EGTRRA conformity

[Guest laurad]

I am trying to clear up some confusion regarding the states that have not conformed to EGTRRA. I understand that the extra $500 in 402(g) limits and catch up cont would be subject to state tax until or if these states conform but what about other provisions in EGTRRA like the new rollover rules allowing for rollover of after tax $ and the small bus. plan expense credit for new plans after 2001, would they be applicable in these states or not? Help!!:confused:

[mbozek]

I dont think the the states are going to offer any credit for establishing a pension plan in these tough economic times when revenues are down. Some states may not allow rollovers permitted by EGTRRA so the particpants will have to consult with a tax advisor before dong someting exotic such as a rollover from a 403(B) plan to a qualified plan. Someone has posted a web site devoted to the state law issues under EGTRRA.

[MWeddell]

Also, under the old law the 402(g) limit would have risen from $10,500 to $11,000, so the extra $500 shouldn't be subject to state income tax in nonconforming states.

[david rigby]

I would agree with MWeddell's comment. However, at the 2002 Enrolled Actuaries Meeting, a similar issue was put to the IRS in the Q&A session. Specifically, the question was, if the plan does not adopt the higher compensation limit permitted by EGTRRA (that is, 200K), what is the 2002 limit?

Dick Wickersham replied "$170,000". Almost everyone there disagreed with him, saying "$180,000."

[MGB]

Actually, I have to agree with Wick (I was there, too) under certain circumstances.

If a plan describes a limit in the same manner as the IRS (I don't have LRMs right here, but I think this is the way they do it), it will include language that the changes in limits are "as determined by the Commissioner" and given out in Notices, etc. If such language is in the plan, then all numbers freeze at 2001 levels.

That does not mean that you "must" do this. Once you do not go with the current-law limits (for whatever reason), you have a plan-based limit that can be defined in any way you so choose. So, the plan can incorporate language describing the actual calculation and arrive at what the number would have been if the law had not changed.

Now, in the case of nonconforming states, it depends on what their own law's language is. In this case, the plan language is irrelevant. Most states say that they follow the Code as of a specific date, such as 1/1/2000. The Code states that the adjustment is to be determined from regulations, but then goes on to say that the regulations should follow a certain methodology (third quarter, etc.), but does not give all of the details. To me, this is inconclusive as to whether the numbers can be determined from this language in 415(d) (most CPI adjustments all refer to this section), or if you must recognize regulation 1.415-5 where it says the "adjustment factor is to be determined by the Commissioner," in which case all numbers under the old law froze in 2001.

I do not recall if it was on the boards here or if I heard it through ABC or another source, but someone called the California Tax Authority (or whatever it is called) and they are telling people the 402(g) limit for state purposes is $10,500.

[MWeddell]

Here's the latest American Benefits Council update: http://www.americanbenefitscouncil.org/doc...pdate042602.pdf

[pjkoehler]

California Conformity SIGNED

On May 8, 2002, Governor Gray Davis signed Senate Bill 657 (“SB 657”) and Assembly Bill 1122 (“AB 1122”) which conform California state law to federal tax law. The two identical bills allow for full conformity of the California income and corporation tax laws to the current provisions of the federal tax law, including the recently passed Economic Growth and Tax Relief Reconciliation Act of 2001 (“EGTRRA”).

The following provisions in the full conformity bills are among the more important changes:

· Individuals can pay more into their IRAs, increasing the current yearly limit of $2,000 to $5,000 by 2004.

· The limit for 401(k) contributions and similar contributions for public employees will increase from $10,500 to $15,000 by 2006.

· Rollovers from one type of retirement account to another will be more readily available.

· The limit for 401(k) contributions and similar contributions to 403(B) plans, SEPs, SIMPLE, or 457 plans is increased for individuals who have attained age 50 by the end of 2002 and who have already deferred the maximum allowable for the year.

· The deduction limits for profit sharing plans and SEPs have been increased to 25% of compensation, thereby negating the need in most cases for continued maintenance of money purchase plans.

The changes are retroactive to the beginning of 2002.