Appleby

Good- I am glad you did- no need to pay money to the IRS unnecessarily Now to answer your question You should have paid taxes on the amount you converted to the Roth IRA, as amounts in Roth IRAs are after tax /non-deductible amounts. Individuals had the option to spread the taxes over four years by making that election on their Form 1040. If you received a refund from the IRA it ould be due to other factors, for example, if you elected to spread the taxes over four years and still paid the full amount, the IRS would hve refuned the excess amount paid. Review your return carefully, and check to see if you made the four year election. You may also want to haev you CPA review your 1998 and 1999 tax return and paying special attention to the Roth transaction... But let me adress your specific question, i.e. that of taxability of the distribution from the Roth IRA. The amount you distributed from the Roth IRA is tax free. In addition, because you took the funds for a first time home purchase, the 10% pre-mature penalty that you would pay if you are under the age of 59 1/2, is waived. Up to $10,000 for a first time home purchase is an exception to the 10% early withdrawal penalty. You will not be paying taxes on any withdrawal from the Roth until you withdraw in excess ( accumulated withdrawal totals) of the $9,468. And even then, the amount will not be subjected to tax if you have had the Roth IRA for five years. The amount in excess of this amount may also be subjected to the 10% penalty if no exception to the penalty applies at the time of withdrawal

If I may just step in here. In response to your second question, the answer is yes. You should report the contribution on your year 2000 taxes and the conversion on your 2001 taxes. Do not forget to file your IRA Form 8606, which is required or any Roth IRA reportable transaction . In response to your first question, the conversion will not affect your AGI with respect to your eligibility to convert. This means that even if the conversion brings your AGI to over the $100,000 limit, you may still convert. However, it is a different issue with the contribution. If the conversion pushed you MAGI over the $110,000 limit, thne you are not permitted to contribute to a Roth IRA. If your MAGI is between $95 and $110 000, then you have a phase-out range for the contribution amount. Check out IRS publication 590 at http://www.irs.gov. Go to forms and publications, then publications online.

grecb1, If I understand you correctly,and I think I do as your statement seems very clear...You have a much bigger problem here. The IRS has stated explicitly that assets must NOT be rolled from a qualified plan ( including a 401(k) plan ) to a Roth IRA. The assets should have first been rolled to a traditional IRA and then rolled to a Roth IRA. What you now have in your Roth IRA is an excess from 1998, which you have not corrected three years later. For every year that the excess remains in the IRA, you owe the IRS 6% of the excess amount, i.e. $568.08 for each year. In addition, you owe the IRS income taxes on the $9468 from 1998 tax year. You must correct this immediately- make sure you talk this over with your CPA

KJohnson, You are right- in fact we both are. the difference is- you are addressing an issue where the participant had seperate ( more than one ) IRAs and named a different beneficiary for each IRA. In this case, as each beneficaiy was in fact the oldest and only primary beneficiary of the IRA, as at the participant's required beginning date, then each beneficairy was allowed to use their own life expectancy. I am addressing an issue where there was only ONE IRA, with two primary beneficiaries. My response was targeted to anthony devito's situation.

You could keep the money is your IRA or take a total distribution and pay taxes now. That decision is entirely up to you. The IRS will not force you to take a distrbution because you are leaving the country. However, if you take a distribution while you are abroad, and have the distrbution mailed to your overseas address, you will be subjected to non-redisent alien or US resident living abroad tax withholding. This means that the IRA custodian will withhold 10%. This withholding can be waived is you are able to provide a US HOME address to which the distrbution can be mailed. If your wife is an alien ( i.e. not a US citizen or a non-resident alien, i.e. green card holder), she will alos be subjected to this 10% mandatory withholding. However, she has the option to waive it . However, is she does, she will be subjected to withholding based on IRA trety rates which could be more thna the 10%. Some custodians default to a 30% treaty rate, and require additional documentation from the IRA owner. The following is an excerpt from IRS publication 590 which cna be found at http://www.irs.gov . And should answer the second part of your question Both spouses have compensation. If both you and your spouse have compensation and are under age 70 1/2, each of you can set up an IRA. You cannot both participate in the same IRA. What Is Compensation? As stated earlier, to set up and contribute to a traditional IRA, you or your spouse must have received taxable compensation. This rule applies to both deductible and nondeductible contributions. Generally, what you earn from working is compensation. Compensation includes the items discussed next. Wages, salaries, etc. Wages, salaries, tips, professional fees, bonuses, and other amounts you receive for providing personal services are compensation. The IRS treats as compensation any amount properly shown in box 1 (Wages, tips, other compensation) of Form W-2, Wage and Tax Statement, provided that amount is reduced by any amount properly shown in box 11 (Nonqualified plans). Scholarship and fellowship payments are compensation for this purpose only if shown in box 1 of Form W-2. Commissions. An amount you receive that is a percentage of profits or sales price is compensation. Self-employment income. If you are self-employed (a sole proprietor or a partner), compensation is the net earnings from your trade or business (provided your personal services are a material income-producing factor), reduced by the deduction for contributions made on your behalf to retirement plans and the deduction allowed for one-half of your self-employment taxes. Compensation includes earnings from self-employment even if they are not subject to self-employment tax because of your religious beliefs. See Publication 533, Self-Employment Tax, for more information. When you have both self-employment income and salaries and wages, your compensation includes both amounts. Self-employment loss. If you have a net loss from self-employment, do not subtract the loss from your salaries or wages when figuring your total compensation. Alimony and separate maintenance. Treat as compensation any taxable alimony and separate maintenance payments you receive under a decree of divorce or separate maintenance. What Is Not Compensation? Compensation does not include any of the following items. Earnings and profits from property, such as rental income, interest income, and dividend income. Pension or annuity income. Deferred compensation received (compensation payments postponed from a past year). Income from a partnership for which you do not provide services that are a material income-producing factor. Any amounts you exclude from income, such as foreign earned income and housing costs.

