Appleby

Thanks Reg

An acquaintance sent them to me. I did not ask where he obtained them. He is an attorney who works for a retirement plans firm, and generally gets pre,-released copies of IRS issued documents. I left him a voice mail with the question- his admin feels that he obtained hard copies and scanned them into the PDF file. I will let you know his answer when he responds.

Please see the attached- I attached copies of all the relevant documents http://benefitslink.com/boards/index.php?showtopic=49947

And another

Another relevant doc

Please see attached

Seems reasonable. I can see the custodian’s point of view. The IRS’ stance is that no one should rely on any information they provide, unless it is in writing. Unless you are able to obtain the information – regarding the 1999 reporting- in writing from the IRS, the custodian can only rely on what was already issued in writing.

The accountant need to re-educate him/herself on the IRA rules. You may fund both a traditional and Roth IRA in the same year, as long as the individual contribution limit is not exceeded (i.e. $2,000 for year 2001 or $3,000 for 2002). Regarding the SEP IRA, the Roth IRA contribution does not affect the SEP contribution or vice-versa. Providing the individual has earned income, it is permissible.

The custodian of an IRA must report any distribution in the year it actually occurs. This includes conversions (distribution and rollover to a Roth) and recharacterizations. I have seen a few of these PLRs. In those that I have seen, the IRA owner is granted an extension up to six months after the issue date of the PLR. Considering the extension, then providing the recharacterization is processed by the deadline of the new extension, the custodian is acting in compliance. The other issue is that recharacterizations, though they must b reported in the year they are processed, they should also indicate the year for which the contributions was made (effective tax year 2001). The problem here is, the IRA instructions provide for recharacterizations to be reported for contributions/conversions made in the current or previous year. There are no provisions to report contributions/conversions done earlier than the previous year. See “What's New for 2001?” in the attached instructions http://www.irs.gov/pub/irs-pdf/i1099r01.pdf

papogi he could have earned income- say if he is/was a model etc. But I agree, if he was not paid for services, then he is not eligible to establish/fund an IRA

Good catch- its actually 1.408-8 Q&A 9b ( of the new proposed RMD reg) Please see URL http://www.brentmark.com/newrmd.htm

Stephen, The $3,750 applies whether or not the catch up contribution is made. The profit sharing contribution would be based on the $15,000, therefore the total contribution would be: $11,000 salary deferral $3,000 profit sharing contribution $1,000 catch-up contribution (if you are 50 by the end of the year) dmd, You state this is a self-employer person. Is the $15,000 the business owner's net profit or Adjusted Net Business Income (ANBI)? If it’s net profit , you need to determine the ANBI , as it is the amount on which the percentage of employer contribution will be based- and this would mean that the contribution amount would be less than the amount stated above.

Under the new proposed RMD rules (Section 1.401(a)(9)-8 Special rules) Question and Answer 9, amounts in IRAs that an individual holds as a beneficiary of the same decedent may be aggregated, but such amounts may not be aggregated with amounts held in IRAs that the individual holds as the IRA owner or as the beneficiary of another decedent.

Gary, I see you point of reasoning. I read Pub 590 as you suggested, and agree which the statement. However, what 590 fail to do (typical ) is take the issue beyond the employer contribution, to when it is excess and then becomes an IRA contribution. The recharacterization then would not be of an employer contribution, but of an actual IRA participant contribution. I have read several books, which states that the SEP excess contribution becomes an IRA contribution, and that upon notification, the IRA custodian must adjust the 5498 reporting to reflect such. The following is the general steps that are followed: 1. Employer notifies the employee 2. Employer amends employee’s W-2 to reflect excess as wages 3. Employee notifies IRA custodian of excess 4. IRA custodian then adjusts SEP contribution to an IRA participant contribution and adjust 5498 reporting to reflect excess an IRA contribution. The following was taken from the SIMPLE, SEP and SARSEP Answer Book Ques: What should an employee do upon receiving notification of an excess SEP contribution? Ans: The excess SEP contributions (and allocable income) should be withdrawn by the employee from the IRA by April 15 following the calendar year in which he or she was notified by the employer of the excess elective SEP contributions. (Excess elective SEP contributions not withdrawn by April 15 will be subject to the IRA contribution limits of Code Sections 219 and 408 and may be considered excess IRA contributions; see Q 5:58.)… Also Revenue procedure 91-44 states that “In the event that the 50% requirement of section 2.1a is not satisfied as of the end of any plan year, then all elective deferrals made by employees for that plan year shall be considered “disallowed deferrals”, i.e., IRA contributions that are not SEP-IRA contributions.” I know this particular question may lead one to believe that only deferrals may be treated as IRA participant contributions, but other literature I have read suggests that any SEP excess contribution, such as Excess nondeductible SEP contributions (IRC Sec. 4972); SEP allocation excesses (Prop. Treas. Reg. Sec. 1.408-7(f)); An excess deferral (IRC Sec. 402(g)); A salary deferral SEP excess contribution (IRC Sec. 4979) which occurs when a highly compensated employee defers more as a percentage of income than is permitted by the deferral percentage rules. If this is true, then wouldn’t the recharacterization be of an employer contribution, not of an actual IRA participant contribution?

