Appleby

I assume this is an excess nondeductible contribution?? Response based on this assumption As provided by the instructions to IRS Form 5329, the October 15 deadline (that applies to recharacterizations of a Roth IRA conversion or a contribution) applies to IRA excess contributions. It therefore applies to the SEP excess contribution, given that the SEP excess non-deductible contribution must be recharacterized as a regular IRA contribution (upon the participation receiving notification from the employer) Note: The employer must amend the employee’s Form w-2 to include the excess amount as compensation. The 10 % excess deductible contribution will apply if these procedures are not followed.

http://www.irs.gov/pub/irs-drop/n-03-20.pdf

Death does not necessarily trigger default. If the participant has an outstanding loan balance (secured by his/her account) at the time of death, the loan is offset against the participant’s account balance…not sure what happens if the loan is not secure by the account balance

To respond directly to the original question from jhunter10, i.e. whether he/she can invest the IRA balance in index options… the answer is yes, providing it is not naked and the IRA document allows it

I reviewed the IRA plan document of some of the most prominent and popular IRA providers. I have seen allowances for covered call options, long put and long call options. None allows the investment of naked options . When determining the permissible investments in an IRA, one of the determinations we must make is if the investment will result in a prohibited transaction. A naked put for instance, could be determined a prohibited transaction, as the basis of the transaction may be a credit/loan…further, an IRA cannot allow an investment that has unlimited risk potential, which means the loss could exceed the value of the IRA ( you cannot carry a debit balance in an IRA, a debit balance is tantamount to an overdraft, i.e. a loan)

Yes. For this purpose, the rules are similar to that of a regular SEP, i.e. the SEP is just a traditional IRA, to which the employer may make SEP contributions. Therefore, an individual who is eligible to make a traditional IRA contribution may make that contribution to his/her SEP IRA. Note: The ability to make the contribution is not affected by the individual’s eligibility to deduct the contribution.

Actually, I have seen a few plan documents that , while the default is the later of April 1 following the year of age 70 ½ or retirement, the document allows the employer to choose, with one of the choices being April 1 following the year the participant reaches age 70 ½.

The amendment requirements for terminating plans are the same as those for “ongoing plans” , with one exception… the plan that are being terminated prior to the extended deadline do not get the same extension, as they are required to be amended prior to termination

Kirk, I agree…

The 10 % will not apply if the amount was rolled to an eligible retirement plan.

Found it! See the first URL See the others as well. When searching, consider using multiple words punctuated by and… this will help to reduce your results to those closer to your topic of interest…for instance, for this, I searched 401 and 403 and plan and document http://www.benefitslink.com/boards/index.p...d,same,and,plan http://www.benefitslink.com/boards/index.p...03,and,document http://www.benefitslink.com/boards/index.p...f=13&t=2362&hl=

This is not addressed in Revenue Procedure 2003-16. Consider …if the individual has not yet received the PLR from the IRS permitting the rollover, how will this affect the rollover certification that the individual signs, given that the certification language in effect have the individual attesting to the fact that the assets are rollover eligible? (don’t want to be signing a certification that is false.) It would appear then that the amount should not be deposited until after the approval has been issued Of course, it the request is denied by the IRS, then the amount would be an ineligible rollover, subject to correction VIA the IRA excess contribution rules…

The SIMPLE IRA contributions on behalf of employees covered under the Davis-Bacon plan is deemed excess contributions

Effective tax years beginning 1996, states cannot tax former residents on their retirement plan distributions. Public Law 104-95(ban on source taxes). Any applicable state tax will be based on the individual’s state of domicile (permanent residence).

The suggestion of consulting with a tax advisor is a good one… but I bet you ten to one, the tax advisor will refer the IRA holder to the custodian for the answers…tax advisors are knowledgeable about certain tax topics, some understandably are less so (knowledgable) when it relates to the operational procedures of retirement plans. As mbozek stated, you may consult with a tax advisor… but ultimately, it is the IRA custodian/trustee that determines if and how the transaction will be credited to the IRA. Quite likely it would be referred to their legal counsel for review and decision…

This response may be a little late... you report the 6 percent penalty on IRS form 5329 . Form and instructions available at the following URLs http://www.irs.gov/pub/irs-pdf/i5329.pdf http://www.irs.gov/pub/irs-pdf/f5329.pdf

Check issued to IRA or IRA owner? Generally, in circumstances such as these, the settlement is made payable to the IRA...not the IRA owner. Present the instrument ( check etc.) to the IRA custodian/trustee, along with any documentation associated with the matter. The custodian may be able to determine if the payment is a “restorative payment” for the IRA ( which it sounds like it is)…restorative payments can be credited as a non-reportable transaction to the retirement account

For Roth IRAs there is no RMD requirement for the Roth IRA owner. However, beneficiaries are subject to the RMD rules after the Roth IRA owner dies.

