Appleby

I just obtained a trial subscription to TAGDATA.com. Lot of excellent resources. I am especially impressed by the calculators. For instance, a customer called about a controlled group issue, all I had to do was enter the numbers in TAGDATA's calculator and voila – the answer was available: Their calculators include : Catch Up Contribution Worksheet Controlled Group Spreadsheet Loan Calculator Ratio Percentage Test - Controlled Group Ratio Percentage Test - Single Employer Top Heavy Determination After EGTRRA 'Bonding Calculator' - January, 2004 And no, I don't work for TAGDATA

We used to use CCH http://tax.cchgroup.com (unfortunately they were a casualty of our budget cuts). They provide prompt updates on any related changes.

Sounds odd to me. $205,000 is the compensation cap for 2004. The compensation cap rule is that compensation in excess of $205,000 cannot be considered for plan purposes. For instance when determining an individual’s allowable contribution to the plan, even if that individual earns $300,000, only $205,000 can be taken into consideration. You may want to check the plan document to determine the plan’s definition of compensation. I recall that compensation for plan purposes can be limited to that earned while the individual participated in the plan (compensation earned before the entry date can be ignored) in some instances, but the rule you explained sounds foreign to me … but I am no 401(k) expert, so let’s see what others think.

Bear in mind also that amounts you contribute to the plan, up to allowed limits, are tax deductible. So it could be a win-win for you---You receive a tax deduction and your plan could serve to attract or retain valued employees. In addition, you may be eligible to receive a non-refundable tax credit for expenses you incurred to implement the plan for a period of three years. This credit is available to small business owners who established a retirement plan for their businesses in 2002 or after. Since it I too late to establish a SIMPLE, you could establish a SEP IRA or a qualified plan (such as a profit sharing, 401(k) plan etc). If you are looking for a plan that is easy to administer, easy to explain to your employees, one that does not require any special filing with the IRS other than reporting the amount on the business’ tax return, one that offers you the flexibility of making contributions only when you feel you can afford to (discretionary contributions), you may want to consider the SEP IRA. A SEP IRA may be established by the business’ tax filing deadline, including extensions. This means you have until April 15 (if you are on a calendar year), plus any extensions to establish and contribute to the SEP. Note however that for new SEPs, only employer contributions are allowed- not salary deferral contributions. If you still want to maintain a SIMPLE, then you could fund the SEP for 2004 and start the SIMPLE in 2005. Please feel free to post any follow-up questions

mbozek and Barry is right … I would add some comments from an operational perspective... as Barry suggested, some IRA custodians transfer inherited assets from the deceased’s IRA to an inherited IRA (in the name of the deceased and the beneficiary, using the TIN of the beneficiary). This transfer is usually done to facilitate post-death distributions made by the beneficiary to ensure that the tax reporting is done under the proper name and TIN. If this is the type of transfer to which you refer, then it is non-reportable and non-taxable.

You are right.

gte118f, …since this is after the fact it may not matter to you anymore, but I’m curious to know what type of “retirement fund” did you contribute to? Was it a 403(b), 401(k), Thrift…were you also allowed to contribute pre-tax amounts? I ask because it seems very unusual for a plan to refuse to allow you to rollover the assets to an IRA. If my memory serves me right, one of the rules a plan administrator must follow is to provide participants the option of rolling over their retirement plan assets. From what I recall, the options must be provided to the participants in writing, which should include an explanation of the tax treatment of distributions, including those rolled over and not rollover over.

Yes. After tax assets in a QP can only be rolled to another QP as a direct rollover.

Good point James. In the Roth IRA, there is a guarantee that the earnings will be tax and penalty free (if distributions are qualified), while in the 529 Plan earnings could be taxed if the assets are used for reasons other than eligible education expenses, which could happen if the beneficiary decides not to attend an eligible education institution. Also, in the 529 plan, investment options are usually limited, while investments in a Roth can be self-directed.

Since BWI is a dependent area of the UK, and the islands in the BWI are not listed separately in the treaty list ( at least in Pub 515) it appears you would need to apply the UK rules, which are: You must withhold 10 percent federal tax, unless the beneficiary chooses to waive the federal tax withholding, at which point you apply the UK treaty rate ,under the NRA withholding rules, which is zero. If the beneficiary waives the federal withholding, he/she must provide you with a completed and signed Form W-8BEN Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding. See IRS Pub 515 http://www.irs.gov/pub/irs-pdf/p515.pdf If the beneficiary waived federal withholding and is therefore subject to NRA withholding, the distribution is reported on Form 1042-s , not Form 1099-R If the beneficiary is unable to obtain a SS#, he/she should apply for an ITIN- you need this for your reporting purposes. See http://www.irs.gov/individuals/article/0,,id=96287,00.html

You mentioned $40,000 – for whom? All the employees-each? The answer may determine the response to your first question. You may fund/maintain a SEP and a DB plan in the same year, however, the SEP cannot be a 5305-SEP, instead it must be a prototype or individually designed SEP.

