Appleby

IRA custodians are required to perform tax withholding according to your residency status (citizen/resident alien or non-resident alien). If your status is indicated as a non-resident alien at the time the distribution occurs, then the custodian will withhold 10 percent for federal taxes from your distribution .You may waive this withholding, but will then become subject to the treaty rate. For Canada, the treaty rate is 15%. To elect out of the 10% withholding, you may need to provide the custodian with Form W-4P and Form W-8BEN, available at www.irs.gov For more information, you may refer to IRS publication 515 and 519, also available at www.irs.gov

Management fees deducted from your IRA are not treated as distributions and therefore are not taxable. If you have the option and can afford to ( and the fees are significant) you may want to consider paying these fees out-of-pocket, as the fees will reduce your IRA balance, negatively impact the tax-deferred growth ( or tax-free for Roth IRAs) of your assets. Further, you may be able to deduct the fees paid out of pocket (excluding sales charge and commissions) under IRC Sec. 212

What pax said and … …Assets from a pension ( or other qualified) plan cannot be rolled directly to a Roth IRA. The assets must first be rolled to a traditional IRA and then converted ( from the traditional IRA) to the Roth IRA. To be eligible for a Roth IRA conversion, your modified adjusted gross income (MAGI)must be $100,000 or less and your tax filing status must not be “married filing separately”. For purposes of determining Roth conversion eligibility, the conversion amount is not included in your MAGI

Your reaction is right. Beginning the year the individual reaches age 70 ½*, the first amount distributed is attributed to the RMD and is therefore not rollover eligible, except for amount in excess of the RMD amount. For instance, if the RMD amount is $10,000, the first distribution/s in 2004 up to $10,000 is not rollover eligible. Any distribution in excess of $10,000 is rollover eligible (assuming the other rollover eligibility requirements are met) *Except in cased where the RMD is delayed beyond age 70 ½ to retirement

I do not know if there is a penalty for failure to withhold state tax…however, for pension plans, the payer should withhold for the participant’s state of domicile…regardless of the participants prior state of residence of the payer’s state of doing business. Check http://www.dor.state.nc.us …this should have information about withholding agents’ registration ( to perform state tax withholding) etc.

Anyone find the 5498-ESA reporting deadline (April 30) challenging? It’s pretty tight considering contributions are allowed up to April 15, and post mark is recognized.

It appears your only option is to leave the excess in the plan and allocate it towards your year-2004’s contribution. Excess employer contributions cannot be returned to employers, except under very narrowly defined circumstances. See the thread at http://benefitslink.com/boards/index.php?showtopic=14199

Yes. The assets should have been distributed/debited* from the traditional IRA by 12/31/2003. *Roth Conversions may also be done as a distribution from the traditional IRA and a rollover ( within 60-days) to the Roth IRA. The rollover contributions should be deposited with a special ( in house) code so that it is reflected as a conversion instead of a regular rollover.

Marty, Unfortunately, this may be considered an ‘ineligible transfer’, which generally, should be corrected as a ‘return of excess contribution’. What you want to check into is whether the trustee bears any responsibility for this transaction occurring. Many trustees have procedures in place to run checks and balances to ensure transfers occur between ‘like’ accounts (accounts of the same type). If the trustee bears any responsibility, then they may make accommodations to adjust the transaction to a Roth IRA. Try speaking with a supervisor- go as far up as you can. If this can be rectified by having the assets moved/adjusted to a Roth IRA-- you want to make sure it is---otherwise, the assets are technically no longer IRA assets, which means you lose the tax-free benefits There is no rush to remove the amount as a ‘return of excess’…if you file you tax return by April 15, you have until October 15,2004 to remove the excess---therefore, you do have some time…

Good point John G. For Roth IRAs, all assets credited to the Roth IRA as contributions and conversions are treated as basis (after-tax assets), and will therefore be tax-free when distributed. Earnings are tax-free only if the distribution is a qualified distribution. Unlike the traditional IRA, assets distributed from the Roth IRA are not treated on a pro-rata basis. For instance, if the Roth IRA balance includes regular contributions and earnings, distributions will be deemed to occur from the regular contributions first. Distributed of earnings will occur only after assets representing regular contributions and conversions amounts have already been distributed. For details on how distributions from Roth IRAs are taxed, see page 61 of the 2003 version of IRS publication 590 available at http://www.irs.gov/pub/irs-pdf/p590.pdf

I’m with mbozek…not to mention the fact that the commissions from short term trading eats into the net profit.

