Appleby

Fiduciary rules would not apply to an IRA in this case. This is more of a customer service issue. If the financial institution is at fault, and wants to make the customer whole then there are several options available, including some of those listed above. I agree that most financial institutions would rather do the right thing that to have a dragged out discussion about who is right; who can be held responsibility etc. But assuming they are not willing to claim responsibility, the question then become “ Can you hold the financial institution responsible”? Not if they provided the IRA owner with sufficient information to help him/her determine whether he/she is eligible to contribute to the IRA. Which they must in order to be in compliance with the IRA rules. Should the financial adviser be knowledgeable about the products they sell and impart their knowledge to the investor? Definitely!! Is a financial advisor responsible for determining whether an individual is eligible to fund an IRA? Maybe not. Determination of investment suitability does not necessarily include determination of eligibly to contribute to an IRA. If you really want to point fingers, they could be pointed at the IRA owner and the tax professional that prepared the tax return- Or course…The tax- return preparer would only be ware of the transaction if they were provided with the related documentation (1099-R) and/or if they were notified by the IRA owner . tpainton , I know this sounds harsh, but the fact is, when you signed the adoption agreement on the dotted line, you very likely signed an agreement that says you are aware of the rules governing your IRA, including determining your eligibility to establish and fund the IRA …and in instances were you need to, you have obtained independent tax advice…the IRA documents also includes a detailed description of the rules , including eligibility, governing the IRA. At this point, the options appear to be: 1) Have a serious conversation with the financial advisor about options for making you whole- give them options if they appear to need help in that area- including paying for the private letter ruling (PLR); handling the transaction as a “return of excess contribution” processed timely; handling the transaction as a recharacterization processed timely 2) Apply for the PLR on your own- bearing in mind the cost 3) Remove the amount from the IRA as a “return of excess contribution” after the deadline and pay the 6% penalty

Short answer is yes. Explanation: Any amount you withdraw will come from your IRA contributions first, and after that; your conversion assets. Your conversion amounts are withdrawn on a first-in-first-out basis. Any amount you withdraw will not come from your 2004 conversion until you have withdrawn your total contributions and 1998 conversion amounts. Therefore, since you have not converted assets to your Roth IRA since 1998, you will not owe early distribution penalty on any amount you withdraw from your Roth IRA, unless the withdrawal exceeds your total contributions and conversions for 1998. You will only pay taxes if the amount you withdraw includes earnings. This will not occur unless your withdrawals have exceeded your total contributions and conversion amounts. Example: In 1998 you contributed $2,000 In 1998 you converted $5,000 In 2004 you converted $20,000 The account has total earnings of $1,000 Total balance $28,000 If you withdraw $7,000, this amount will be tax and penalty free ( total contributions and conversions that had aged five years) If you withdraw $8,000, then $7,000 will be tax and penalty free. $1,000 will be subject to the early distribution penalty – because it will be from conversion assets that have not aged five years If you withdraw $28,000 then $7,000 will be tax and penalty free. $20,000 will be subject to the early distribution penalty – because it will be from conversion assets that have not aged five years. $1,000 will be subject to the early distribution penalty and income taxes, because it will be from a nonqualified distribution Note: the 10 percent early distribution penalty will never apply if you meet an exception. From a financial planning perspective, you may want to discuss with your financial planner whether it is better to pay the taxes from other sources, given that the assets in your Roth IRA accumulate of a tax-free basis .

401(a) is the Section of the Internal Revenue Code (IRC) under which plan must operate in order to earn and maintain the status of “qualified plan”. 401(k) plans – which includes a salary deferral feature under Section 401(k), is a subset of 401(a) plans.

Yes. The deadline of October 1 is the same for both types of SIMPLE See Rev proc 97-9

Distributions of contributions and conversion amounts will be penalty-free if the distributions occur when you are age 59 ½ or older- regardless of how long or (short) the period since you have held a Roth IRA or converted the assets. IRC 408A (d)(1)(B)). Of course, you already know that distributions of contributions and conversion amounts will always be tax-free since the taxes were already paid on these amounts ( by not taking a deduction for the contribution and paying the taxes on the converted amount at the time of conversion.) Earnings Because the distribution is nonqualified, distributions of earnings will be subject only to income tax- No penalty since you are at least age 59 ½ (one of the exceptions to the early distribution penalty),

