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2 Home Office/Small Busines Category 7, Topic 17 Message 1 Thu Feb 28, 1991 A.WEINSTEIN at 22:27 EST Going through a divorce and needing the money to help pay off accumulated bills and attorney's fees, I withdrew my entire IRA. Now I am faced with paying the 10% penalty and the taxes on the entire amount. Is there any other circumstances besides diablility where the penalty would not be charged? The money was needed to support my child. Thank you for your help. ------------ 2 Home Office/Small Busines Category 7, Topic 17 Message 2 Fri Mar 01, 1991 BRAD [Brad Solomon] at 01:41 EST A,. There are only a few exceptions to the penalty, and none of them would apply to your circumstances. The only thing that you can do now (if it's not past 60 days, and IF you have the money, which I doubt), is to roll it over. In case you hear that medical expenses qualify, let me tell you in advance that they don't qualify for IRAs. Sorry, but that's the breaks. By the way, form 5329, which attaches to your 1040, is where you report the penalty. It also lists the exceptions. Brad Solomon ------------ 2 Home Office/Small Busines Category 7, Topic 17 Message 3 Fri Mar 01, 1991 J.SLICKJR [Jack-CPA] at 22:13 EST A. Weinstein, Brad's right as far as the exceptions, and you probably are not going to be able to avoid the penalty. But humour me a little and answer a few questions. 1)Are you filing a joint return for the year in question? 2) Have you withdrawn the money already? 3) If 2) is yes, has sixty days elapsed since you took out the money. 4) Is the divorce final or still in the negotiating phase? Answer these for me and I'll try to get back to you tomorrow. Jack ------------ 2 Home Office/Small Busines Category 7, Topic 17 Message 4 Sat Mar 02, 1991 A.WEINSTEIN at 22:08 EST Thank you very much for your response. Yes, we are filing a joint return...the divorce is not final..we are still in the negotiating phase! And yes, 60 days has elapsed and the money is gone!! It went for a combination of paying off all the accumulated bills (THAT is one of the reasons for asking HIM to leave) and to pay the lawyer. He laughed when I told him how much he has to contribute to pay the tax liability!...I will have my attorney add it to the other items he SHOULD contribute to...but I guess I will just have to now start a new bill and pay it out. We never had any money...only bills and since he left, I got a job - low-paying but steady - my daughter is in day- care and I WAS very pleased that I got rid of all the charge cards and charges. It IS very discouraging! But I'm sure that I'll work it out. Thank you again. ------------ 2 Home Office/Small Busines Category 7, Topic 17 Message 5 Sun Mar 03, 1991 J.SLICKJR [Jack-CPA] at 00:29 EST A. Weinstein, I'm sorry to here that, one of the CPA's in our office just went through the same situation. She's still paying off joint bills. For those of you who were wondering why I asked the questions, in a divorce settlement transfers of property are tax free. If it was possible to transfer the IRA to the spouse and a joint return wasn't filed then the penalty upon withdrawal would be paid by the spouse. Jack ------------ 2 Home Office/Small Busines Category 7, Topic 17 Message 6 Wed May 29, 1991 W.SILVERTHOR [Bill] at 02:55 EDT Is this topic still alive? Hmmm - had a question that might apply - I'll see what happens. If I have 50K in IRA funds (rolled over 401K's and such from former employers) but also am really strapped with double mortgages and car payments and all ... can I have my IRA "invest" in my home and in essense pay off one of my mortgages with the IRA funds? What restrictions if any are there to keeping my own home from being a real estate "investment" along with the other funds (some of which are RE mutuals ...) I know the tenant really well ....... hehe Bill ------------ 2 Home Office/Small Busines Category 7, Topic 17 Message 7 Wed May 29, 1991 JSLICK [JACK] at 09:39 EDT Bill, I can't look up the code section right now (I'm at home) but the type of transaction your describing is not allowed by the IRS. The penalty for doing so is 5% per year of the amount, and if not timely corrected the IRS can impose a penalty of 100%. (Can you say ouch!). I believe the code section is 4975. In this case your better off liquidating the IRA's and paying the tax and 10% penalty. Hope this helps. Jack ------------ 2 Home Office/Small Busines Category 7, Topic 17 Message 8 Wed May 29, 1991 W.SILVERTHOR [Bill] at 23:43 EDT Jack - 