Remember that if the SIMPLE Plan is terminated, the SIMPLE IRA assets can remain in each participant’s SIMPLE IRA until the individual owner is ready to make withdrawals or transfer/rollover the SIMPLE assets to an eligible retirement plan. Withdrawing the assets from the SIMPLE is optional. SIMPLEs are not like QPs, where the assets must be distributed from the terminated plan. …also, technically, it is not so much that the company can’t start the new plan in 2004, but that if did, that would invalidate the SIMPLE, causing SIMPLE contributions for the year to be ineligible/excess contributions. …I am not comfortable with a SIMPLE being terminated in mid-year, especially if the required notification was provided before the 60-day period. Gary Lesser can give a definitive response on that. I will transfer the post to the SIMPLE board (this seems most SIMPLE questions anyway), as Gary usually checks there.

banality, When you get past or get over this, how about writing a book about how to triumph over adversity? Better yet. However, about starting the book now, when you still feel passionate about the matter? This could help to transfer your passion to the pages and to the readers. Yeah, I know everybody is writing a book, but then why not you too. It could be inspirational for people who find themselves in similar situations- and therapeutic for you… maybe I will see you on Oprah and other TV programs as you make the book tour

Possibly. For instance, before the famous PLR issued in 2000 ( I think) that allowed a first generation beneficiary to designate a successor beneficiary, many – if not all – IRA plan documents required the estate of the first generation beneficiary, to be the beneficiary of the inherited IRA . After the PLR was issued, many changed their IRA plan document to allow the first generation beneficiary to designate a successor beneficiary. I am not familiar with insurance programs and annuities such as Individual Retirement Annuities, - but from the little I know, they are sometimes not as flexible as Individual Retirement Accounts and may place certain restrictions on the beneficiary that are usually placed on the beneficiary of an Individual Retirement Account. If the account is with a Mutual Fund Company, chances are the document will allow what the client wants to accomplish, but as you indicated, the document rules ...assuming the document does not allow her to designate a beneficiary of her choice, she still has the option to do so when she reaches age 59 ½ , when she can rollover the balance to her own IRA.

…by the way…after she reaches age 59 ½, she can rollover ( or transfer if she is the sole primary beneficiary) the assets to her own IRA.

Current beneficiary controls. As long as the IRA owner predeceases the primary beneficiary, the contingent beneficiary is not factored into the equation (except if the primary disclaims the assets). Most IRA plan documents are written to allow the beneficiary to be treated as the IRA owner for all purposes, except the right to make IRA contributions to the account. Therefore, even through the IRA will be maintained as an inherited IRA (in the name of the deceased and the beneficiary, using the TIN of the beneficiary) the beneficiary may designate any party he/she chooses as the successor beneficiary …barring any customized beneficiary designation or other legal stipulation by the deceased requiring otherwise.

No penalty would apply. One of the general rules for applicability of the 10 -percent additional tax(early distribution penalty) on IRA withdrawals is that if federal tax does not apply, then the penalty does not apply

Also...see John G's comments at http://benefitslink.com/boards/index.php?showtopic=24343

No. The withdrawal will not be taxed, if the assets consists of only regular Roth IRA contributions. If you withdraw the full balance, you may be able to deduct the losses on your tax return. See IRS publication 590 at http://www.irs.gov/pub/irs-pdf/p590.pdf HTML version at http://www.irs.gov/publications/p590/index.html

I would reword that just a little differently Demosthenes ... For instance, RMDs for IRAs ( traditional, SEP and SIMPLE IRAs) must be calculated separately for each IRA, but the total of the RMDs for all the IRAs ( owed by the individual- i.e does not include inherited IRAs) may be distributed from one of his/her traditional IRAs . Technically, combining all the year-end FMV could give the same results as calculating them separately, but that would be true only if all the IRAs had (a) a non-spouse beneficiary or a spouse beneficiary who is not more than 10 years younger than the IRA owner or (b) a spouse beneficiary who is more than 10-years younger than the IRA owner. Safest bet? Follow the guidelines and run the calculations separately

It appears that would be a firm (the financial institution’s) decision. Some custodians may be willing to complete transactions “as of “ a past date, if they are at fault for not processing the transaction by such past date. As far as guidance, that may be subjective. Some have pulled out the Woods Vs Commissioner as a basis for making the customer whole. IMHO, Woods Vs Commissioner merely extended the 60-day deadline for the customer to make a rollover contribution…the extension allowed because the financial institution failed to correctly execute the customer’s instructions, by depositing a check in a non-retirement account instead of an IRA.

See IRS Publication 571 at http://www.irs.gov/pub/irs-pdf/p571.pdf

Belgarath- charitable? Never!! I say bring out the gloves . Just kidding - nuff respect. I place great value on your opinion and always look forward to your responses to posts on the site. I feel the same way about mbozek, even when he and I disagrees . Thanks for the reference- good reading. I sent an E-mail to one of the authors, asking him his opinion of the state law requirement. I will let you know if he responds. (E-Mail returned undeliverable - resent 09/15/04) In the meantime, see the court opinion at http://www.fpanet.org/journal/articles/199...p0599-art13.cfm Some of the quotes from this reference includes the following mbozek, estate of Lute, 19 Fsupp 2d 1047 wasalso referenced . Bailiwick? I had to look up that one .

You’re welcome AJ. See The instructions for filing Form 5498 and 1099-R at http://www.irs.gov/pub/irs-pdf/i1099r.pdf See Page 5 Beneficiaries. Here is states that the TIN of the beneficiary must be used. In most cases, the tax reporting is done under the TIN that appears on the account; therefore, the TIN should be that of the beneficiary’s See also Page 12 “Inherited IRAs” and “Fair market value.”. They talk about the beneficiary’s form- not the deceased’s form. Which means that the information on the form must be that of the beneficiary, except where it is noted that the name of the deceased must be included. If the advisor insists that the assets should be maintain in one inherited IRA for both beneficiaries, he/she they should be able to explain how they will meet these reporting requirements. Please let me know if you need additonal information

As far as I know, the requirement is that at least the minimum amount is distributed each year to avoid the excess accumulation penalty. There is no rule that prohibits the individual from distributing more than the minimum amount or penalizes the individual from distributing excess amounts – at least not anymore … Under the Treas Reg § 1.401(a)(9)-3, the election is irrevocable. IMHO, this just means that the individual cannot revoke the life expectancy option by changing the election to the five-year rule... more than the minimum can always be distributed