Appleby

Just to be sure, let me summarize some points. Yes. As long as he meets the eligibility requirements and have sufficient compensation/income, she may fund both plans. Converting the amounts that are contributed to the IRA as SEP-Employer contributions does not negate the tax benefits (tax deductions for contributions made) an employer enjoys from funding a SEP. Once the SEP Employer contributions is made to the SEP IRA. It assumes the identity of regular Traditional IRA assets. These IRA assets, including other traditional IRA assets, may be converted to a Roth IRA at anytime for any year that your wife’s MAGI does not exceed $100,000. This $100,000 cap is the same for single filers as well as married individuals filing a joint tax return. Assets converted to a Roth IRA may be taxed as ordinary income in the year the conversion is done. There is no limit on the balance/value of Traditional IRA assets that may be converted to a Roth IRA. If your wife has a balance of $100,000,000+, she may convert this amount to a Roth IRA, providing she meets the income limit and does not file a separate tax return. This means that you can fund a Roth IRA with an unlimited amount of funds/assets in any given year- as long as you meet the eligibility requirements. The key benefits your wife would realize by converting the IRA assets to a Roth IRA is paying the taxes due now and for the earnings to accrue on a tax-free basis ( earnings are not taxed if distributions meet certain requirements)... as opposed to a Traditional IRA, where assets accrue on a tax-deferred basis.

Absolutely… your ‘active participant status’ does not affect the amount your may contribute to a Roth or Traditional IRA. You may already know that in order for you to make a catch-up contribution, you must first contribute the regular amount, i.e. $3,000. Any amount in excess of the $3,000 (up to $3,500) will be a catch-up contribution- assuming you are at least age 50 by the end of the year for which the contribution is being made. If you decide to contribute to a Roth IRA, make sure you do not exceed the income limit ( meet the eligibility requirements)

Hopewell, I like your way of thinking… however, this is not a loophole. Yes. Your wife may contribute the maximum amount to both the SEP and the Roth IRA (assuming she meets the eligibility requirements and have sufficient income). A maximum dollar amount of $3,000 for the Roth ($3,500 if she is at least age 50 by the end of the year for which the contribution is being made) and a maximum dollar amount of $40,000 for the SEP IRA. There are rules that may reduce this amount, depending on her income (or - adjusted net business income (ANBI) if she is she operates as a sole proprietorship). However, you must look at this as two separate animals (sic). Making an employer contribution to a SEP IRA, even if this amount is later converted to a Roth IRA, is not in effect allowing you to exceed the $3,000 Roth contribution limit. The Roth IRA is a plan that is funded with after tax assets, by an individual taxpayer. The SEP (employer contribution) if funded by a business entity (including sole proprietorships), which takes a deduction for the SEP contributions it makes. Once the SEP employer contributions is deposited to the SEP IRA, it is treated as regular IRA assets, and will be treated as ordinary income for the year the assets are converted to the Roth IRA. When choosing between two retirement plans… …an individual taxpayer may decide between a Traditional and a Roth IRA… …a business may decide between a SEP , a SIMPLE or a qualified plan ( e.g. 401(k), profit sharing etc.) Note:Remember that you are not allowed to convert your IRA assets to a Roth IRA in any year that your Modified Adjusted Gross Income (MAGI) is more than $100,000 and/or if your are married and file a separate tax return from your spouse.

Patricia, I sent you some additional information via e-mail. I hope it helps. Mcdonnell is right. The maximum amount you may contribute to a Roth IRA is 100 percent of your compensation (or income) or $3,500, whichever is less. For taxpayers who are not at least age 50 by the end of the year for which the contribution is being made, the contribution limit is $3,000 not $3,500. Your Modified Adjusted Gross Income (MAGI) is used to determine if you are eligible to make a regular participant contribution to a Roth IRA. As I mentioned in the additional material I send to you, while there is no cap on the amount of compensation you may earn in order to be eligible to make a contribution to a Traditional IRA, it is not so for Roth IRAs. If you are married and file a joint tax return, you may not make a regular Roth IRA contribution if your MAGI is more than $160,000. The $3,500 limit is reduced when your MAGI is between $150,000 and $160,000. The range for single taxpayers is $95,000 and $110,000. Those with MAGI over $110,000 may not make a contribution to a Roth IRA. ...and for married individuals who file separate returns, the range is $0 and $10,000. Remember that contributions for 2002 must be made by April 15,2003. If your contribution is mailed by April 15,2003 and reached your IRA custodian/trustee after April 15,2003, the IRS considers the contribution as having been made by April 15,2003.