This separation of account is just for reporting and self-direction of investments purposes only. Some custodians need to separate the account to handle the individual tax reporting. According to the old regulations if the participant dies after the required beginning date, EVEN if the accounts were separated, the life expectancy of the oldest beneficiary must be used to figure post death distributions. The PLRs that were issued that allowed the beneficiaries to use their own life expectancy were based on the decedent dying BEFORE his required beginning date. Because the deceased was over the age of 70 1/2, some misinterpreted it to mean that he was past his required beginning date. However, he inherited the IRA from his wife. He took her RMD and moved the assets to his OWN IRA the next year. His required beginning date would have been the April 1 following the year he took the assets as his own, but he died before that April 1 date. Therefore, the IRS treated him as dying before his required beginning date and allowed the beneficiaries of his IRA ( that he inherited from his wife and treated as his own) to use their own individual life expectancies. In summary, if the participant died after the required beginning date, the life expectancy of the oldest beneficiary must be used to determine life expectancy factors. The new regulations - issued January 12, addressed the separate IRA issue for the first time,. It states that if the assets are segregated into separate account by December 31 of the year following the year the participant dies, then each beneficiary would be allowed to use their own life expectancy. The only issue now is that the new regs do not seem to be retroactive, as least that has not been explicitly stated. However, some experts have determined that all IRA owners and beneficiary may start using the new rules. This means that if the beneficiaries separate the assets by December 31,2001, they may be able to use their own life expectancies. I would like to add also that Kjohn is right about the titling of the inherited IRAs- they should include the name of the deceased, with DEC'D by his name and the name of the beneficiary, with Bene by his name or some othe titling to show who is the deceased and who is the bene- The social security number used for tax reporting should be the beneficiary's

You would need to withdraw only the $1,500. Bear in mind that if you have other assets in the account with this $2,000 contribution, then you must perform a calculation to determine the attributable income ( earnings) or loss on the excess contribution. The IRS issued a notice last year (notice 2000-32) , which allowed the earnings on an excess contribution to be a negative figure. The notice can be viewed at this web address. http://www.benefitslink.com/IRS/notice2000-39.shtml If you had no other assets added to this account, then there is no need to perform any calcuations. If you determine that the excess lost during the computation period ( explained in the notice ) then you only need to withdraw the excess amount- minus the amount lost. In your case $1,500 If it makes you feel more comfortable, you could include an explanation with your tax retrn, i.e. letting the IRS know why you are reporting $1,500 instead of $2,000.