You are right. There are two recharacterizations that are being done here. 1. The recharacterization of employer contribution to employee contribution. 2. The IRA participant then has the option to recharacterize the now IRA participant contribution, to a Roth IRA contribution. For option 2, it is not an employer contribution that is being recharacterized, but an IRA participant contributions, since the contribution has since lost the employer flavor.

I recognize that the IRS sometime uses the term trustee to trustee transfer when they mean direct rollover. A movement of assets from a qualified plan to an IRA must be done as a rollover. When this movement is done directly from the plan trustee to the IRA custodian (asset made payable to IRA custodian), it is a direct rollover. Any distribution that is rolled (or partially rolled), including a direct rollover, to an IRA, conduit or otherwise, is not eligible for the capital gains treatment.

None whatsoever... and to the best of my knowledge, once the assets are rolled to any IRA, the option for capital gains treatments is lost

It depends. If you want to fund an IRA for the past previous year (2001) you have until April 15 2002 to do so. Once April 15,2002 is past, you have lost the opportunity. You cannot go beyond this period.

The plan in which I participate allows participants to max out at the beginning of the year. This is a very large plan, which is administered by a reputable and competent administrator, ; therefore I have no reason to doubt the legitimacy of this permission.

OK Revenue ruling 91-4 , in addition to the reasons I mentioned above, also provides the contribution to be returned to the employer, if the contribution is made in the first year of the plan and is contingent on the plan's receiving a favorable determination letter from the IRS, and the IRS denies the plan's qualified status . PLR 9107033 and IRS publication 560, states the contributions in excess of the deductible amount should be carried forward to the next year- if the amount carried forward exceeds the deduction amount for that year, the carry forward should continue until the excess amount is used –up.

mbozek Can you cite a precedence or reference of law that permits this? All we are doing here is state what the IRS has stated as the requirement. The instructions to the Form 5329 state that if the taxpayer feels that he/she qualifies for the exemption form the penalty, the tax payer should file Form 5329, pay this excise tax, and attach your letter of explanation. If the IRS grants the request, the amount will be refunded to the taxpayer. As law-abiding taxpayers, we should follow IRS instructions.

True-however, the penalty must first be paid to the IRS- and if the IRS determines that the cause is 'reasonable', then the amount will be refunded to the taxpayer.

Yes- with the exception of the statement “RMDs must start in the year the new owner designates the account balance as his or her own "beneficiary IRA". “ The RMD must begin by 12/31 of the year following the death of the account owner. Some beneficiaries may be negligent and do not take control of the assets until after that period. For these individuals, a 50 percent penalty will be applied (by the IRS) for every required distribution amount not taken, beginning the year following the year the account owner dies.

mbozek, Not necessarily- refer to IRS Notice 89-52. A contribution in excess of the deductible limit (though unintentional) is NOT a mistake of fact. Regarding the 401(a) issue, this is only if the IRS disallows the deduction for the contribution.

Joel, I must disagree with your response. Successor beneficiaries are not permitted to use their life expectancy. This is how it works: - Scenario 1. Participant dies after the RBD and leaves the inherited assets to his children. If each child separates their portion into individual inherited accounts by 12/31 of the year following death, they are each permitted to use their own life expectancy. If not, then they must use the life expectancy of the oldest beneficiary. There is no joint life expectancy option for a beneficiary. (Unless you are a spouse beneficiary on an IRA who chooses to treat the IRA as his/her own) Assume that beneficiary #1 is age 45 when the account owner (participant) dies. The year following the death of the participant, which is when beneficiary #1 must start taking distributions, beneficiary #1 is age 46. His single life expectancy (SLE) is 36.8. Distributions must be distributed over 36.8 years. Assume beneficiary #1 name his 20-year-old son as the beneficiary of his inherited account. Beneficiary #1 dies at age 47, when his SLE is 35.8 (this must be determined on a non-recalculated basis), his son is not permitted to use his life expectancy, instead his son must continue to use beneficiary #1’s life expectancy to determine annual distribution amounts.