This would be an excess contribution (not an excess accumulation). The RMD was satisfied when the debit side of the conversion occurred. The excess occurred when the RMD amount was deposited to the Roth IRA (as a conversion). This RMD amount was ineligible to be rolled over or converted, and as with any ineligible rollover, it becomes a regular IRA contribution to the receiving IRA subject to the annual IRA contribution limit. The individual will owe a 6-percent penalty on the excess amount for each year it remains in the Roth IRA. Treasury reg. 1.408A-4 Q&A 6. If the individual is eligible for a Roth IRA contribution for (any of ) the year the excess remained in the Roth IRA, and did not already contributed the full allowable amount to a Roth IRA or a traditional IRA, he/she may allocate the contribution to that year by filing IRS form 5329 and paying the 6-percent penalty. See Deducting an Excess Contribution in a Later Year on page 47 of IRS publication 590 available at http://www.irs.gov/pub/irs-pdf/p590.pdf Let me know if this helps or if you need more information

Note also that the 10 percent penalty is waived if you meet an exception; which includes the attainment of at least age 59 ½ when the distribution occurs

A financial institution may act as Custodian for an IRA if the financial institution receives the requisite approval from the IRS. To the best of my knowledge, there is no law against establishing an IRA with an IRS approved financial institution , even if you are a shareholder of that financial institution.

Creative amfam2; but not possible. The only recharacterization that can occur in a SIMPLE is a recharacterization of assets that were converted from a SIMPLE IRA to a Roth IRA. It appears that your client no longer wants this IRA contribution. If this is so, then he may remove the amount as a return of excess contribution …

BoyAlex, I must say I am a little confused. If it was derived in error from an ineligible source -- then this would be treated as an excess contribution. An excess contribution must be removed from the Roth IRA by October 15 ( assuming the individual filed the tax return on time) of the year following the year the ineligible contribution was made to the Roth IRA . If the excess is not removed by the deadline, then a 6-percent penalty applies for each year the excess remains in the Roth IRA.The 50-percent penalty applies when a required minimum distribution is not removed from the account in a timely manner. If the individual feels that the excess accumulation was due to reasonable error, he/she must: -Distribute the RMD amount, -File Form 5329 by completing the applicable areas, -Pay the 50 percent penalty -Attach a letter of explanation and request for waiver If the IRS approves the request, the penalty will be returned to the individual; In any event ---for a Roth IRA- it does not appear that we could have an excess accumulation penalty occurring---even if the beneficiary elected to distribute the assets over his/her life expectancy, the 5-year rule would then apply if he/she missed the RMD for any year. Since this is the 5th year since Roth IRAs came into existence, it appears there cannot be an occurrence of “excess accumulation”

All your future Roth IRA distributions will be tax and penalty free, because they will be considered “qualified distributions”. See http://www.investopedia.com/terms/q/qualif...istribution.asp for a definition

# 2 seems like the viable option Regarding # 3 ---Wasn’t PLR 9608042 issued to a spouse beneficiary? Generally, the IRS is more lenient with spouse that non-spouse beneficiaries regarding allowing unorthodox rollovers/transfers. Also, it would seem that the allowance was made in PLR 9608042 because the amount was an eligible rollover – which would not be the case for a non-spouse beneficiary--- Even then, you would be hard-press to find a Custodian who would allow a rollover to an IRA for a deceased person. Further, assuming this is even allowable, the son would have to be the designated beneficiary on the existing IRA for this to work.

IRS Form 5305-A SEP states… 5305-A SEP also states that -- in your example, for purposes of the 25 % limit, compensation would be based on $53,000Catch-up contributions are not subject to the 25% limit. See http://www.irs.gov/pub/irs-pdf/f5305ase.pdf

Yes. Once the SEP contribution is made to the IRA, it immediately assumes the identity (or is) traditional IRA assets. There is no time limit on converting these amounts. You may convert the amount providing you meet the eligibility requirements, i.e. MAGI of not more than $100,000 and you are not filing as ‘married filing separately’

Technically, the matching contribution is not based on compensation earned during a period- it is based on the salary deferral contributions made by the participant for the year. Bearing in mind that salary deferrals cannot be made from compensation earned before the effective date of the plan or the salary deferral agreement…therefore, if the plan was effective October 1, and the employee was able to defer $8,000 from October 1 to December 31, the employer must match $8,000. SIMPLE contributions for 2003 are deductible for the 10/01/03 to 09/30/04 year [iRC § 404(m)(1), 404(m)(2)(A)]