100% sheesh!!! Why? That doesn't make since if I can take it out and pay taxes plus 10% ? Why specify the investment mode? Bill ------------ 2 Home Office/Small Busines Category 7, Topic 17 Message 9 Fri May 31, 1991 JSLICK [JACK] at 22:42 EDT Bill, I was just reading from the RIA tax guide I have here at home to help me with unusual questions. I believe the point the IRS is trying to make is that they don't want you making a loan to yourself from the IRA. If your going to use the funds, they want it to be in a withdrawal. Plus, if you could make loans, don't you think everyone who has an IRA would be doing so?:> Jack ------------ 2 Home Office/Small Busines Category 7, Topic 17 Message 10 Sat Jun 01, 1991 W.SILVERTHOR [Bill] at 10:34 EDT Jack - Very possibly ..... I know that they need to regulate it for that reason .. but since I was going to live in a RE Investment, different than just a loan to pay off credit cards etc., I thought there might be an angle. Bill ------------ 2 Home Office/Small Busines Category 7, Topic 17 Message 11 Wed Nov 13, 1991 W.ELLIS5 [BAR] at 19:12 EST I have a question regarding the K401 plan. I understand that you have an option of having the tax withheld during dispersement. If you choose not to have the tax withheld, then you have 60 days from dispersement to roll this money over into another tax defferred account. Is this true? If the above is true. What type of tax defferred account are you obligated to use? Can you invest in any type of tax exempt account, or must it be a tax defferred account? This situation occurred to my daughter over a year ago. She asked that the tax liability be withheld. When she recieved this dispersement, minus the tax owed, she reinvested the money in an IRA. When she filed last years tax return, she asked for the tax that was withhold to be part of her refund. It has not been returned so far. Another daughter will be recieving her K401 dispersement in February 1992. She does not want to make the same mistake(s) our other daughter did. Any help, as always, is much appreciated. BAR ------------ 2 Home Office/Small Busines Category 7, Topic 17 Message 12 Thu Nov 14, 1991 BRAD [Brad Solomon] at 03:02 EST Bar, You have 60 days from when you get the check, to roll over your 401K money. I am assuming that it was a complete distribution of the plan either because the plan was terminated, or she left the job (I imagine it was the second reason). The money can be deposited into her next company's retirement plan, or into an IRA. There are some benefits to keeping it in company retirement plans, such as: eligible for preferential lump sum treatment at retirement, eligible (tax wise, not necessarily plan rules) for borrowing. If she wants to retain those benefits and is not going to another job with a plan, she can roll it into a specially earmarked rollover IRA (and do not comingle with other IRA funds). The amount to be rolled over is the entire distribution. Any amount not rolled over is taxable, plus an additional 10% penalty. If withholding is taken out and she still decides to roll over the money, she'll have to add her own funds to make up for that withholding. The withholding will be credited to taxes paid on the return, but, remember that if she didn't roll over the full amount (because of the withholding), that excess is subject to tax and penalty. Brad ------------ 2 Home Office/Small Busines Category 7, Topic 17 Message 13 Thu Nov 14, 1991 K.PHILLIPS4 [Ken P] at 20:05 EST the 10% penality for early withdrawal of an IRA (prior to age 59 1/2) can only be avioded if........ The IRA is rolled-over within 60 days of being withdrawn. The receipient is Disabled. She is not. It was inherited it. Did she? outside of those two I know of no other ways to avoid the penalty for a lump sum withdrawal. Ken ------------ 2 Home Office/Small Busines Category 7, Topic 17 Message 14 Fri Nov 15, 1991 BRAD [Brad Solomon] at 02:18 EST Ken, Are you asking in relation to the previous question, which was a 401K, or as an independent question? There are other exemptions to the penalty for retirement plans other than IRAs. But, I'll answer the question as you asked it: In addition to death or disability, money withdrawn from an IRA and not rolled over can only avoid penalty if it is withdrawn in "a series of substantially equal periodic payments (not less frequently than annually) made for your life (or life expectancy) or the joint lives (or joint life expectancies) of you and your designated beieficiary". The payments must continue for at least 5 years, and until