JOH

Yes, you are correct.

Thank you all.

Hi all- looking for some guidance. I have a FICA Alt plan established under a 457plan. The employer made 3 contributions (contributions were done in 2022 and just recently) for an employee who was no longer eligible to participate in the plan. Can the employer request the funds back and can we just send the funds back to them. I wasn't sure if that was allowed for FICA Alt plans. Any guidance would be appreciated.

Hey Peter- Completely agree with your view but in the example you provided, IRA holder sold the asset for FMV. There was no self dealing in which the soon to spouse received special benefits from the purchase of the property. To me it would be no different if the client took an in-kind distribution of the property and reassigned the property into his own name at FMV. Now, say that the soon to be spouse obtained the funds from a loan that was in her and the client's name, that's a different story and I would view that as a PT but if the soon to be spouse obtained the funds by her merits only and purchased the asset at FMV, there is no PT because there is no disqualified party involved in the transaction and no self-dealing. DOL Opinion Letter 88-018A allowed allowed the IRA owner to issue promissory notes to a company that the IRA owner was 48% owner in. The DOL did caution the self-dealing aspect b/c of the IRA owners large ownership in the company that was receiving the loan but allowed the transaction to the LLC despite the fact the IRA owner was 48% owner of the LLC. Greenlee v Commissioner, T.C. Memo 1996-378 also discusses the disqualified party matter (Greenlee was 18% owner and an independent advisor was used to determine the terms of the loan). Based on these these and other cases, it seems like the DOL is pretty firm in its application of a disqualified person and a soon to be spouse would not be a disqualified person. But what might make this a PT would be if there is any self-dealing for the client (e.g. did he or is he part of the funding used to purchase the property, is he giving her a deal) but if self-dealing is not present, than I don't see PT in this case.

I used to work for a custodian that dealt primarily with Self-Directed IRA, so I take a more aggressive approach to this. Looking at various Opinion Letters, the DOL seems to point to 3 elements in determining a PT, is there a Plan, is there a disqualified person, and is there a transaction. If you don't have all three, then to me, there is no PT. In this case, I think you have 2 of the 3 elements (the IRA and the Transaction) but you don't have a disqualified person. I had a situation where a client had lent money (via Mortgage) to her son's then girlfriend (say her name was Jill). Jill kept making regular payments on it but then her son and Jill got married. It was determined that the PT did not occur until a payment (i.e. transaction) was made by Jill as the client's daughter-in-law. So all the payments prior to Jill being the client's girlfriend was fine because she was not a disqualified person, only after Jill was married was she considered a disqualified person and the PT then occurred and was reported in the year in which we received the first payment from Jill as the daughter-in-law. From my perspective, until the IRA is married, any transaction with the soon to be spouse (as long as it is not self-dealing) would not be a PT.

AJC- couple of things. If I recall, as of 2018, you cannot recharacterize a Roth Conversion back to a Traditional IRA. You can only recharacterize Roth Contributions into a Traditional IRA (someone can correct me if I'm wrong). Additional, when you do a Roth Conversion (Traditional IRA to Roth IRA) you can't designate the basis. In your example, client has $1,500,000 or which $36,000 is basis, client converts $1,464,000 into a Roth and leaves $36,000 then .024 of the $1,464,000 or $35,136 is considered after-tax and of the remaining $36,000 in the traditional IRA, $864 of it is considered basis. IRS doesn't let you earmark the conversion but it has to pro-rata (someone can correct me on this as well b/c I'm about 95% sure of this one). As to the backdoor Roth, if he establishes solo(K), why does he want to do a in-plan conversion when he can just make Designated Roth Contributions into the Solo(k). Unless someone else is seeing a reason for your client to make a pre-tax contribution and then do an IRR, I don't see a point. And any IRR creates its own 5 year rule, so not sure if I see a point in the IRR, especially at your client's age. Hope this helps.

Are you looking for the technical aspect of how to report it or just a general overview of what it is?

For the 1099R reporting I think it would be: Box 1- the total gross amount, including the tax withholding Box 2a- the actual amount of the conversion (gross amount minus the tax withholding) Box 4- The amount withheld for taxes Box 7- tax code 2 So the end result shows a gross distribution, the conversion amount in box 2a and the federal withholding in box 4 which should equal to box 1 when those two boxes are added together. no need to to 2 1099R

Piggybacking on this, 408b-2 notice is not required if the plan only has a single participant, right?

But LauraH what tax code would you use to report the distribution? If you use tax code "B" or a combination of "B2" you're saying that the funds were distributed from a Designate Roth account, which the plan doesn't allow, same with tax code "H". If you use tax code "1", "2", "7" or "G" than you're saying funds are coming from a pre-tax money source going to a Roth and the client is subject to taxes? That's why I think it needs to be fixed by the prior custodian.

Has the 1099R been issued by the previous custodian? If one has been issued, then I'm assuming the tax code used would be "G", which is incorrect (because the funds are not in a designate Roth money type). I would see if they would do a corrected 1099R with a tax code "H" and then have the employee open a Roth IRA and have the current custodian send the funds into the Roth IRA. If a 1099R has not been issued, see if they would be willing to code the transactions as a "H" and do the same act.

Thank you both

For ERISA Plans I know that the spouse has to be the designated primary beneficiary and they spouse has to acknowledge that they are not the primary beneficiary of the Plan if someone, other than the spouse is designated. Is that the same requirement for Non-ERISA plans? Are Non-ERISA 403b plans subject to the Retirement Equity Act?

Great, thank you both

Really quick, is a 408(b)(2) and 404(a)(5) disclosure required for Cash Balance and Defined Benefit plans?