax professional to be sure. I don’t conceive that the IRS would refuse to accept a request to increase your taxable income. You may owe interest on the taxes owed on the amount.

Participant is no longer working for employer, but has accrued unused leave . Is this participant considered ‘separated from service”? , or will he not be considered ‘separated from service’ until his leave is used-up?

Of course, there is always the option of recharacterizing the amount to your traditional IRA. By the way, if you file your tax return by April 15 ( April 17 this year , as April 15 falls on a Saturday), you have until October 15,2006 to remove the excess amount and avoid the 6% excise tax or to recharacterize the amount to a Traditional IRA By recharacterizing, you treat the amount as a Traditional IRA contribution and –if eligible- could claim a tax deduction for the amount.

I recall something about the amendment being effective the 1st day of the plan year, and the notice requirement is that participants must be provided with notification and explanation of the amendment 30-days before the effective date of the amendment. Therefore, any changes made now will be effective for next year and participants should be notified by December 1. The SEP agreement is a good place to check, as it should include n explanation of the amendment process and effective date.

The deadline for performing a Roth IRA conversion for 2005 is 12/31/2005. This means that the assets must have been distributed from the traditional IRA y 12/31/2005 (actually 12/30/2005 since that was the last business day). If the amount was distributed by the deadline, it can be rolled –as a conversion-to a Roth IRA within 60-days and be considered a conversion for 2005.

From experience with handling reporting for RMDs SEPPs and distributions in general, it seems that the reporting that was done is incorrect and needs to be corrected, because it did not reflect the amount distributed. I recall one instance where the financial institution failed to distribute SEPP amount for one month. The IRS instructions to the tax-payer was to distribute the amount the following year and include it in income for that year. But then, I am no expert…

http://www.cra-arc.gc.ca/tax/individuals/t...rsp/menu-e.html

Proposed Distribution Regulations

Or someone who has moved out of the country?