The custodian may have made mistake .A return of excess contribution , after the dealine for filing your tax return for the year for which the excess contribution was made, is not taxable or subjected to the 10% penalty if the excess amount is $2,000 or under. Lets look at how each excess should be processed 1-- 1998 excess amount should have been returned to you and reported as non-taxable, i.e. it should be in box 1 of your 1099-R but not box 2. Had it been more than $2,000, it would be reported as taxable. No earnings should be removed with this excess as it was removed after your tax filing deadline for 1998 2-- 1999 excess amount should have been returned to you and should also be reported as non-taxable. However, the earnings on this, the 1999 excess amount , should be reported in box 1 and box 2. This means that the earnings would be taxable. The code in box 7 should be 'P' to show that you should add the earnings to your previous year's tax return, i.e. 1999 . ( previous year because you made the correction in year 2000 and will receive the 1099-R for year 2000. The IRS nees to know that the earnings is not year 2000 income) 3-- The excess amount for year 2000 should be reported as nontaxable as well. The earnings should be reported as taxable. However, the code in box 7 should be '8' to should that the earnings are taxable in 2000. So far, you box 1 ( reportable amount) totals should be a total of the following: 1. 2000 ( for 1998 excess contribution) 2. 2000 ( for 1999 excess contribution) 3. $___ ( the amount determined to be the attributable income on year 1999 excess contribution) 4. 2000 ( for the 2000 excess contribution) 5. $___ ( the amount determined to be the attributable income on year 2000 excess contribution) This is $6,000 excess contributions plus earnings for the two years, 1999 and 2000. In box 2, which reports the taxable amount, you should have a total of only the atributable income on the excess for 1999 and 2000. If you are under age 59 1/2, then you will pay 10% pre-mature penalty only on the amounts in box 2- for year 1999 and 2000. If you already reported the income for 1999 on your 1999 tax return, then you should not add it to your 2000 tax return. You should be receiving three 1099-Rs Your custodian may have made a mistake and reported the excess amounts as taxable. You need to bring this to their attention immediately.

Such an excess contribution to a SEP IRA is corrected as follows. 1. The employer amends the employees W-2 to include (or treat) the contribution amount as wages 2. The participant- employee must notify the IRA custodian to re-designate the excess contribution as an IRA participant contribution for the year the contribution was made. 3. The participant-employee had tax-filing deadline, plus any IRS granted extension to remove the excess. The deadline is for the INDIVIDUAL NOT THE COMPANY/EMPLOYER If the excess is removed timely, the attributable income (EARNINGS) will be treated as income and be subjected to ordinary income tax and 10% early withdrawal penalty if the individual is under the age of 59 1/2 If the excess is not removed by the above stated deadline, it will be removed by a "return of excess after the deadline" If the amount is $2000 or under, it will be reported as a non-taxable distribution. The individual must ensure that the custodian reports it as such. It is more than $2000, then it will be subjected to early withdrawal penalties (10%) is applicable and ordinary income tax. Also, the earnings do not accompany the excess at this point.

The IRS has unofficially stated that the plan balance to use in the determination of the top heavy status of a SEP is the contribution made to the plan for the year for which the plan is being tested. Logically, it is not practical to include prior contributions or balances for two (main)reasons. 1. A SEP , including a SARSEP, participant canusually withdraw their contributions at any time( becasue the contributions are immediately 100% vested). ADP/ACP test has been completed 2. The funding vehicle for a SEP is an IRA. This means that the account could include regular IRA contributions would could skew the result of the test.

You're welcome Kirk. Glad I was able to help.

NO, NO , NO Thornton, The IRS is very clear on this. All SIMPLE IRA contributions must be made to a SIMPLE IRA. This is very different from a SEP IRA, where SEP contributions can be made to a regular traditional IRA Refer to IRS Notice 98-4.

If I may.. You cannot ignore the 1099-Rs. The amounts must be reported as a distribution that is non-taxable. Follow my instructions in my response above. This would be the same for a distbrution that is rolled over within 60-days or a direct rollover from a qualifed plan to your IRA, i.e. they are both reportable, but NOT taxable. The instructions to completing the 8606 is very helpful. You may find it here. http://ftp.fedworld.gov/pub/irs-pdf/i8606.pdf One problem most filer find with the recharacterization is that, the conversion and the recharacterization are different figures- they do not balance. This is something the IRS understands, but if it makes you feel better, you could include an explanation that the market value of the IRA was reduced. Hope this helps- if not - just state your question.

Ok. Here are the facts. If a participant is married, the spouse must be the sole primary designated beneficiary of the participants plan assets, unless there is spousal consent to designate someone else. This applies to ALL qualified plans. With regards to the joint and survivor rules, this applies to distributions and loans, not to beneficiary designations. Any plan can be subjected to the JSA ( joint and survivor annuity rules). Usually, pension plans, such as money purchase pension and defined benefit plans are mandated to subjected to these rules, which means that usually, spousal consent is required to take distributions. For profit sharing plans, including 401(k) profit sharing plans, the plan is subjects to the survivor annuity rules ONLY if the employer so elected when the plan was adopted. If the employer elected these rules, then spousal consent is required for distributions and loans.