The “stepped up basis” rule does not apply to IRA assets. The assets distributed from the inherited IRA is treated as ordinary income (in the same manner as it applies to the IRA owner). If the IRA owner made non-deductible (after-tax) contributions to the IRA, these amounts represents basis in the IRA and will be tax-free when distributed. Distributions from IRAs that include basis are taxed on a pro-rata ( to include prorated amounts of pre and post tax assets) basis

This is true, assuming the distribution is a "qualified distribution"

Belgarath is right. The assets that the father inherited are subject to the beneficiary RMD rules- not the RMD rules that apply to the retirement account owner ( the son). Therefore, if the son died before the RBD, and the father is subject to the five year rule, he need not distribute any amount until the end of the five year period. By the way, was this a sole proprietorship by any chance? ... If the business owner was a sole proprietor, then it may mean that the plan becomes an orphan plan upon his death…which would mean that the assets should be distributed as soon as possible after his death see the thread at http://benefitslink.com/boards/index.php?s...t=0entry76127

Your starting point would be $200,000 (for 2003 $205,000 for 2004)…IRC Sec. 401(a)(17)… I.R.C. § 404(l)

Prof, It appears that it should “No”…as it is in the book. The example provided also support the ‘No’ response. According to the response, while it is not expressly prohibited, no allowances are made for it ( dual eligibility) in IRS model and approved prototype plans. Therefore, current and future employees must satisfy the eligibility requirements, if the employer is using an IRS model or IRS approved prototype SEP. If you are using an individually designed SEP, you may consider including a provision for dual eligibility, and see whether the IRS will approve the document.

Your or your spouse’s participation in an employer-sponsored plan does not affect your eligibility or ability to contribute to an IRA. It only affects your eligibility to claim a deduction for a contribution to a traditional IRA. Therefore, your spouse may contribute to a Roth IRA on your behalf. The term ‘spousal IRA’ just means Some financial institutions will flag or designate the IRA as a ‘spousal IRA’… if you have an existing IRA, your spouse may deposit your contribution to that existing IRA.Since you are not an ‘active participant’ you are able to claim a deduction for your traditional IRA contribution. If your wife is not an active participant, she is also eligible to claim a deduction for her traditional IRA contribution (should she decide to contribute to an IRA), because your joint modified adjusted gross income is less than $150,000.

IMO, only if there is reasonable justification to exclude these individuals. Is the employer able to clearly demonstrate why these two employees were not reasonably expected to earn $5,000 for the year while the other employee was expected to earn at least $5,000? ...if the three individuals has the same job function and work the same hours, it would not seem reasonable…however, if one works full-time and the other two works for a limited number of hours, which (based on trends) results in compensation less than $5,000, it could be justifiable to exclude the two part-timers… even if these individuals compensation does exceed $5,000 by year-end, as it is not what is actually earned, but what was expected to be earned. Example: an individual who was employed on a part-time basis earning say $250 per month was excluded from the plan, because he did not meet the current year compensation requirement. A few full-time employees resigned and the individual’s status was changed to full time later in the year to fill one of the openings, resulting in this individual earning compensation of $5,000 or more…since, it could be argued that the change in employment status was unanticipated and it was therefore reasonably expected that this individual would not earn $5,000 in the year, his exclusion is permissible. Hope this helps.