The only option for a non-spouse beneficiary (not including non-persons) when the IRA owner dies after the required beginning date (RBD) is to take distributions over the beneficiary's non-recalculated life expectancy (as described above by RPSS)…that is unless the plan document requires the beneficiary to make an immediate and total distribution, which is not the case here, since the IRS model document is being used. If the beneficiary feels that the missed RMD amounts were not distributed due to reasonable cause, he/she may write the IRS and appeal for a refund of the penalty. Important... though not applicable to the question posted…If an IRA owner dies before the required beginning date, and the beneficiary is subjected to the five-year rule, any amount not distributed by the end of the 5th year, following the year the IRA owner dies, is subject to the 50 percent excess accumulation penalty. It is important that the beneficiary “play catch-up”, by distributing the missed RMD amounts as soon as possible. From Rev. Proc. 2008-50-APPENDIX A -OPERATIONAL FAILURES AND CORRECTION METHODS Edited to add correction method as described under Rev. Proc. 2008-50, in response to comments from Franky

For IRA contributions, if multiple contributions are made to the IRA, the last contribution is deemed to be removed as a “return of excess” (IRS Notice 2000-39-Attached). There is no guidance on recharacterizations, however, I see no reason why you cannot borrow from the contribution rules and default to LIFO, providing you make it very clear and highly visible on your recharacterization request form. You may get complaints from some customers who could be recharacterizing contributions they now (during tax filing season) find out they are ineligible to make or deduct. Quite often, these are contributions for the prior years, especially for IRA owners who make contributions in the manner you describe, systematically/automatically on a periodic basis. Notice__2000_39.pdf

Not necessarily. If you only made regular IRA contributions, (i.e. the $2,000 or $3,000 beginning for tax-years 2002), and then this statement would be true. However, if you also made conversions from your traditional IRA to the Roth IRA during the last five years, then any withdrawal of the conversion amount will be subjected to the early withdrawal penalty, unless you meet an exception. See the article at the following link for details, including an explanation of the ordering rules. http://www.investopedia.com/articles/retir...t/03/030403.asp

The eligibility requirements that apply to common-law employees also apply to the business owners. If the business owners do not meet the eligibility requirements as set by the plan, they cannot participate in the plan.

Your comments ( copied and pasted) are in black My responses in blue 1) since it is a long way before I will be 59 & 1/2 yo, all contributions will be considered "non-qualified" -- except under the stipulated exemptions? Right…. a qualified distribution must occur at least five years after the Roth IRA owner established and funded his/her first Roth IRA and at least one of the following requirements must be met: - you must be at least age 59 ½ when the distribution occurs - you use the distribution towards the purchase or rebuilding of a first home - the distribution occurs after you become disabled -the assets are distributed to the your beneficiary after your death. 2)Is the $2,000 (regular Roth) contributed in 1998 tax free, since it is principal? Is it subject to 10% additional tax penalty? A distribution of regular IRA participant contributions is always tax and penalty free. (3) Is the remaining $8,000 (Roth conversion from traditional IRA) contributed in 1999 tax free, since it is principal? [Note that during the 1999 conversion tax, the said $8,000 was already taxed as regular acccount.] . Yes, because you already paid taxes on this amount. It will , however be subjected to the 10 percent early withdrawal penalty, unless you meet an exception (4) If I understood you correctly, is the remaining $8,000 (Roth conversion from traditional IRA contributed in 1999) contributed in 1999) subject to 10% additional tax penalty? Yes (5) When it stipulates "10% additional tax (penalty)" for early distributions made within 5 years of the Roth conversions, does this mean that I owe penalty taxes of $800 (for the $8000)? Yes And, possibly $200 (for the $2000 Roth contribution in 1998)? No (6)Or, do you declare the 10% "early withdrawal" penalty as income, to be taxed? No . This is not income, merely a penalty on an early withdrawal.

Under EGTRRA, an employee may make an IRA contribution to a qualified plan, if the plan allows. These contributions are referred to as “deemed IRA” contributions. . This is effective for ax years beginning 2003. A SEP IRA can be rolled to a qualified plan ( including a 401(k) plan), effective for tax years beginning 2002. Amounts representing non-deductible IRA contributions and required minimum distributions must not be included in the rollover.

cornelio, You say your total contribution is $15,000. However, as you were limited to $2,000 each year to 2001, this cannot be from just regular contribution. Did you convert assets from a traditional IRA to your Roth IRA? If so, what year did the conversion occur? If you converted assets from your traditional IRA anytime after 1998, you may owe a 10 percent penalty of the converted assets, if they are distributed before five years after the conversion. You have no earnings… because your balance is less than your contributions.