Appleby

I hope you are too Harry. I did too never met him personally, but also learned a lot from his posts. My condolences to his family

EAS I assume the IRA agreement includes provisions for these involuntary distributions?? These would be reported as distributions depending on the age, and if under age 59 ½-depending on whether it has been at least two years since the first contribution was deposited to the SIMPLE IRA. The 10 percent excise tax would apply- and would be increased to 25 % for distributions that do not meet the 2-year requirement.

Kirk, I guess I have picked up some slang from my children… "Word" just means that I agree with J2D2’s post. Instead of “word”, you may say, “ Ain’t that the truth”, or “ I am in total agreement with your comment”. Almost every day a customer will ask us 'why is that so'… and mostly, as J2D2 indicated, the answer is simply because congress made it so. Does that help to clarify my response?

word!!!

I think one primary difference is that distributions from a qualified plan that includes pre-tax and post-tax assets, will generally include a prorated amount of pre- and post tax assets... An exception applies to post-tax assets accrued pre-1987, where a participant may withdraw those amounts without the prorated treatment ( grandfathered rule) .

That sounds right …since the businesses are unrelated, the individual can contribute up to 20 % of his modified net profit to the SEP…This would not be a 'catch-up' contribution- it would be just a regular SEP contribution ( nonelective)

See the article at http://www.investopedia.com/articles/retir...t/03/030403.asp for an explanation on the tax treatment of Roth IRA distributions See http://www.investopedia.com/articles/retir...t/04/091504.asp for some basic rules. See also IRS publication 590 at http://www.irs.gov/pub/irs-pdf/p590.pdf

blue_indiana Since your Roth IRA assets were from regular IRA contributions, you should not have paid the 10 % penalty, because your Roth contributions were not deductible…and for the same reason, you do not owe any taxes on the withdrawal from your Roth IRA. Your impression of the tax treatment of withdrawals of Roth IRA contributions is correct . Ask your tax preparer to prepare a written response to the IRS, educating them on the tax treatment of Roth IRA distributions, and include a ULR to publication 590- http://www.irs.gov/pub/irs-pdf/p590.pdf

Since the contribution was made (rolled) to your IRA in 2005, any earnings removed with the excess/ineligible rollover (from the IRA) will be taxable in 2005. The deadline for removing the ineligible rollover from the IRA is October 15,2006, assuming you file your 2005 return on time. For the 401(k) excess, it depends on the type of excess. Assuming it ‘s a salary deferral excess, where you deferred more than the limit for the year, the excess amount is taxed in the year you deferred the amount and the earnings are taxed in the year the amount was distributed/2005.

…technically, if you filed your 2003 return on time, you had until October 15,2004 to remove the excess without penalties. Since you did not remove the excess by that deadline, you owe the IRS a penalty of 6 percent of the excess amount ($180). This penalty is reported and calculated on IRS Form 5329 Also, since you did not remove the excess by the deadline, it was automatically designated/treated ( for tax purposes) as a 2004 Roth IRA contribution…therefore, for all intent and purposes, you already have a 2004 $3,000 Roth IRA contribution. The only way to avoid the 6-percent is if your financial insititition is able to do what John suggested in his second sentence- however, if your contribution was clearly designated as a 2003 contribution-that may not even be an option

Line 1 seems like the better fit. Form 8606 is deficient in that regard- it need to be updated to account for rollover of after-tax amounts

When recharacterizing the $4,000, you need to determine the current value. The formula is explained in TD 9056 at http://www.irs.gov/pub/irs-regs/td9056.pdf

I don’t have my copy with me, but I assume that section of the book refers to the exception under § 1563 Or course, Derrin's book explains it in 'English'

…and I assume by “ proprietor you mean “Sole proprietor/unincorporated” right? Just checking, as many of our customers use the term even for small business owners whose businesses are incorporated. If the business is incorporated, you may already know that contributions would be up to 25% of W-2 wages from the business

Just to add... If the employer maintains a SEP or any other retirement plan in the year the SIMPLE is maintained, the SIMPLE contributions are technically disqualified and may be subject to correction by removal of excess contributions, which would require the employer to treat the SIMPLE contributions as W-2 wages for the year. As far as I know, there is no formal termination process for a SIMPLE - If the employer decides to terminate the SIMPLE, he/she should consider notifying the employees in writing. The employers can either keep their assets in the SIMPLE- even after termination ( since as mbozek indicated, it is the employee’s own IRA) or transfer or rollover the balance to a traditional/SEP IRA , or other eligible retirement plan. The rollover/transfer to another plan ( that is not a SIMPLE IRA) cannot occur until two years has passed since the first contribution was deposited to the employee’s SIMPLE IRA Regarding question 3, all employees who worked 3 of the 5 preceding years are eligible, providing they meet the other eligibility requirements.

Is it really a commercial? I don’t think so, since I will not profit from adding the post, and none of the parties affiliated with the production of the book even knew I was going to add the post…

Reminder..

Have anyone seen the Book The CPA's Guide to Retirement Plans for Small Businesses- Edited by Gary Lesser. Good stuff

Good post John This is such an important area of any financial and estate planning planning, i.e. making sure your beneficiary designations are on file and that they meet the custodian’s requirements. Too often issues arise where no one can determine the designated beneficiary for a decedent’s retirement account. IMO, retirement account owners should ask for written confirmation of their beneficiary designations ( from the financial institutions) at least once per year, but definitely when the following occurs : Death of beneficiary New addition to family. For instance, if the retirement account owner had a new child, remarried etc. If the retirement account owner now has stepchildren, update if they should be included/excluded in/from “all my children” beneficiary designation Divorce With all the mergers, acquisitions and conversions, each time one of these occur. The new financial institution may not have obtained copies of beneficiary designations, and even if they did, new plan documents or IRA agreements may either have different default provisions or may not find a ‘customized’ designation acceptable

Yes. If it is a hardship withdrawal for instance...

Yes. The sole proprietor may make his elections at year-end

Something else you may want to check on is the type of compensation you receive, and whether that compensation satisfies the requirement for contributing to an IRA. For instance, if you receive W-2 wages as defined in IRS publication 590-see page 7 of the 2004 version at http://www.irs.gov/pub/irs-pdf/p590.pdf

SEP benefits would begin the first day of the year for which the employee meets the requirements. For example: Assume the employer choose a 3 of 5 service requirement… and The employee worked 2003,2002 and 2001. The employee would be eligible for a 2004 contribution, because s/he worked 3 of the 5 years that precede 2004. Contributions would be based on compensation paid during 2004. For instance, compensation paid from January 1,2004 to December 31,2004. Specific dates do not really apply. For instance –assuming calendar year-, someone who started May 1,2004 will have accrued one year of service by December 31,2004. This is so regardless of the number of hours s/he worked in 2004. In your example with the 1-year service requirement, the employee is not eligible to receive a contribution for 2004, because s/he did not work for 1 of the five years that precede 2004. The employee will be eligible for a 2005 contribution, which will be based on compensation paid during the 2005 year

No. Unless the beneficiary of the traditional IRA is a spouse who elects to treat the traditional IRA as his/her own

avalancheone, do you mean& convert instead of recharacterize? If you converted your traditional IRA to your Roth IRA, you must include in your income any taxable amount of the conversion, whether or not you had losses on the investments. See Recognizing Losses on Investments at http://www.irs.gov/publications/p590/index.html (Under Roth IRA) for information of claiming losses on Roth IRA investments By the way, if you did convert your traditional IRA to your Roth IRA in 2004, you may reverse the conversion VIA recharacterization by October 15,2005, which would make the conversion null and void and therefore nontaxable.