You are right. The exact verbiage is “such individual files a joint return for the taxable year”…However, this does not change the intention or interpretation. From my experience, the IRS has been reliable at addressing matters such as these, albeit a little tardy in the response. But I assume they have more pressing matters to deal with, especially at this time of year...so I don’t mind waiting for awhile. I will let you know as soon as I receive a response

Yes. This individual may establish an IRA to which the QP assets can be rolled over. Remember, any individual, US resident/citizen or not, may establish an IRA. The limitation is only the IRA contribution, i.e. the individual must have eligible compensation. This requirement does not apply to rollovers. The financial instituting should flag the IRA with the proper residency status, i.e. non-resident alien etc…

In addition to those you mentioned, i.e., employees covered under a collective bargaining agreement and non-resident aliens with no income from the employer, employees who do not meet the compensation requirement are excludable

NiceGuyMike-Have you tried the Panel Publishers CD or online service? The search feature is flawless. You can search a string of words that appear in a specific order, for instance “be rolled over into an IRA” or a few words, such as beneficiary, rollover non-spouse and you can choose to exclude certain words. For instance, you may want to search 'rollover', but to limit your search result, you want to exclude 'IRA'. In all instances, your search result is narrowed down to meet your criteria. I hope that I will never have to go back to Hard Copy!

Bear in mind that the employer should notify the employees of the intent to terminate SARSEP. The IRS recommends notifying the financial institution as well (I don’t understand why)…it appears there are no other termination requirements. The employer may also check the plan document regarding any termination procedures.

I agree with Gary. To establish the SIMPLE IRA plan, the employer must complete form 5304-SIMPLE or Form 5305-SIMPLE(subject to the designated financial institution rules). Each employee must complete a SIMPLE IRA adoption agreement which could be a 5305-s, used with banks etc or 5305-SA, used with brokerage firms…therefore, for the employees, the type for SIMPLE form completed depends on the type of financial institution with which the employee’s SIMPLE IRA is established. For the employers, the choice of form may also be determined by the financial institution with which the employer chooses to establish the SIMPLE IRA Plan. For instance, some financial institutions offers the Form 5305-SIMPLE (For Use With a Designated Financial Institution). An employer that uses the Form 5305-SIMPLE to establish the plan, places certain restriction on the SIMPLE Participants, which is all participant in the plan must establish their SIMPLE IRA with the institution that the employer established the SIMPLE IRA plan. However, the employer must provide notification to the employees to the effect that they may transfer their SIMPLE IRA balances within a reasonable period, to another financial services institution without incurring any penalty. This means that a participant in a 5305-SIMPLE, who wants to maintain his/her SIMPLE IRA at a financial institution, other than the institution that the employer chooses to establish the SIMPLE IRA plan must maintain two SIMPLE IRAs – at least during the two year period…after the two year period, the assets may be transferred to a traditional IRA. If the employer uses the Form 5304-SIMPLE, employees may establish their SIMPLE IRAs with any financial institution( that offers SIMPLE IRAs). The employer must then send contributions to the financial institutions were the individual SIMPLE IRAs are established. Some financial institutions may used a SIMPLE prototype form instead of the IRS model 5305 or 5304… Generally, financial institutions require employees to complete the financial institution’s SIMPLE IRA adoption agreement and provide with it a copy of the employer’s Form 5305 or 5304 SIMPLE.

219© (1) addresses the ability of one spouse to make a spousal IRA contribution for the other spouse. 219© provides that the spouse making the spousal IRA contribution must have sufficient compensation. 219©(2) goes on to clarify that in order for the one spouse to make a spousal IRA contribution for the other spouse, This shows that a joint return must be filed in order for one spouse to make a spousal IRA contribution on behalf of the other spouse.Code Section 408A provides that Code Section 408A©(2) provides that ….here, it is clear that the intention is to include 219(c ) in the application to Roth IRAs.1.408 states The last sentence is merely clarifying that if you are married and file separately, then it is not the $0 and $10,000 that applies to you…instead the 95,000 and $110,000 applies to you…because for this purpose, you may treat yourself as not married…If you are not married, you are treated as not having a spouse. It follows then that if you do not have a spouse, you cannot make a spousal IRA contribution, as a spousal IRA contribution can only be made by a married individual who files a joint return. See also Q-4 of 1.408A-3. I have written to the IRS requesting that they review the language in Publication 590.