at least age 59 1/2. Brad ------------ 2 Home Office/Small Busines Category 7, Topic 17 Message 16 Sat Nov 16, 1991 BRAD [Brad Solomon] at 03:37 EST BAR, It is not necessary to have tax withheld from the distribution. If she plans to roll the money over, she can indicate that fact and the company will not withhold anything. Two other exceptions to the penalty exist for non IRAs. Although I doubt if they apply, I'll mention them here: - Age 55 and she received the money due to separation from service (retired, quit, fired, etc.) - IF she had deductible medical expenses in excess of 7.5% of her AGI (whether or not she itemizes deductions), that excess can offset dollars subject to the penalty. Brad ------------ 2 Home Office/Small Busines Category 7, Topic 17 Message 18 Sat Nov 16, 1991 T.RUEB at 20:06 EST Brad, If you recieve a check when attempting to transfer funds from Company A 401K to Company B 401K, isn't this then considered taxable income. Should the funds be transfered electronicly from one account to another? ------------ 2 Home Office/Small Busines Category 7, Topic 17 Message 19 Sun Nov 17, 1991 BRAD [Brad Solomon] at 03:18 EST T.RUEB (use NAM to give yourself a nickname), If you receive a check, then it is considered a rollover. They will issue you a 1099R, but it will not be taxable (you report it as pension money received, but the taxable amount will be zero). I would recommend including a note with the return indicating that it was rolled over (when and where). It is not likely that one company will transfer the money to a second one in the case of a 401K. Brad ------------ 2 Home Office/Small Busines Category 7, Topic 17 Message 20 Sun Nov 24, 1991 PEACHIE at 20:31 EST T.Rueb: Just a small comment to make about the IRA Rollover. There is no need to send a note with the return. In the left margin next to the Pension line, just write in ROLLOVER. That's all that's needed. Don't give IRS any more than they ask for. Sorry I'm just getting around to reading this post. Hi Brad. Peachie. ------------ 2 Home Office/Small Busines Category 7, Topic 17 Message 21 Sat Feb 03, 1990 S.WOOD3 (Forwarded) I am a member of the US military on active duty. My wife is employed. We have two children. We are filing a joint return (1040) with no itemizing. Line 2 on the IRA contribution worksheet is 45,000. My has no pension plan at her job; I am covered by the military retirement scheme... I don't actually pay anything towards the pension and will only benefit from it if I hang around... er, work for at least twenty years. I believe this means that neither of us is covered by a pension plan. Can we deduct the full $4,000 IRA contribution? ------------ 2 Home Office/Small Busines Category 7, Topic 17 Message 22 Sat Feb 10, 1990 TAXES (Forwarded) If the pension box is checked on husband's W-2, (it probably is) he is covered by a retirement plan. The chart says that if your income is over $40000. but under $50000. that partial IRA deduction is allowed and reference is made to worksheet 2 in the instructions for determin- ation of the deductible and non- deductible IRA contribution. Non- deductible IRA contribution requires completion of form 8606 to prevent taxation of same at future time of distribution. See page 14 and 15 of 1040 instructions which begins with heading "adjustments to income." ------------ 2 Home Office/Small Busines Category 7, Topic 17 Message 23 Wed Jan 01, 1992 R.C.ROGERS [Bob Rogers] (Forwarded) I've left a big company with 401K and am going to a small, new company with no pension plan (yet). Is an IRA the only tax-deferred retirement savings plan available to me? ------------ 2 Home Office/Small Busines Category 7, Topic 17 Message 24 Thu Jan 02, 1992 JSLICK [JACK] at 17:09 EST Bob, The IRA would be the only tax deductible method of funding retirement. There are still any number of tax deferred options available, like annuities, etc. They don't offer the deduction but at least they do defer the tax on the earnings. Jack ------------ 2 Home Office/Small Busines Category 7, Topic 17 Message 25 Sat Jan 04, 1992 R.C.ROGERS [Bob Rogers] at 23:15 EST I'm going to put my 401K disbursment into two IRAs, along with money from another IRA I want to close out. Is this allowed? As I mentioned above, I don't plan on putting this money into any future employer's 401k plan. ------------ 2 Home Office/Small Busines Category 7, Topic 17 Message 26 Sun Jan 05, 1992 JSLICK [JACK] at 21:54 EST Bob, It would be cleaner to roll it over into one IRA, any particular reason you want to do it to two? I