The 1099-R for 2002 stands. Just in case…Recently the IRS issued guidance on extending the 60-day rule for rollover contributions that meets certain requirements. One of the determining factors that the IRS considers in making the decisions to extend the 60-day period is whether or not the check issued was cashed... The following thread may provide some insight to this issue… http://benefitslink.com/boards/index.php?showtopic=18166

The individual may establish as many SEP IRA as he/she wants to, as long as the total contribution to all does not exceed the annual addition limit. Most custodians will accept a copy of the SEP document used to establish the first SEP IRA to establish other IRAs under the SEP. If common-law employees were covered under the plan, and the employer placed restrictions on where they could hold their SEP IRAs, while he/she had no restrictions on his/her SEP IRA, then you would have a discrimination issue and the participants could file complaints

Hi MGB- Yes. There is no age restriction for contributions to Roth IRA… another one of its attractive features , when compared with the traditional IRA. There is also no required minimum distribution for the Roth IRA owner… unlike the Traditional IRA , where the IRA owner is required to begin distributions effective the year he/she attains age 70 ½ . However, post death ( of the Roth IRA owner)RMD rules do apply to the beneficiaries

1/16/03.. . FLMA

JanetM is right…

Yes. You may make a participant contribution to a Roth IRA for tax year 2002. You may also make a contribution for your spouse, if he has no earned income- this is referred to as a spousal IRA contribution. Certain requirements must be met in order for your to be eligible to make a spousal IRA contribution, for example, you must file a joint income tax return. If he has income, he may make a contribution for himself. The contribution limit for each person, you and your husband, is $3,500 ($3,000 plus $500 catch-up contribution because you are at least age 50). The total contribution, for you and your spouse, cannot exceed your total Modified adjusted gross income. Refer to the following link for more information. http://www.irs.gov/formspubs/page/0,,id=10...233,00.html#T80

You did not say that he took an RMD for 2002, so my response is based on the assumption that he did not. The RMD for 2002 should have been distributed by 12/31/2002. This is calculated using the 12/31/01 fair market value. If he dies before distributing this amount, then his beneficiary is required to have the amount distributed by 12/31/02… even though this distribution represents the deceased’s RMD for 2002, it is reported under the beneficiary’s tax ID number. If the amount was not distributed in 2002, then the beneficiary must distribute the amount as soon as possible. The IRS assesses a 50 percent excess accumulation penalty on RMD amounts not withdrawn by the deadline. However, you may request a waiver ( from the IRS), by writing a letter of explanation- For 2003, the beneficiary may be required to continue taking RMD amounts based on his/her life expectancy. The options vary somewhat, depending on whether the beneficiary is a spouse of the deceased. Is the beneficiary a spouse of the deceased? An individual or non-person(such as a charity etc.)?

Actually, the IRS Restructuring and Reform Act of 1998 (IRRA) provide that excess contributions to SIMPLE IRA be handled in the same manner excess contributions to SEP IRAs are handled- of course with the obvious exception of recharacterizing the excess contribution as an IRA participant contribution, since such contributions are not permitted to be made to SIMPLE IRAs

No Rbeck, We are saying…think about this some more… when you do, bear in mind what MGB said earlier

The IRA custodians did the right thing. Your first RMD is due the year your attain age 70 ½. However, for the first year, you are allowed to defer distributing the RMD until April 1 of the following the year you attain age 70 ½ ( this is referred to as the required beginning date.) However, even though you are allowed this deferment, any distribution taken during the year you attain age 70 ½ is considered part of your RMD for that year. According to the regulations, the first distribution in an RMD year is part of your RMD and is not eligible to be rolled over. Had the custodians rolled over the full balances, the portion representing your RMD would be considered ineligible rollovers. For the balance that is rolled to the 401(k) plan, you are not required to take RMDs on that amount, providing the 401(k) plan allows you to defer your RMD until you retire and you are not at least a 5 percent owner of the business that adopted the 401(k) plan.

