Appleby

There may be an easier way to achieve the desired results. According to Code Section 2518, a beneficiary that timely disclaims the inherited assets are treated as if he/she/it was never a designated beneficiary of the disclaimed assets. By disclaiming the assets, the trust allows the assets to go to the contingent beneficiary if any (hopefully- this would be the spouse in your case). If there is not contingent beneficiary, then the beneficiary will be designated according to the provisions of the plan document- generally the spouse for qualified plans. The spouse would then be able to roll the assets to his/her IRA

Check www.Tagdata.com They have a directory of TPAs.

You have an ineligible rollover to the Roth. Ineligible rollovers are treated as excess contributions and should be removed as such. Since this was done in 2002, you have until April 15, 2003 plus tax filing extensions to correct. If the amount is significant, it may be worthwhile to write the IRS and ask for an exception to be made – to allow the amount to be treated as is it was rolled to a Traditional IRA. The IRS was making these exception for the 1998 tax year due to the newness of the Roth IRA. This may not be the case for 2002.

Loan repayments do not reduce taxable compensation- they are made with post tax assets.

The first correction should be done retroactively- since corrected forms 5498 should have been issue for each year the assets were in the TIRA. Corrected 5498 for the TIRA – correcting the 5498 that was issued New 5498 for the RIRA for those years. An alternative would be to change the TIRA to a RIRA and issue corrected 5498- this would have been easier. The choice is an operational one

Yes. A SEP , technically, is an IRA, to which employers contributions are made. Except for the rules regarding employer contributions, the rules that apply to Traditional IRAs apply to SEP IRAs- these include the rollover rules.

Right jevd- this is one of the reasons why non-spouse beneficiaries ( and of courseall retirement plan participants) must seek professional assistance before taking death distribution.

True-- and most custodians require a signed rollover contribution form, which includes language to the effect that the IRA owner is aware of the rollover rules as well as a hold harmless clause

It is a true statement- only a spouse beneficiary may roll over inherited retirement plan assets. 408 (d)(3)© denial of rollover treatment for inherited IRAs

See attached

Please see Rev Rul attached

I hear ya… I guess we will have to agree to disagree on this one- especially since verbal confirmation cannot be used as guidance. This is a perfect example of why. This would not be the first time the Service has provided conflicting information, when provided verbally. Anyway, we continue to tell customers to check with their tax professionals before making any decisions. The problem is, some tax professionals are sending the clients to the IRA custodians…

Actually, as provided under the IRS Restructuring and Reform Act of 1998 (IRRA), return of excess contributions to SIMPLE Plans are treated in the same manner as excess contributions to SEP IRAs. For this participant example, the following should occur -The employer would treat the excess contribution as wages and include the amount on the employee’s W-2, -The employer would notify the employees of the excess amount -The employees would in turn notify the SIMPLE IRA custodian and completed the required paperwork to have the amount removed as a return of excess contribution. The only difference (from the way it is handled from a SEP excess) is that the excess amount would not be recharacterized as an IRA participant contribution, given that IRA participant contributions cannot be made to SIMPLE IRAs.

Refer them to the Final Roth IRA regs which can be found at http://www.rothira.com/rothregsf.htm

Barry, I can see your logic- however, as we know, logic does not always rule decisions made by those who write our regulations. In all fairness, this is not addressed in Revenue Ruling 2002-62. However, we received confirmation from two* sources that in the transition year (i.e. the year the IRA holder decides to switch to the life expectancy method) one of the exceptions that is made is for an individual using the amortization or annuitization method, having redetermined the amount by using the life expectancy method, will be deemed to have satisfied the payment for that year, providing the amount withdrawn is at least the new amount determined using the life expectancy method. It will not be considered a modification , if the amount calculated under the life expectancy method is exceeded as a result of the IRA holder taking the amount using the amortization or annuitization method prior to switching to the life expectancy method. When you consider the basis for issuing this Rev. Rul. this makes sense. Remember this ruling was issued to help IRA holders prevent their retirement balances, which has become much lower than projected due to poor market performances, from being prematurely depleted * The two sources are: 1. We contacted the Retirement Benefits Department of IRS myself and was given this information 2. We participated in a seminar, hosted by one of the leading retirement plan-consulting firms in the business, and they stated that spoke with the Author of Revenue Ruling 2002-62, who provide them with verbal confirmation of same. I know verbal confirmation cannot be used as the basis for any determination nor does it constitute guidance, however at this time… this is all we have.