believe you can do so, but why split it? Jack ------------ 2 Home Office/Small Busines Category 7, Topic 17 Message 27 Sat Jan 11, 1992 GREG.LEWIS [Greg] at 14:55 EST Jack, I was thinking of doing the same thing as Bob with my 401k distribution from my old company. My reasoning is that the increased dollar ammount in my "combined" IRA/401k would allow me to by 100 share lots of higher priced stocks thus minimizing the commission minimums and/or percentages. Does this sound like sound reasoning to you ? Thankx for any input, Greg ------------ 2 Home Office/Small Busines Category 7, Topic 17 Message 29 Sat Jan 11, 1992 JSLICK [JACK] at 22:23 EST Greg, I don't see a problem with it. But are you talking about spliting the IRA or just buying shares of stocks with the rollover? Jack ------------ 2 Home Office/Small Busines Category 7, Topic 17 Message 30 Sun Jan 12, 1992 R.C.ROGERS [Bob Rogers] at 21:46 EST I was thinking that it might be wise to invest in a couple of funds instead of putting all my nest eggs in one basket. Something like 60% split between 2 growth funds and the remaining 40% in government bond fund(s). Can anyone tell me what if I, as an employee of a business that doesn't have a 401k plan, have access to any sort of "salery reduction" retirement plan? I've heard of Keoghs, 403bs, and SEPs, but I'm not sure exactly what they are or if they apply to my situation. I'll have some input into the benefit package my new employer is putting together, so if anybody knows of something I could suggest that would help employees with retirement savings but that wouldn't cost the company, I'd appreciate hearing about it. ------------ 2 Home Office/Small Busines Category 7, Topic 17 Message 31 Mon Jan 13, 1992 BRAD [Brad Solomon] at 04:37 EST Bob, 401(k) is a voluntary salary deferral (AKA Cash Or Deferred Arrangement, or CODA). The employee voluntarily elects to defer some salary under this plan. There does not have to be any employer contribution, but there are top heavy rules. To get around these, many employers encourage participation by matching some funds (they also do this to provide retirement funds to the employees). From what I understand, this plan costs more to administer than a standard retirement plan. 403(b) is a retirement plan for employees of non profit organizations, schools, etc., and wouldn't apply to you. Keoghs (HR-10 plans) are self employed retirement plans, available to sole proprietorships or partnerships. They are funded by the business. SEPs are simplified Employee Pension plans. They are usually used by self employed individuals to provide for themselves and their employees, without the administration costs of other plans. If your employer doesn't provide any of these to you, then the IRA is all that is available to you to get a deduction now. You can also look into annuities to shelter income. Brad Solomon Marlton, NJ ------------ 2 Home Office/Small Busines Category 7, Topic 17 Message 32 Mon Jan 13, 1992 JSLICK [JACK] at 19:13 EST Bob, 401K and certain SEPs are the only ways I know of to contribute before tax dollars to a retirement plan. Either of these ways will end up costing the company some money. Jack ------------ 2 Home Office/Small Busines Category 7, Topic 17 Message 33 Wed Jan 15, 1992 GREG.LEWIS [Greg] at 19:53 EST Jack, I was going to take the 401k plan distribution I have recieved and adding it to my current IRA to make up one account. Greg ------------ 2 Home Office/Small Busines Category 7, Topic 17 Message 34 Thu Jan 16, 1992 BRAD [Brad Solomon] at 02:05 EST Greg, I don't remember all the past details, but if you have a 401K distribution eligible for rollover, then you can roll it into an existing IRA. If you keep it in a separate, rollover account (and don't "contaminate it" with other funds, then you would be able to roll it into a subsequent employer's plan. But, if you don't plan to do that, and want to avoid double trustees' fees, and perhaps have more money available for larger investments, you can roll it into an existing IRA. Brad ------------ 2 Home Office/Small Busines Category 7, Topic 17 Message 35 Fri Feb 07, 1992 D.HEWITT11 [Don] at 00:09 EST In 1989 and 1990, I had excess contributions to an IRA. If filed amended federal returns to pay the 6% tax on these contributions. No part of my contributions for these years was deductible. In 1991, I withdrew the excess contributions. Do I have to include this distribution in my income for 1991 and pay the 10% penalty. I doesn't seem right since I have already paid income tax on this