IRA Rollovers into 401k plans

[Guest Lex]

A client's attorney has asserted that if rollovers from traditional IRAs (deductible only) are allowed, the Plan Sponsor/Trustee will need to issue Form 5498 annually. I agrue that such is not the case as once rolled over it ceases to be an IRA.

Thoughts?

Secondly, according to EGTRRA, beginning in 2003 employer sponsored plans may provide for deemed IRAs. Does anyone have any good soruces of information on this arrangement? What are advantages/disadvantages? Do the deductible limit rules based on AGI apply? Would a 5498 have to be issued for these?

[mbozek]

Ask him for the authority for such a statement. Once the IRA assets are rolled over to the plan they become plan assets subject to ERISA Reporting and disclosure but are not considered annual additions. 5498 forms are only filed by custodians of IRAs. See Reg 1.408-5.

[Guest Jose Rosario]

Is the attorney's authority IRC §_408(q) (as added by EGTRRA)?

I think the attorney is correct, and that there is also a requirement that the fair market value of any individual account balances in qualified plans attributable to pre-87 deductible employee contributions (DECs) must be reported annually on Form 5498.

In addition, Form 5498 is required to report post-EGTRRA qualified voluntary employee contributions (EGTRRA QVECs), as well the fair market value of any individual account balances in qualified plans attributable EGTRRA QVECs.

Thus, to the extent that it is comprised of DEC and/or EGTRRA QVECs, a qualified plan may be subject to ERISA reporting and disclosure requirements AND IRA custodial reporting requirements.

[E as in ERISA]

Section 408(q) is for deemed IRAs.

[Guest Jose Rosario]

That is exactly right, Katherine, and, if I understand Lex correctly, a deemed IRA is exactly what the client's attorney is discussing.

In addition, my authority for my assertions concerning DECs would be Code Sec. 72 (o)(5) and Code Sec. 219.

[Guest Reywal]

Jose Rosario,

A deemed IRA is a different animal from an IRA that is rolled to a QP.

mbozek is right- as usual

[Guest Jose Rosario]

You are probably right that a deemed IRA is different from a rollover of a IRA to a QP, Reywal, and you're definitely right about mbozek, but (at the risk of mixing apples and oranges), I'm standing by the assertions I made re: DECs, and it seems to me that, in operation, IRAs rolled into QPs will "morph" into something very close, indeed identical, to deemed IRAs....for practical reasons, e.g. separate accounting, 5498 reporting, I don't see why not.

Even if a QP allows rollovers of IRAs, but not QVECs, the practical considerations seem to still be valid.

OK, if you can stop laughing long enough to comment, I'd really appreciate anyone's comments on the issue.

Thanks for the input.

[E as in ERISA]

If there is a 401(k) account in plan, it is subject to various restrictions (no distributions until hardship, 59-1/2, etc). However, if 401(k) money from another plan is rolled over, then it is not subject to those restrictions in the acquiring plan.

I think that the difference between IRA rollover money and deemed IRAs would be similar: the latter would be subject to rules to which the former is not subject.

[Guest Remysis]

It is common to see the EGTRRA change in rollover rules from IRAs described as now permitting rollovers from a "traditional IRA." This is somewhat misleading. Pre-EGTRRA, rollovers were permitted from traditional IRAs to qualified plans, but only from a subset of traditional IRAs -- i.e., those only with contributions whose source was as a rollover from a qualified plan. These "conduit IRAs" were simply traditional IRAs that satisfied this extra condition. In no other way was the conduit IRA different. (See old vs. current IRC sec. 408(d)(3)(a).) In other words, if the 5498 requirement applies post-EGTRRA, it applied pre-EGTRRA too. (And I agree with mbozek that it doesn't now, and didn't then.)

[Guest Jose Rosario]

Remysis, I mostly agree with you, except.....

I maintain that a 5498 was required pre-EGTRRA, and is currently required post-EGTRRA, for deductible employee contributions made under Code Sec. 72(o)(5). See Announcement 85-7.

Conduit IRA rollovers are essentially a rollover from one QP to another, with a stop in a conduit IRA in between, so I agree that there never has been a QP 5498 requirement for rollovers whose immediate source was a conduit IRA, but that originated in a QP.

The conduit IRA custodian would be required to report the Fair Market Value of the Conduit IRA on Form 5498, unless the rollover to the QP took place before 12/31.

Finally, I also maintain that deemed IRAs under Code Sec. 408(q) must meet traditional IRA reporting and disclosure requirements, thus a QP that permits post-EGTRRA deemed IRAs IS subject to a 5498 requirement.

[Guest Remysis]

Jose - I guess I was oversimplifying . . . none of my clients' plans have DECs and none have expressed interest in deemed IRAs, so those are way off my radar screen.

[Guest Jose Rosario]

Remysis, none of my clients have expressed interest in deemed IRAs either, with good reason, I think. I do have some clients with DECs, though; I should disclose that I wish the answer concerning both DECs and deemed IRAs to be that no 5498 requirment exists, but I cannot in good conscience, given my reading of the Code and regs.