Appleby

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.

Kirk, Do you sleep?

...what about the 100 percent limit?

Cite IRS Publication 575 and IRC 402©

Therefore, if the S-Corp. owner pays himself $20,000 in W-2 wages, the maximum contribution will be $5,000 employer contributions ($20,000 X 25%) + $14,000. If he is age 50 by year-end, he may contribute an additional $1,000 as catch-up…or $14,000 + $4,000 catch-up + $2,000 employer contribution.

Something’s wrong with the software, or the input. If he was at least age 50 by 12/31/2004, and deferred only $5,500 to the 403(b), then he should be able to defer $10,500 to the SIMPLE…compensation allowing.

I will admit that I have seen an error here and there. But his comment is a gross overstatement. I wonder how he feels about the IRS publications 590 etc…which is written by the experts in the employee division. Each year’s version is updated at least once, because of errors in the original version. That says something about the experts who work at the IRS and maybe the DOL? ..and no, I don't work for Panel Publishers

mbozek's post is similar to our process. In addition to the new adoption agreement, we ask for an accompanying letter, explaning the change.

You are right…I meant for purposes of claiming a deduction for the SIMPLE contributions

Obviously, we agree on the end result, which is the employer may not take a deduction, treat the amount as wages and the participant may contribute the amount to a TIRA or RIRA. I was merely stating that the quote above suggested the employer and the employee are one and the same, which may not necessarily be the case. Yes, the deduction is being transferred (for lack of a better term) from 408(p) (if not allowed under 408(p) to 408(a), however, it is also being transferred from one party to another/different…not from one area of deduction to another for the same party. In your example with the health insurance premium, you are referring to the deduction being shifted from area to the next for the same person. Similarly, your example with the SIMPLE ( in your most recent post) correctly addresses shifting the deduction from plan contributions ( on the employer’s tax return) to wages ( again on the employer’s tax return)- one and the same party. However, you original post discussed shifting the deduction from the employer (on the employer’s tax return)—408(p) to the employee- on the employee’s tax return –408(a). Apparently, you are thinking at a general- high-level perspective. Which is OK if you are explaining the issue to someone who is fairly familiar with the rules. I prefer to simplify things as much I we can, as most of my customers are usually unknowledgeable when it comes to these topics.

mbozek, Gburns- I think I understand the end results of your suggestion …the apparent disagreement appears to caused by the literal meaning of the suggestion of treating the contribution as a defacto IRA. For instance, if the contributions were made to a SEP IRA, the amount – being an ineligible employer contribution would be automatically recharacterized as an IRA contribution –within the same SEP IRA. When an IRA custodian is notified that a SEP employer contribution is an excess contribution- the response is to recharacterize the amount as an IRA contribution-making it a defacto IRA contribution. If the participant is not eligible for or does not want the amount to be an IRA contribution, then he/she would remove the amount as a return of excess. OTOH, for a SIMPLE, that ( recharacterizing the amount as an IRA contribution) is not possible, therefore, the amount must be removed from the SIMPLE as a return of excess, and could be deposited to a separate IRA as an IRA contribution. What may make this inapplicable in this example is that we are talking about two different individuals. In this case, it is the employer who is subject to 408(p), and not eligible under 408(p). The recharacterizing of the amount as wages, and subsequent application of the amount under 408(a) or 408A applies to the participant.

See IRC § 72(p)(2)(A) and DOL Reg § 2550.408b-1(f)(2)

Good point Lori. Except that after 1 year, you can no longer access the online version, unless you renew your subscription. While the hard copy may last you for a few years- assuming no major legislative change .

I like your suggestion mbozek, except for the defacto IRA part-- which would work in a SEP-but not in a SIMPLE since IRA contributions cannot be made to a SIMPLE. The employee’s could choose not to redeposit the amount , or redeposit the amount to a regular Traditional or Roth IRA for 2004 or 2005, up to the allowable IRA limit let's see what Gary says [Denise, how did you know I had my ears on! -- gsl]

...and assuming the former spouse is determined to be the beneficiary , the former spouse would not be considered a “spouse” for beneficiary purposes and could not rollover the amount to an IRA

If you live in a community or marital property state, you must obtain the consent of your spouse, if your spouse is not your sole primary beneficiary. These states are: Arizona, Alaska (if the spouses so elect), California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Some require the consent to be notarized Congrats John G. I always look forward to your insightful posts-

See the instructions for box 11 of the instructions at http://www.irs.gov/pub/irs-pdf/i1099r.pdf ( page 13). As jevd said, the IRS is notified when the RMD actually occurred by way of the 1099-R. The IRS is also notified that an RMD is due for the year by way of the 5498. The 2004 5498, which is used in 2005, is used to notify the IRS that an RMD is due for 2005

The salary deferral portion of the SARSEP (redundant) cannot be integrated…but the employer contribution portion can be integrated – if the SEP is a prototype of individually designed SEP By the way, a flat dollar formula- where everyone receives the same dollar amount- is also allowed. This can be allowed under a prototype or individually-designed SEP

No. Up to 100% withholding is allowed

Answered here

No. The SEP assets are not required to be tracked separately. The amount may be used for loan purposes See revenue ruling 2004-12 ( attached) for the treatment of rollover assets to a QP rr_04_12.pdf

...and the amount would be considered ineligible for rollover , unless the account has met the two year requirement

See the applicable Code Section at http://assembler.law.cornell.edu/uscode/ht...75----000-.html. For transactions such as these, you may want to consult with an ERISA or tax attorney