money and have paid the 6% excise tax. Sorry for the errors in this message. ------------ 2 Home Office/Small Busines Category 7, Topic 17 Message 36 Fri Feb 07, 1992 BRAD [Brad Solomon] at 03:08 EST Don, The excess contribution must be withdrawn, along with the earnings on that money. There is no tax or penalty on the excess contribution. The earnings are subject to regular tax, but not the 10% penalty. How did they report the distribution? Brad ------------ 2 Home Office/Small Busines Category 7, Topic 17 Message 37 Fri Feb 07, 1992 D.HEWITT11 [Don] at 19:59 EST Brad, The distribution was reported on the 1099-R as code P. Are you saying that only the earnings part of the distribution are taxable? Thanks for your interest. Don ------------ 2 Home Office/Small Busines Category 7, Topic 17 Message 38 Sat Feb 08, 1992 BRAD [Brad Solomon] at 02:16 EST Don, I was asking for all the info on the 1099, but that is some help. Code P indicates that they reported the excess contributions plus earnings. - Did they report anything in box 2a? If so, what did it represent (excess plus earnings, earnings)? - Did they check the "not determined" box in 2b? - Was any other box filled in (other than 1)? Perhaps 5? Brad ------------ 2 Home Office/Small Busines Category 7, Topic 17 Message 39 Sat Feb 08, 1992 D.HEWITT11 [Don] at 22:17 EST Brad, Box 2a is blank. Box 2b has the "Taxable amount not determined" checked. Boxes 1 and 5 have the same amount (the amount of the excess contributions plus earnings that I withdrew). Come to think of it, maybe box 5 means something here. What do you think? Don ------------ 2 Home Office/Small Busines Category 7, Topic 17 Message 40 Sun Feb 09, 1992 BRAD [Brad Solomon] at 07:53 EST Don, That doesn't look quite proper - in fact, according to the instructions on the back of copy C, box 5 is explicitly NOT s'posed to show contributions to an IRA or SEP. You might want to call them and see what they say, although they're likely to decline from offering advice and tell you to ask your tax advisor. I'd probably put the entire amount on line 16A, and the earnings on 16B. Does anyone else care to comment? I'll summarize in case they do (correct me if I have the facts wrong, I'm going from memory: Excess IRA contributions, on which the penalty was paid, were refunded, along with the earnings on them. A 1099R was issued for the total withdrawl, with that number appearing in box 1 (gross distribution) and box 5 (employee contributions), and the box "Taxable amount not determined" checked. I recommended reporting the full distribution on the line for IRA distributions (1040 line 16A), showing the earnings only as the taxable amount (line 16B). Jack, anyone? Brad ------------ 2 Home Office/Small Busines Category 7, Topic 17 Message 41 Tue Feb 11, 1992 JSLICK [JACK] at 02:05 EST Brad, Yeah that's the way I'd handle it especially with the 1099 for the full amount. Jack ------------ 2 Home Office/Small Busines Category 7, Topic 17 Message 42 Thu Mar 12, 1992 LSP.MEYERS [John] at 19:03 EST Here's my question. I used to have an IRA with a mutual fund. I would contribute a set amount every month, but later decided to drop out of the fund and also IRAs. Now I have to figure out how I am supposed to fill out this year's tax forms. Do I claim the entire distribution and take the 10% penalty on all of it (the 60 days have passed) or do I only pay on the portion that I had invested as of the last year? If I have to claim the whole thing, can I at least deduct this years payments as an IRA contribution? Thanks in advance, John ------------ 2 Home Office/Small Busines Category 7, Topic 17 Message 43 Thu Mar 12, 1992 JSLICK [JACK] at 23:46 EST John, Your contributions for this year shouldn't have been included in your premature distribution from your IRA. If the mutual fund goofed and included that in your distribution you want to get that changed. You can get a refund of amounts contributed for the year up to the due date of your return including extensions for that year. Those refunds wouldn't be subject to the 10% penalty. The rest would be subject to the penalty unless you rolled them over which it doesn't sound like you planned on doing that.:> Alternatively you can report the distributions that pertain to prior years and attach a reconciliaton to the return that shows why you haven't reported any amounts that pertain to contributions for the year. You will probably have a discussion with the IRS at a future date though if you choose this method rather than getting the 1099 corrected. Good luck