Belgarath

Actually, there is another document which I forgot to attach. Hope everyone finds this helpful!

Ok, thanks. Here goes, and I hope it works ok!

It was forwarded to me by a cohort who is a member of the PIX bulletin board - run by Derrin Watson, I think. I don't know how long a document I can put into this - I'm technologically disadvantaged! But it was forwarded to me in a WORD document, so I can cut and paste it into an e-mail if you want to send me your e-mail address. Unless that violates some protocol on this message board.

Just an update - I just saw an analysis posted on another message board, by a couple of attorneys at Fidelity investments, (Michael Dibiase and Weiyen Jones were the attorneys 617-563-3669, and 617-392-8632). Although the analysis was specific to Massachusetts, many of the same issues will arise in other states. The potential implications are worse than I had realized, and while I hope that states will be reasonable about these issues, it gets a bit scary when dealing with a bunch of state legislatures who are looking for revenue...

It's certainly pre-tax for federal purposes. But I can see your point, and Linda's, about potential nightmares for state reporting and recordkeeping purposes. I just don't know any answers. Does anyone know how this is handled at a state level? I seem to remember in the dim and distant past that Minnesota didn't allow the full IRA deduction that was allowed at the federal level. If so, how was this handled? Maybe a CPA out there can give us an indication. I'm glad it's Friday!

The minimum distribution regulations require that you withdraw the IRA distributions from an IRA. Now, if you have two or more IRA's, you must calculate the required distribution for each, but you can take the withdrawal from one or more of them in any amount that you wish. But you can't withdraw your IRA distributions from a qualified plan.

Assuming a state does not have conforming statutes: in a general way, is this really such a big deal? (In relative terms) I don't know what the tax rates are for the states involved, but as long as the employer gets the tax deduction for federal purposes, that's the bulk of it. Then, do they get the deduction for the state income tax up to the level or pre-EGTRRA, or are they precluded from taking a state tax deduction at all? If the former, the difference shouldn't be that great for most employers. If the latter, then it's a much bigger problem. I realize that losing any deduction isn't much fun, but in the overall scheme of things, maybe this isn't really as bad as it might initially sound...

That's correct. Although I believe congressional intent was clearly to increase, EGTRRA didn't do it. So absent a technical corrections change or some other official IRS guidance, we're stuck with the 15% deduction limit.

Pax - the modifications to ERISA 204(h) are part of EGTRRA - section 659. And the penalty for non-compliance is pretty stiff - $100.00 per day, per individual who has not received the notice. I suspect that until some regulations are issued defining the "reasonable" period that the 15 day notice is still fine, but you sure can't go wrong being more conservative!

Hmmm... you've convinced me you're right! I didn't think through the extra step. Suffering from optical rectitis again. Thanks to y'all for pointing this out.

Yes, but make sure your plan document allows it. Many don't.

I understand what you are saying, I just don't happen to agree with the interpretation. I think the regulations did clarify that you only need hit one of the "applicable limits." The new 1.414(v)-1 regulations define an "applicable limit" as any of the following: (i) Statutory limit (ii) Employer-provided limit (iii) Actual deferral percentage (ADP) limit If you check those definitions, I think you'll agree that you don't have to use up your otherwise allowable 403(B) catch-up contributions in order to apply the EGTRRA catch-up.

In a twist on this whole issue, our administrative service contracts are with the employer, not the Trustee. Technically, one could argue that since the employer is obligated to pay the fee, that it is impermissible for the plan to pay it since it is an indirect reversion of assets to the employer, relieving the employer of an obligation to pay. It could only be paid by the plan if the contract is with the Trustee rather than the employer. But I agree with PAX - it is their decision, and if the Trustee directs that it be paid from plan assets, although we don't recommend it, it ain't our problem...

Interesting question. I'm not a Roth IRA expert, so another opinion may be more valid. However, under 408A©(3)©(i) and 1.408A-3, q&A 5, it states that "...modified AGI is the same as adjusted gross income under section 219(g)(3)(A)(used to determine the amount of deductible contributions that can be made to a traditional IRA by an individual who is an active participant ina an employer sponsored retirement plan), except that any conversion is disregarded in determining modified AGI." Not e that the Code does not use the word "modified" whereas the Reg does. If you can hang your hat on the "any" conversion, then you shouldn't have to count it. There may be something else that trumps this specific to the 4-year special conversion, but I couldn't find anything. My opinion is that you wouldn't have to count it.

Yes, he can establish a SEP.

I'm not sure I agree that you must first exhaust any of the other 403(B) catch-up provisions. Seems to me that as long as you run up against a limit, whether statutory or plan-imposed, that you can use an EGTRRA catch-up. Now, it's certainly possible that a non-EGTRRA catch-up will provide the client with a larger catch-up than the EGTRRA catch-up, but that's a separate issue.

Shafter - it seems to me that I read somewhere that California had some non-conforming statutes, and their legislature didn't get one passed this year. But I can't begin to tell you where I saw that - it may have been a link on the "Benefits Buzz" or it may have been somewhere else. Sorry I can't be any more specific!

Gary - can you clarify something for me? When you say that he can contribute to the SEP as well as the qualified plan, I'm assuming this is if he has a prototype SEP, and not the IRS model SEP? I've always understood that if you use the IRS model SEP, then you can't contribute to another plan. Thanks.

The way I read it (EGTRRA) Section 642(B), the two year rule still applies.

Mitchg10 - Your pension plan can generally invest in "non-traditional" investments - such as real estate, for example. You need to be very careful about prohibited transaction issues, and Fiduciary prudence issues, (diversification, liquidity, safety, etc...) but provided you do all this, such investments are permissible, unless the plan document prohibits them - and some do. As far as the IRA's, there is more latitude regarding the type of investments, since it is your own money you are investing. But prohibited transaction issues still apply - so you cannot hire yourself as contractor in your IRA, for example. UBTI applies, but I'm not familiar with the strategies for avoiding it. I'm guessing there may be some, but have no firsthand knowledge. claretcollector - if you haven't had a 1990 Chateau Montrose, sell your soul to get a taste of one! One of the greatest wines I've ever tasted. One of the few I ever bought on futures that worked out...

You might want to consider getting Derrin Watson's book. "Who's the Employer." Best reference source I've ever seen for CG/AFSG questions.

A lot of good points brought up. We primarily handle plans for small employers, and the insurance is at the option of the participant, so typically it is only the keys who elect to purchase it. And they usually keep the policy when plan is terminated. So although I understand the anti-insurance bias that many of you have, I'd just say that you shouldn't automatically discard the idea. There are some situations where it is appropriate and works very well. Many more situations where it isn't!

I agree with Merlin that the EGTRRA committee report does not give the blanket exemption. But maybe I'm wrong, and this is the approach that will be taken. Certainly would be nice. I would look into the possibility of a "John Doe" submission under EPCRS. See Revenue Procedure 2001-17. This would give him the opportunity to see if they would accept a solution that he can handle. I'm personally a bit dubious that they would accept the 50% solution, but perhaps if it is gussied up a bit, and if you have a kindly reviewer, maybe something can be worked out. Good luck!

AndyH - I think you are confusing something here. The only portion that is not deductible by the self-employed person is the taxable term cost (also known as PS58). The balance of the premium is indeed deductible, and has been right along. So, for example, if you have 10,000 premium with $400.00 taxable term cost, the S/E person deducts 9,600.

Good point.