Kathy

I'm not sure I agree with the part about waiting until you see if you are eligible for a conversion or not - check into the basics of course - if you are sure your income will be too high or you know you are going to file a separate tax return from your spouse, then don't convert. But, if your income is generally low enough but there is a slight chance it might be too high, you can go ahead and convert now knowing that you can completely undo the entire transaction (recharacterization) by your tax return due date if necessary. If you have to undo the transaction, you should recharacterize back into a rollover IRA and then, since it is as if the Roth conversion never occurred, you can still roll that money back into a qualified retirement plan at some point in the future.

Since the IRA holder does not really own the actual assets that are being traded (they must be owned by the IRA Custodian or Trustee), it is normal to hold the investment account in the Custodian's or Trustee's EIN. The Custodian or Trustee should then do any tax reporting (54493, 1099-R, etc...) to the individual using the individual's SSN. So, I agree that the broker who is directing the trades should use the Bank's EIN but you should also make sure that you are atleast aware of the trades (as you should be the one actually initiating them based on his recommendation.) You have a fiduciary obligation to ensure there are no PTs or other problems with the investments.

You use the age attained on the birthday in the year in question. Let's say my birthday is 8/5/28, my 70 1/2 year is 1999 and my age in 1999 will be 71.

Is it possible that the existing IRA only contained rollover money from a previous employer's qualified plan? If that's the case, I think you can still consider it a conduit IRA and roll the whole thing back into another qualified plan.

I don't think the recharacterizations are limited, only the "reconversions." If you need to recharacterize again because you're ineligible you can. Furthermore, I think the main reason for limiting the number of times people recharacterize and then reconvert is to prevent people from continuously improving their tax situation each time the market changes. Now, with that said, what are the new rules for reconverting? Must he wait until next year to do it again? If so, what a shame.

Although, technically, there must be a written, irrevocable election to treat a contribution made between January 1 and April 15 as a prior year contribution. If there was a written election, it should be irrevocable. If there wasn't, the whole contribution should be treated as a current year contribution. But, with that being said, in today's electronic age, it is difficult to attach a written election to a wire, so many IRA custodians are willing to take a telephone call stating that part of the contribution was for 1998 and part was for 1999.

A Roth is similar to a traditional IRA in that it is a way to set aside the lesser of $2,000 or your earned income per year for your retirement. Both accounts offer certain tax advantages and both offer certain penalties for accessing the money before retirement. In order to contribute to either a Roth or a traditional IRA, you must have earned income. There are additional restrictions on contributions to Roth IRAs if your income is too high. The general benefit of a traditional IRA is that the contributions are often tax deductible when made. You then pay taxes on the money when you withdraw it. (The theory was always that you would be in a lower tax bracket when you retire than you are when you are working.) The benefit of a Roth IRA is that, although you don't get a tax benefit when you contribute, if you follow the rules and allow the money to stay in the IRA and grow, you pay no taxes on the money when it comes out. No taxes on any of the capital gains, dividends, earnings, interest, etc... AS LONG AS YOU FOLLOW THE RULES!!!! The IRS puts out a pulication 590 which you can download from www.irs.ustreas.gov. There is also a web site dedicated to Roth info. I think it's just www.rothira.com[/url. Any mutual fund group, broker or bank can provide you with more information if you need. Welcome to the world of saving and investing! [This message has been edited by Kathy (edited 09-07-1999).] [This message has been edited by Kathy (edited 09-07-1999).]

You would think that would be a simple question to answer, wouldn't you? Well, here goes - First of all, it depends upon your plan. The deductible limit for a Profit Sharing is 15% of "Earned Income." The deductible limit for a Money Purchase is whatever the document requires as a contribution up to 25% of "Earned Income." And what is "earned income"???? To oversimplify, it is your net business income minus 1/2 your self-employement tax and minus your retirement plan contribution. Since you need to know your earned income to figure your contribution and you need to know your contribution to derive earned income, you need algebra - my least favorite subject. Divide the earned income before the contribution by 1+ the plan's contribution rate and that will give you "earned income". Mutliply that by the plan rate and you'll have your contribution. It's easier to remember that 15% is 13.04% of earned income before the contribuion and 25% is 20%. Hope that helps.

No, we never assume - you know what that does don't you??? However, in 15 years I've only met one individual (a farmer) with a tax year of something other than the calendar year. So for most, the 402(g) limit is per calendar year, even if the plan has a different year. And, if the plan is written to permit it, someone could defer $10,000 at the end of one calendar year and $10,000 at the beginning of the next for a $20,000 deferral in one plan year - then comes 415, 404 and all the other fun testing to see if he gets to keep it all!

I agree with all that the 402(g) limit applies to the individual's tax year - but make sure to read the plan document carefully to make sure that it doesn't add similar restrictions to the plan year!

Yes, it is my understanding that, when we do finally amend for GUST, we will have to include any provisions we used for determining HCEs or running ADP and/or ACP tests in the years after the new rules became effective but before the amendments are required. This could mean that your GUST amendments will contain a different provision for each of ?4? years? [This message has been edited by Kathy (edited 08-29-1999).]