RBeck- this , by definition is NOT a rollover, simple, a change in provider as you stated earlier in your post- tantamount to just changing an account number. On the contrary- it IS as simple as requesting a rollover. The participant apparently already established an IRA with the prior provider… now all he/she needs to do is submit distribution paperwork to the plan, which should include direct rollover instructions- including the delivery instructions for the IRA. The IRA custodian/Trustee should be able to provide an acceptance letter to the plan, which generally includes a confirmation of the type of account established to receive the direct rollover

The funds belong to the employee- not the employer-the employee, in accordance with a salary deferral agreement made with the employer, chose to have the amount contributed to the SIMPLE IRA. Sound like you may need to make an exception to your policy and deposit the funds to a SIMPLE IRA account for this participant. You cannot send the funds directly to the participant without depositing the funds to the SIMPLE IRA, since any amount of $10 or more must be reported to the IRS and the participant on form 1099-R.

Not that I am advocating taking distributions from your IRA (which may not even be an issue for this topic, since the four year period for 1998 conversions ended in tax year 2001)… any distribution from the Roth IRA during the four-year period would result in an acceleration of the taxable income from the conversion. For example, if you converted $100,000 the income would be spread over four years as follows: 1998-$25,000 1999-$25,000 2000-$25,000 2002-$25,000 Assume that you distribute $20,000 from the Roth IRA in 1999… the taxable amount in 1999 would be $45,000 ($25,000 + $20,000). The taxable amount for the last year would be reduced by amounts withdrawn during the four-year period. In summary, the only way to “increase his tax payment” is to take a distribution during the four-year period.

Mary Kay is right Mike - One of the exceptions to the 10 percent early withdrawal penalty is amounts paid as a result of IRS levy. However, in order to be eligible for this exception, the levy must be direct to the plan or IRA. If the taxpayer makes an early withdrawal to voluntarily to pay his tax liability, the penalty will NOT be waives

Archimage …as a matter of courtesy, the employer may provide written notification to employees that he/she will no longer be making contributions to the SARSEP. For the salary deferral portion, a formal termination is required. These amendments may be made at any time providing they are made prospectively.

For the entire year- assuming you are using the IRS model 5305 or 5304 SIMPLE. These documents define compensation as the amount reported on the participant's w-2. Though highly unlikely, a prototype SIMPLE document may provide an alternate definition of compensation.

One of those days huh No it doesn’t . Note that a SARSEP cannot be converted to a qualified plan (including a 401(k) plan.). However, assets can be rolled over from a SARSEP to a 401(k) plan, if the plan and the employer so allows. Given that this safe harbor plan will be a new 401(k) plan, the January 1 date does not apply. With respect to terminating the SARSEP, the employer should notify the SARSEP participants that the plan will be terminated… I need to check on whether or not this notification needs to be provided before the beginning of the year- since it involves salary deferral contributions, or even if it is mandatory. I will get back to you on that…

Effective for tax years beginning 2003, distributions from Education Savings Accounts and 529 plans will no longer be reported on Form 1099-R. The IRS has issued the 2003 version of Form 1099-Q. This form will be used to report distributions from Education Savings Accounts and 529 plans Form 1099-Q. can be viewed at the following URL http://www.irs.gov/pub/irs-pdf/f1099q03.pdf The instructions for filing form 1099-Q, http://www.irs.gov/pub/irs-pdf/i1099q02.pdf

No. Maybe there was some miscommunication?

Sorry Archimage- I am a little lost. What would you be converting the SARSEP to? Are you referring to the notification requirements?

If the distribution and the 1099-R is being processed by the plan administrator, then the plan administrator may be willing to use a code 2. However, if the issuer is a custodian, say for one of those prototype qualified plans- then they usually use a code 1. Custodians/trustees that issue 1099-Rs generally use code 2 only for 72(t) distributions- for other types, separation from service after age 55, first time home buyer, to pay medical insurance etc ( from IRAs)., the taxpayer is forced to file form 5329... because the IRS does not require the issuer to use code 2 in these instances