whichever way you decide to go. Jack ------------ 2 Home Office/Small Busines Category 7, Topic 17 Message 44 Thu Mar 19, 1992 W.ELLIS5 [BAR] at 18:57 EST I think a have this right, but I want to run this by you people for you thoughts and/or suggestions. In 1990, my daughter was terminated from her job and received her 401K distribution. She rolled this amount over into an IRA. During 1991, she withdrew a portion of the IRA. This amount is entered on line 16b of the 1040 as taxable income and also on line 8a of form 5329 to calculate the 10% penalty. In 1991, she also received a distribution from her former employer for stock investments that were paid for by the company. This was entered on line 17b of form 1040 and also included with the IRA amount mentioned above on line 8a of form 5329. Is the above correct and more importantly, are both amounts listed subject to the 10% early withdrawal? Do any other forms have to be filled out to satisfy the IRS requirements? Thanks in advance, BAR ------------ 2 Home Office/Small Busines Category 7, Topic 17 Message 45 Thu Mar 19, 1992 JSLICK [JACK] at 21:05 EST Bar, Sounds like you've got it covered. The way you are handling it is the way I would handle it, and to my knowledge, other then the normal forms that would go with the 1040 you've got all the forms you need to file. Jack ------------ 2 Home Office/Small Busines Category 7, Topic 17 Message 46 Fri Mar 20, 1992 BRAD [Brad Solomon] at 03:45 EST Bar, I'd also include on line 17A the amount of that rollover, but not on 17B. So line 17A would be the sum of the amounts distributed by the company. Brad Solomon Marlton, NJ ------------ 2 Home Office/Small Busines Category 7, Topic 17 Message 47 Fri Mar 20, 1992 W.ELLIS5 [BAR] at 07:53 EST Thanks Jack and Brad, I just have one other question. Why is the stock distribution suject to the 10% penalty. Was this classified as an Individual Retirement Arrangement too? I can understand including this distribution as income and taxed at the regular rate. but I don't know why it qualifies for the 10% penalty clause. Brad, the above mentioned stock distribution was not rolled over. Should the total amount still be listed in 17a (total distribution) and the same amount listed in 17b as the taxable amount. Thanks alot for the quick responses. BAR ------------ 2 Home Office/Small Busines Category 7, Topic 17 Message 48 Sat Mar 21, 1992 BRAD [Brad Solomon] at 01:49 EST BAR, Money taken early from qualified returement plans is subject to that penalty. There IS an exception that may apply, although I doubt it. Do you have deductible medical expenses in excess of 7.5% of your Adjusted Gross Income? If so, that can reduce, dollar for dollar, the amount of the distribution subject to penalty, but only the expense in excess of that 7.5%, and not for an IRA distribution. See form 5329 for details on the penalty and exceptions - you'll need it for the penalty, anyhow. Re: line 17. Let's make up some numbers to illustrate: You received and rolled over $1000, and you also received stock worth $600. They reported both amounts to you on 1099R, probably on two separate forms. Line 17A: $1600. Line 17B: $600. Also, the $600 gets reported on the 5329, generating a penalty of $60. Brad Solomon Marlton, NJ ------------ 2 Home Office/Small Busines Category 7, Topic 17 Message 49 Sat Mar 21, 1992 W.ELLIS5 [BAR] at 15:56 EST Brad, Re: Your messages #48. First, as you thought, there are not enough deductible medical expenses in excess of 7.5%. Second, one more time, please, on the IRA and Stock distribution and early withdrawal. A 401K was received in 1990 and rolled over into an IRA. No early withdrawal was made in 1990 and the rollover was reported on the 1990 tax return. In 1991, a stock distribution was received and not rolled over, but placed into a savings account. During 1991, some monies were drawn from the IRA that was established in 1990. This money is an early withdrawal and subject to the 10% penalty and is being reported as such on form 5329 and line 16b of form 1040 as taxable income. The entire amount of the Stock distribution received in 1991, which was not rolled over, is also being reported on form 5329 as subject to 10% penalty and also on line 17a and 17b showing the Stock distribution and the entire amount of that distribution as being taxable income. My questions are: 1. Is the above correct? 