First of all, I don't believe there are 2 10% penalties. If you withdraw ffunds from a converted Roth within 5 years of the conversion, then there is a 10% penalty applied unless one of the penalty exceptions applies. Just one 10% penalty, not two. Secondly, the purpose of recharacterizing is to either back out of a conversion that was not allowed (income was too high or married people end up filing separately). Some people are using it if they find they can't afford the taxes on the conversion. However, if the conversion was proper and they can afford the taxes, there is no need to recharacterize.

To clarify, a Rollover occurs after an eligible distribution from the plan. Eligible rollover distributions usually may only occur upon termination of service, termination of the plan, attainment of retirement age, death or disability. If the distribution is an eligible rollover distribution, the individual may either receive the cash and roll it over within 60 days or have the plan administrator send it directly to the new plan administrator or IRA trustee or custodian. A transfer usually occurs from trustee to trustee and there is no option to take a distribution from the plan. As Alan pointed out, this might be because of a merger, spin-off or termination of one 401(k) and then creation of a subsequent 401(k) plan.

I agree with Hillary completely but would also like to add that, since the DOL, like most government agencies meant to protect people, is over worked and under staffed, it might behoove you to get as many affected participants together as possible to make your complaint - there is power in numbers. Also, you may want to hire an attorney (no, I'm not one) to represent you - they may know of more ways to be the "squeaky wheel" that gets the attention (you didn’t really want grease, did you?).

Could you go into a little more detail about the article? I haven't seen anything and probably need to read it!! Thanks!

I don't think there will be a penalty. I think you have 2 situations. First there is the conversion - I am assuming it was done correctly and that the client was eligible for it. Then you have a distribution from a Roth IRA which was timely rolled over (within 60 days) so no tax no penalty. No more distributions from that Roth can be rolled over for 12 months.

Keep in mind that 403(B) only allows for the money to be invested in annuities or mutual funds - no other types of investments are permitted.

The answer to your first question depends on whether or not you ever made non-deductible contributions to your traditional IRA or not. If you have never made non-deductible contributions to your IRA, then you will simply add the $2,000 distribution from it to your ordinary income and pay taxes on it at your highest rate (you indicate 28%) - keeping in mind that it may bump you up into a higher tax bracket and therefore part of it may be taxable at a higher rate. If you have ever made nondeductible contributions to an IRA, then a portion of the distribution will be treated as a non-taxable distribution of your basis and the rest will be taxable. There is no 10% penalty on amounts properly converted to your Roth IRA. Also, your modified adjusted gross income on your joint tax return must be under $100,000 to do this. The additional taxable $2,000 may also increase your state taxes and may reduce your ability to take other certain tax deductions. If you take $2,000 out of a mutual fund account, you may have to pay taxes on any capital gains related to that redemption. If your joint modified adjusted gross income is under $150,000 you can do this. It sounds like you may want to consult a tax advisor or find a good certified financial planner in your area who can help you take a look at your whole situation.

I don't know about amending after the end of the year - and you may only defer compensation you have not yet received so it is too late for the union/owners to contribute for 1998. There is no "ACP" test for SAR/SEP because there are no matching or after-tax contributions, only employee salary deferrals and employer "profit-sharing type" contributions which are allocated to all eligible employees on either a "comp-to-comp" basis or using permitted disparity. The "ADP" test is a little more restrictive than your 401(k) ADP - the HCEs are each limited, on an individual basis, to a salary deferral rate of 125% of the average deferral rate of the non-highly compensated employees.

Furthermore, if there is a concern that the additional contributions would increase the distribution more than desired, why not open another IRA to which the future contributions are made and continue the substantially equal withdrawals from the previously existing IRA(s). I have seen PLRs allowing substanially equal withdrawals based on a single IRA while other IRAs of the same individual remain untouched, growing on a tax-deferred basis.

I'm not sure of the specific answer to your question but the statute usually runs from the LATER of the date due or the date filed so the filing in '94 started the statute running.

Not if it was a regular (up to $2,000) Roth IRA contribution. You can get a return of your regular contributions tax-free, penalty-free. However, don't forget about the value of tax-free growth if you leave the money in the Roth. You might be penalizing yourself if you withdraw it without looking at other sources of income first.

Dave and Escott When aggregating plans for top-heavy testing you must aggregate plans whose determination dates fall within the same calendar year. The top-heavy test for 1998 is going to be done separately for each plan - the one plan's date is 12/31/97 and the other's is 12/31/98 (for the first year) - and then aggregated for subsequent years. for 1999, they will both have the same determination date. As for which plan provides the minimum, you better read the document and see what it provides first.

mwyatt I don't think you have to make a top-heavy minimum contribution for employees who are not participants in the plan. If the plan specifically excludes a class of employees and continutes to satisfy the coverage requirements, these excluded employees are not participants and therefore not entitled to a contribution. If they must be added back to satisfy 410, then they are participants and must receive a contribution if employed on the last day, regardless of hours of service. [This message has been edited by Kathy (edited 06-15-99).] [This message has been edited by Kathy (edited 06-15-99).]

I do think that this decision should be based on your own situation and circumstances. If you have high turn-over in employees, you may end up with a lot of small accounts for which you have to pay additional administrative costs. If they're under $5,000 you may have the ability to "cash them out" if your plan document permits this, but if they are over $5,000 only the participant can decide when the money comes out of the plan.