I am not familiar with the use of Turbo tax, but I assume it mirrors the IRS Form 1040. The amounts on the 1099-Rs should be reported as non-taxable. To do this, report the total on line 15a of the 1040. On line 15b(taxable amount), put zero. This lets the IRS knows that the amount was rolled over, either through a recharacterization or otherwise. You must also file IRS Form 8606 to report the recharacterization

Unlike qualified plans, the termination of a SEP IRA is very simple. The employer should notify the participants that the SEP is being terminated- preferrably in writing. No other action is required. Participants have the option to keep their assets in the SEP IRA, even after the plan is terminated.

No- All contributions to a SIMPLE IRA must be made to a SIMPLE IRA plan. Ber in mind that an employer who maintained a SEP or any other plan for any part of this year cannot establish a SIMPLE IRA for this year- unless the SIMPLE is being established for the benefit of a special gruop of employeees based on a collective bargaining agreement

Vanguard is right. The 402(g) limit applies, i.e. the individual can defer up to $10,500 between the two plans. This rule applies across the board for 401(k), SARSEPS and SIMPLEs. This means that if this individual participated in a SIMPLE and a 401(k), the limit would also be $10,500.

Employee salary deferral $6,500 up or 100% of compensation-whichever is less. ( this was increaded from $6,000) The increase was announced in IR 2000-82 which can be found at http://ftp.fedworld.gov/pub/irs-news/ir-00-82.pdf Employer has two options- matching $1 for $1 up to 3% of the employee's compensation or making a 2% non-elective contribution- The compensation cap of $170,000 applies to the non-elective contribution. IRS publications 590 and 560 provides other details , including examples, on the contributions. These can be found at http://www.irs.gov. Go to forms and publications

The phase-out range for a single individual is actually $95,000-$110,000. You cannot ignore the $10,868, it must be added to your income. The rule you are referring to ,is for purposes of a conversion. Let's say you wanted to convert your $100,000 IRA to a Roth IRA this year. You already have an AGI of $90,000 and the $100,000 will be added to your AGI when converted. We know that if one's AGI is over $100,000, one cannot convert- right? However, the IRS permits individuals to ignore the conversion amount for purposes of determining eligibility to convert to a Roth IRA. If your AGI is $104,000, you may convert only a part of the $2000. The steps for determining the amount permissible can be found in IRS publication 590 at http://www.irs.gov. Your two options. 1. Remove the full $2,000 or the excess contribution amount as a return of excess contribution ( the excess amount will be determined by using the formula given in IRS publcation 590) 2. Recharacterize the full $2,000 or the excess contribution amount to a traditional IRA For last year's contribution, you have until April 15 this year, plus any extensions granted by the IRS to do a return of excess. For this years, you have until April 15 2002. To rechracterize, you have until October 15, following the year for which the contribution was made.

John, I understand your response, but some may mis-intrepret it to be the same rules as the education IRA. The cash that funds an IRA for anyone can come from anywhere or anyone. The requirement is that the person for whom the IRA is established must have compensation. The contribution can be 100% of comensation or $2,000, whichever is less. I am not sure if FICA and FUTA ,social security and Fed tax would be assessed on such a small amount of earnings, but I assume that even it is was, that can be paid out of pocket. Hence, the individual may contribute the full $900 to his IRA

According to the IRS, contributions to a Roth IRA can be taken at any time- tax and penalty free because no deduction was allowed for the contribution. In addition, the IRS established what is referred to as 'ordering rules'. These ordering rules sate that distributions from Roth IRS are taken in the following order -Contributions -Conversions and then -Earnings. if you withdraws $4,000 it will be taxed and penalty free. If you take a distrbution of $4,100, of this amount $4,000 will be tax and penalty free. However, the $100 will be assesed as follows: 1. 10 % penalty because your are under the age of 59 1/2 ( unless you have an exception such as permanent disability, buying a first home, ext. The exceptions are listed in IRA publication 590 which can be found at http://www.IRS.gov. 2 You will be paying ordinary income taxes on the $100 because you have not held the Roth IRA for five years.

The deadline for establishing the education IRA is December 31 for the year for which it is established- the deadline for funding the education IRS is also December 31 - of the year for which the IRA being funded. while the IRS has not stated explicitly the deadline for establising an education IRA, the fact that the IRS Form 5498 for Education IRA contirbutions must be issued to the IRA owner by Janaury 31 supports the December 31 deadline. - This is unlike participant contributions to Roth and Traditional IRAs, for which the 5498 must be issued by May 31. In summary, the last day to fund an education IRA for 2000 WAS December 31, 2000.