Appleby

mbozek What you refer to is the revocation of an IRA. This must be done within 7-days of the IRA being established. For an IRA that is timely revoked, the funds must be returned to the IRA owner. No fees or commissions can be charged, as the IRA owner must be refunded at least the full amount of the contribution.

Dawn, I do not understand your statement. However, 408(d)(3)© “ Denial of Rollover Treatment” does stipulate that rollover contributions may not be made to inherited IRAs. Since the movement of assets from the QP to the IRA must be done as a direct rollover, then it cannot be done to an inherited IRA. Barry, I have seen a TAM that permitted such a transaction--- can’t seem to locate it now though- my notes says the number is TAM-653, but obviously I need the full number to locate the document. In any event, you are right- I am not aware of an IRA custodian that would permit a spouse to establish an IRA in the deceased spouse’s name- except if the IRA was an inherited IRA, established in both the deceased and beneficiary’s name, using the TAX ID number of the beneficiary. .

What has he done many times? Convert only the after-tax portion? Maybe what he means is that he has used the Form 8606 many times, to determine the taxable portion of a conversion, when the IRA owner has both after and pre-tax assets? I hope this is what he means.

The movement of assets from a SARSEP is done as a rollover- not a transfer. EGTRRA did make it permissible for assets held in SARSEP to be rolled to qualified plans, 403(B) and 457 (B) plans. With reference to the passing the ADP test, the only restriction is that the contribution for the current year should not be distributed (including rolled to another plan), before the earlier of the 125% test being completed or March 15. The rest of the assets may be rolled/distributed at any time.

The following assets are required to be tracked separately for QPs Deemed IRAs & Qualified Roth Contribution program, as well as rollover of after tax contributions from QPs to IRAs. There are no requirements to track assets rolled from an IRA to a QP.

Ok- I understand the titling issue- but ultimately, whose tax ID number is the tax reporting done under--- Taxpayer D or the trust?

Great work David- Thanks- Now I can breathe easy

Regarding contacting the IRA custodian to have the assets returned to the plan- The IRA custodian is not permitted to make a distribution form the IRA without written authorization from the IRA owner. Furthermore, any ineligible rollover to an IRA must be corrected as a ‘return of excess contribution’.

Hi Barry, In this case, the beneficiary is the trust, not the child (Taxpayer ‘D’). Usually, the IRA would be established in the name of the deceased and FBO the beneficiary (in this case Trust ‘X’). However, in the section highlighted, it appears the IRS is allowing one of the beneficiary of the trust, to establish the inherited IRA in her name (along with the deceased). Prior to the new RMD regulations being issued last year, there were several PLRs issued that permitted a spouse to establish the IRA in his/her name and tax ID number, when the beneficiary was either a trust or estate that named the spouse as the sole underlying beneficiary who had sole discretion over the disposition of the assets. This was never permissible for a non-spouse beneficiary. When the new RMD rules were issued, Treasury Regulation 1.408-8 Q&A 5 seemed to make it clear that this is not an option, even for a spouse. Yet, the ruling in the PLR seems to be making this allowance for Taxpayer D, who is a non-spouse.

Sorry- Forgot the attachment

The attached PLR allowed some provisions that are not surprising, such as allowing the underlying beneficiary of the trust to use their life expectancy to calculate post death distribution. However, they made one ruling that seems to contradict with the new RMD regulations, i.e. permitting the underlying beneficiary of the trust to establish the inherited IRA in their name. They ruled: “(5) that Taxpayer D, as a beneficiary of Trust X, the beneficiary of IRA Y, may direct that her portion of the Trust X assets which consists of her interest in IRA Y be transferred, by means of a trustee-to-trustee transfer, into another IRA set up and maintained in the name of Taxpayer A for the benefit of Taxpayer D, beneficiary thereof ;” This contradicts Section 1.408-8 Q&A 5, of the new RMD regulations. Any thoughts?

David, Rev. proc. 02-10 ( see http://www.irs.gov/pub/irs-drop/rp-02-10.pdf ) would lead me to believe that a signature amendment is required- mainly because it states that an individual who wants to take advantage of the EGTRRA changes must adopt a revised model amendment. I hope I am wrong.

GUST and EGTRRA does apply to these accounts. Since no IRS amendments were required until now, you only need to be concerned with amendments for EGTRRA and the new RMD rules. According to the IRS, an IRA must be amended in order to use the provisions of EGTRRA. The amendment procedures are outlined in Rev. Proc 2002-10 – see also Announcement 2002-49 regarding extension of deadline- at theURLs below http://www.irs.gov/pub/irs-drop/rp-02-10.pdf http://www.irs.gov/pub/irs-drop/a-02-49.pdf If you are the current custodian/trustee, then you are responsible for ensuring that the plan is amended.