2. I understand that the early withdrawal from a retirement account is subject to the 10% penaly, but is the Stock distribution also subject to the same penaly. It appears that way when reading the instructions, but doesn't tell me why. Thanks Brad(who was over heard saying) for all of your time in helping me out. It is greatly appreciated. BAR ------------ 2 Home Office/Small Busines Category 7, Topic 17 Message 50 Sun Mar 22, 1992 JSLICK [JACK] at 00:04 EST Bar, The way you are handling it is correct. The Stock distributed is another form of a retirement plan and as Brad said unless the exceptions are met it would be subject to the penalty. The reason for this is that no tax was paid when the stock was purchased out of company funds for your daughter. So in effective the tax was deferred. Its not just early distributions from IRA's that are subject to the penalties but early distributions from any retirement plan subject to certain exemptions. Unfortunately none of the exemptions apply here so all of the early distributions except for the rollover are taxable. Sorry. Jack ------------ 2 Home Office/Small Busines Category 7, Topic 17 Message 53 Mon Mar 23, 1992 M.MCGUIRE12 [MARTY] at 21:52 EST TO: A. WEINSTEIN, RECV'D 10% DIST. CHECK DATED 11/15/91 FROM FROZEN IRA IN CLOSED R.I. CREDIT UNION ON OR ABOUT 11/30/91 WITH NO ROLLOVER INSTRUCTIONS, ETC. RECEIVED 1099-R FORM WITH #1 IN IRA/SEP BOX. ROLLED OVER ENTIRE CHECK ON 2/12/92. IRS SAID TO INCLUDE ENTIRE AMOUNT IN ADJ. GROSS PLUS PAY 10% PENALTY FOR GOING BEYOND 60 DAY ROLLOVER PERIOD. I QUESTION THIS BECAUSE I NEVER CASHED THE CHECK AND NEVER RECEIVED ANY ROLLOVER INSTR. FROM PLAN ADMIN. I WANT TO TREAT IT AS A ROLLOVER TO AVOID PENALTY, ETC. AND IRS DOESN'T KNOW WHEN I ACTUALLY RECEIVED CHECK. WILL I END UP DOING HARD TIME? REGARDS, MARTYxD ------------ 2 Home Office/Small Busines Category 7, Topic 17 Message 54 Tue Mar 24, 1992 JSLICK [JACK] at 22:36 EST Marty, The rollover period begins the day the check was issued. Even allowing for the fact that the check didn't get to you until 11-30 you still didn't get it rolled over in time. The IRS is right here, you need to include the distribution in income, and pay the 10% penalty tax on it too. Jack ------------ 2 Home Office/Small Busines Category 7, Topic 17 Message 55 Wed Mar 25, 1992 K.PHILLIPS4 [Ken P] at 23:39 EST There was an article in the WSJ today, 3/25/92, that addresses the business of receivers of failed insurance companies disbursing funds from an IRA. A special Tax Court Judge held that if they are NOT ROLLED-OVER the early withdrawal penalties apply. The argument that was rejected in this case was that the IRA ceased to exist when the receiver closed the account and disbursed the funds. Ken ------------ 2 Home Office/Small Busines Category 7, Topic 17 Message 56 Thu Mar 26, 1992 BRAD [Brad Solomon] at 03:29 EST Ken, I was going to mention that WSW article - you beat me to it. <g> I couldn't understand that position that the IRA had ceased to exist. If that had happened, wouldn't the entire amount have been subject to tax and penalty? That sounded like a less advantageous position to take. ??? Brad Solomon Marlton, NJ ------------ 2 Home Office/Small Busines Category 7, Topic 17 Message 60 Sat Apr 04, 1992 L.WILKE [Larz] at 21:49 EST HI Tax Gurus. I have a question which may be a little too specific for this topic but let me give it a shot anyway. I would like to take an "Early Distribution" from my IRA. In other words prior to age 59 1/2. My age is 56. IRS Pub 575 talks about an IRS approved method/s for doing this without incurring a penalty, by "annuitizing" at least annual payments for a minimum of 5 years. Anybody know what the "approved" methods are? Local IRS office could offer no help beyond that in the booklet, which had no specifics. Thanx, Larz ------------ 2 Home Office/Small Busines Category 7, Topic 17 Message 61 Sun Apr 05, 1992 BRAD [Brad Solomon] at 06:44 EDT Larz, You either move the IRA to an annuity and start the payouts that will pay you the same payment over your life expectancy, or you can leave the money where it is, but make withdrawals on that same basis. I believe you can also refigure the required payment every year, using your new life expectancy plus the earnings, if you want to withdraw less in the later years (if you are using the second option). That is because, for every year further that you live, your remaining life expectancy does not quite go down a full year. Brad Solomon Marlton, NJ ------------ 2 Home Office/Small Busines Category 7, Topic 17 Message 62 Sun Apr 05, 1992 L.WILKE [Larz] at 23:02 EDT Thanx Brad, Do you know where I might get the formulae for calculating how much one can withdraw each year? Seems