Franky--- Excellent point! Considering your point, RJM could be right

The plan cannot distribute only after-tax assets. If a participant’s balance includes both pre-tax and after-tax amounts, any distribution must include a pro-rated amount of pre and post-tax assets( Notice 87-13 ). An exception applies to pre-1987 balances ( grandfathered) ,that allows the participant to distribute only post-tax amounts Yes! To part two of your question

Not possible. According to the law...If a distribution from a qualified plan includes pre-tax and post-tax assets, any amount rolled over will be deemed to include the pre-tax portion first. This prevents you from converting only the after-tax amount. The only way to convert only the after-tax amount is if your are able to rollover the pre-tax amount from the IRA to a qualified plan ( qualified plans cannot accept rollovers of after-tax form IRAs)…the remaining balance in the IRA would then be after-tax amounts- which you could then convert to a Roth IRA

Just want to add that the once per year limit for rollovers is restricted to the assets that you rollover. Therefore, if you have multiple IRAs, you may conduct multiple 60-day rollovers. The following example is from IRS publication 590- available at www.irs.gov Example. If you have two traditional IRAs, IRA-1 and IRA-2, and you make a tax-free rollover of a distribution from IRA-1 into a new traditional IRA (IRA-3), you can also make a tax-free rollover of a distribution from IRA-2 into IRA-3 (or into any other traditional IRA) within 1 year of the distribution from IRA-1. These can both be tax-free rollovers because you have not received more than one distribution from either IRA within 1 year. However, you cannot, within the 1-year period, make a tax-free rollover of any distribution from IRA-3 into another traditional IRA.

Absolutely. There is no income limitation for establishing a SEP or receiving a SEP Contributions. SEP contributions are based on the compensation you receive from the employer that adopts that SEP

Whether you will pay tax on the amount depends on whether the Roth IRA distribution is a qualified distribution or if it is not a qualified distribution- whether the withdrawal includes earnings You are allowed to withdraw up to $10,000 penalty-free for use towards the purchase of your first home- Your wife is also allowed $10,000 ($20,000 total for you both). Some other points that you may find helpful ----If it has been five years since you first established a Roth IRA- the amount will be tax-free ----If the amount you withdraw is less than or equal to your total Roth IRA contributions or conversions, it will be tax-free Only earnings are taxed- and according to the Roth IRA rules- you don’t withdraw earnings until you have withdrawn the total of all your contributions and conversion amounts.

It appears that the text needs some rewording-since the 5498 is being issued after the notification to which it refers is (or should have been) already sent to the IRA owner …also -given that contributions made up to April 15 must be reported on the 5498- 5498’s cannot be issued until after April 15--- unless IRA contributions will be reported on a new form. It would seem more practical to include the RMD notification on the fair market value (FMV) statement, as the date for both (the FMV statement and the RMD notification) coincide

Since the assets in the SARSEP is yours to do with as you please, you are not required to rollover or transfer the balance into any new plan your employer adopts. Since your employer is adopting a SIMPLE 401(k), this may not even be an option, given that SIMPLE 401(k) plans are not allowed to accept assets from any other plan, including another SIMPLE 401(k) plans. Your options would be to allow the assets to remain in the SARSEP account or transfer the balance to a regular traditional IRA…the latter makes sense only if there is a good reason to do so, such a paying less fees. Some Custodians will charge higher annual maintenance fee for a SARSEP than they do for a regular traditional IRA

….but if no TIN is provided, then the non-resident alien (NRA) withholding cannot be less than 30 percent

Regarding the matter of the payee…in an IRA situation it could be different (from the IBM stock). The trustee of the estate could instruct the IRA Custodian to make the check payable to an alternate payee, such as the beneficiary of the estate…This is actually quite common when a trust or the estate is the beneficiary –the 1099-R is issued to the beneficiary, regardless of who or what was the payee of the check disbursed Regarding the reason (or point) of the exercise, I am not sure of the IRS’s intention…but if the intention was to treat the daughter as the beneficiary instead of the estate, then why not treat her as the beneficiary in accordance with regulations…which would mean allowing her to use her life expectancy. Requiring the beneficiary to use the remaining life expectancy of the deceased should only be applicable if: -The beneficiary has a shorter life expectancy than the deceased or -There is a non-person is designated beneficiary (such as when an estate is the beneficiary) – which the IRS’s treats as no beneficiary being designated.