BigAl, As far as ‘why’, it is simply because that is how congress said it must be. Pro-rata means proportionately. For example, if 40 percent of your assets are after-tax assets, then 40 percent of your distribution/conversion will be subject to income taxes. For the formula see, IRS Form 8606 and its instructions @ the following websites- http://www.irs.gov/pub/irs-pdf/i8606.pdf http://www.irs.gov/pub/irs-pdf/f8606.pdf See also a response to a similar question that you posed at this website . http://benefitslink.com/boards/index.php?showtopic=14630

BigAl, After reviewing the Job Creation and Worker Assistance Act (JCWAA) of 2002 (Technical Corrections to EGTRRA), it is apparent that my “way around this” does not exist. According to JCWAA, if a rollover of 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 means that there is no way to avoid the pro-rata treatment of amounts distributed or converted ( to a Roth IRA) from the traditional IRA

Absolutely. The 60-day rollover rule that applies to traditional IRA also applies to Roth IRAs.

True, but as Gary stated earlier, if any other plan is established in 2002, all the SIMPLE contributions made in 2002 will become excesses.

BigAl, According to the IRS, if a distribution, including a Roth Conversion is being taken from a traditional IRA, the distribution/conversion must be taxed pro-rata, if any one of the IRA owned by the individual requesting the distribution/conversion includes non-deductible contributions (This is explained in IRS form 8606 and its instructions, which may be found a www.IRS.Gov The IRS has not yet stated definitively that this rule applies to after tax assets that are rolled to a traditional IRA. However, IRA practitioners are playing it safe by advising their IRA owners to rely on the rules that are applied to non-deductible IRA contributions. This means that the IRA owner must file IRS form 8606 for the year the after tax assets are being rolled to the traditional IRA, and also for any year that a distribution or Roth conversion is done -after these non-taxable/non-deductible assets are credited to the IRA. There may be one way around this. That is, if the individual has zero IRA balance and takes a distribution from the QP. Hold back the taxable portion and roll only the after tax portion to the traditional IRA. This would mean that the total traditional IRA balance would be non-taxable. The IRA owner would then convert this amount to a Roth IRA. The balance of the QP distribution, which is taxable, could then be rolled to the traditional IRA (within sixty days) after the non-taxable assets have been converted to a Roth. Seems logical, but still… I am sure the IRS would find a way to make such actions unacceptable… yet, if this is done cross years, where the second rollover of taxable portion is done in the year following the year the conversion was done ( but within sixty days after the distribution form the QP- this would mean of course that the distribution from the QP would have to be done close to year-end), the IRS would be hard pressed to force someone to include the after-tax portion in the equation, since the year that the conversion was done to the Roth IRA, the IRA owner’s balances were all non-taxable.

No

Additional comments on Roth conversion of after-tax assets The EGTRRA regulation did not address this issue. Until then, we rely on the IRA distribution rules. Under the IRA distribution rules, for an IRA that consists of taxable an non-taxable assets, distributions, including amounts moved to a Roth IRA as a conversion, is taxed on a pro rata basis. IRA owners should continue to file IRS form 8608 to determine taxable portion of their distribution or conversion amount. Plan participants who chose to rollover non-taxable assets, should remember that they are responsible for maintaining accounting records to keep track of track of both the after-tax contributions that are rolled over and the earnings on them. For this reason, individuals choose to keep the after tax amounts in a separate IRA.

At this time, IRAs are not subjected to back-up withholding. Mbozek, the form to which you refer is form W-4P. This does not apply to back-up withholding. Shelton- I could find no record of this pending change in regulation- which is not to say that is does not exists.

For a DB plan it includes a plan that was maintained or is still being maintained. You need to use a prototype document until the SEP documents have been amended . I think this DB rule will be removed from the form, given that the combined limit, i.e. 415(e) has been repealed.

This is a better article: http://benefitslink.com/boards/index.php?showtopic=13826

I think John G meant recharacterize (not convert). Note also that if you leave the contribution in the Roth and reallocate it to another year, you will be assessed the 6% penalty. The only way to avoid the 6% penalty is to remove the excess or recharacterize it to a traditional IRA (you have until October r 15 to recharacterize, given that you filed your return or an extension)

This (the attached PLR) does not address reduction in market value due to market fluctuation- instead it addresses reduction in market value as a result of assets leaving the IRA due to a divorce decree.. but I decided to add it anyway