The option to switch is optional for 2002, i.e. although the new reg. become effective for 2003, your client may use it for 2002 Therefore, for this year, if you refigure the amount and determine it to be $30,000 under the life expectancy method, and $50,000 have already been distributed, then the amount for 2002 have already been met. This will not be considered a modification For the remaining years, you would need to calculate the amount using the life expectancy method. This amount will fluctuate , since it will be based on a market value that will change each year and is required to be redetermined each year

…question the accountant because he/she is wrong. Employers need to be aware the rules and why they are implemented. In the case of the SIMPLE IRA it makes sense. Congress implemented the October 1 deadline and the 60-day notification requirement for the SIMPLE to allow non-owner and non-highly compensated employees to take advantage of the opportunities under the plan. The logic is, in most cases, if the plan is established in December, the business owner will likely be able to defer the full amount and therefore receive matching contributions. Lower paid employees may not be earning enough to defer any significant amount ( if any) in a lump-sum). As a result, only the business owner and any other highly paid employee would benefit. Fact is, like Barry said- it is too late. And like you said , choose another plan that is not subjected to the October 1 deadline, like a SEP. Then , if the employer really wants to establish a SIMPLE, do so early 2003

If any excess accumulation penalty (penalty owed on RMD amounts not timely withdrawn) is owed , the individual ( in this case the spouse beneficiary) pays the amount to the IRS , and files IRS form 5329 to report the transaction/penalty. BTW, there have been many cases where the individual pleads ignorance, mistake, mis-guidance etc. to the IRS and ask for a refund of the penalty. The IRS has proven to be very understanding in these circumstances and will more. THE ADMINISTRATOR’S THEORY IS WRONG- UNLESS THE SPOUSE WAS NOT DESIGNATED AS BENEFICIARY BY THE PARTICIPANT’S REQUIRED BEGINNING DATE. This is how the 1987 rules would have applied. If a participant had a named (person) beneficiary on the retirement account by the required beginning date, the joint life expectancy should be used to calculate the RMD. By using the single life expectancy, the participant was just taking more than the required amount. Under the 1987 rules, the single life expectancy would be REQUIRED only if: The participant had no beneficiary, or had a non-person beneficiary on the account as of the required beginning date or The participant names the spouse as the beneficiary, use the recalculation method ( for both- or even the spouse beneficiary) to calculate the RMD and the spouse subsequently predecease the participant ( this obviously is not the case here). If none of the two circumstances above applies, then the response given by the administrator is incorrect. To determine what the available options are for the Mrs. X, we need to know: 1) Was Mrs.X the designated beneficiary as of the required beginning date? 2) What RMD calculation method was permissible under the plan document ?, i.e. recalculation/non-recalculation/hybrid and which method was selected by the participant. Also, let us know the year of death.

Your IRS custodian/trustee reports form 5498 information to you and to the IRS. You ( as an individual taxpayer) never file form 5498 with the IRS

http://benefitslink.com/boards/index.php?showtopic=17763 See the URL above

Your Form 5498 ( used to report your IRA contribution) will be under the same SS# that you file your 1040.- Very easy for the IRS to cross reference.

I think we are in agreement… a qualification may be necessary in understanding the definition of qualified plan for this purpose. For this purpose, determining the “only plan for the employer”, a qualified plan is defined in the same manner as it is defined to determine one’s active participant status for purposes of being able to take a deduction for a contribution to a Traditional IRA… an employer who has a frozen plan, is not considered to maintain a qualified plan, for purposes of ‘determining the only plan for the employer’, unless the Frozen plan is a defined benefit plan for which the benefit accruals (determined before the plan was frozen) is increased in tandem with salary increases.

... and that the rollover must not include amounts representing RMDs, non-deductible amounts, and amounts representing excess IRA contributions

...also, you cannot maintain a SIMPLE IRA in any year that you maintain another employer plan

mbozek I would word the FMV piece of your response differently. “For tax purposes the FMV of the distribution is the value of the stock at close on the day the assets leave the IRA” tcunagin , you want to be careful about requesting such a distribution in kind, as market fluctuation could affect the value (FMV) of your distribution- especially if the IRA custodian takes a few days to process you request and/or your request is submitted via mail.