to me there must be some access to this info, perhaps in the public library? Haven't checked there yet. Larz ------------ 2 Home Office/Small Busines Category 7, Topic 17 Message 63 Mon Apr 06, 1992 BRAD [Brad Solomon] at 01:14 EDT Larz, You can probably get annuity information from an insurance company, or other firms that deal with them. Your bank may also have information, and/or whoever is the trustee. There are also life expectancy tables in the back of IRS publication 590 - IRAs. You can get that by calling the IRS at 1- 800-TAX-FORM (829-3676). Brad Solomon Marlton, NJ ------------ 2 Home Office/Small Busines Category 7, Topic 17 Message 65 Sun Nov 01, 1992 BRAD [Brad Solomon] at 00:25 EST Not quite an IRA question, but 401K, which is close enough: I just received a distribution from my 401K - well, most of it. The portion that was in company stock will be coming in stock certificates. The summary listed cost basis, not market price, of the stock. It came up with a total distribution (cash which I received, and stock), less "unrealized appreciation," coming to the taxable distribution. To me, this means that the amount that I roll over is the cash equivalent of that cost basis, not the stock, and not the total distribution before the unrealized appreciation. Also, my basis for capital gains is that lower number. Is this true? Also, is the date acquired for capital gains, the date of the distribution? Thank you for any answer. Brad ------------ 2 Home Office/Small Busines Category 7, Topic 17 Message 66 Sun Nov 01, 1992 JSLICK [JACK] at 19:10 EST Brad, Your interpretation of the rules is right as long as there were not any contributions by you to the plan used to purchase stock. It sounds like this was the case and your gain when the stock is eventually sold would be capital gain. Long-term up to the amount of unrealized appreciation, and then the remainder of any gain is subject to the normal holding period rules at the time of sale. Jack ------------ 2 Home Office/Small Busines Category 7, Topic 17 Message 67 Mon Nov 02, 1992 BRAD [Brad Solomon] at 05:13 EST Jack, It was a 401K plan. I did contribute, although all with pre-tax money. Was that what you meant? Also, how do I show the LT/ST split? Show the distributed basis without a date, or put it on some other line? I just looked at a 1099R, and see that there is a separate line for Net Unrealized Appreciation (NUA), but it isn't all that clear. I followed the trail to 4972 and pub 575. If I elect to pay tax on the NUA now, since I don't qualify for 4972, where do I elect it? Schedule D? Page 1 - pension income? Is it subject to the 10% penalty? Is it eligible (or required) to be rolled over? Thanks, and I'm sorry that I have so many questions. Brad ------------ 2 Home Office/Small Busines Category 7, Topic 17 Message 68 Mon Nov 02, 1992 JSLICK [JACK] at 22:16 EST Brad, How to make the election to include the unrealized appreciation in income has not been explained yet by the IRS. Presumably you make the election by including the appreciation in income. To report it on Schedule D I'd just show the appreciation part under long-term and have the date purchased be "Various". That always works for me.:> If you pay the tax on the NUA it should be reported on the pension line and would not be subject to the penalty tax as long as the stock is included in the rollover. As far as the split goes any gain up to the total NUA would be shown as long-term. After you havve reached that amount any further gain would be considered long-term or short-term based upon the amount of time you actually held the securities. I have to assume that only employer contributions were used to purchase the stock since if your contributions were used also some of the gain would have to be recognized by you now. Apparently your contributions were invested in other vehicles or funds. If you had to worry with this your plan administrator would have informed you of it. jack ------------ 2 Home Office/Small Busines Category 7, Topic 17 Message 69 Tue Nov 03, 1992 BRAD [Brad Solomon] at 01:16 EST Jack, Maybe they'll send along additional tax info with the stock certificate - I've only received the summary and cash so far. The tax info with that didn't cover the stock at all. They definitely included my own pretax, since that was exactly double their matching fund, which it should have been. The "cost" column exactly matched the taxable amount (after adding the other funds). What are my options on rollover? Roll over stock, using current market value (effectively) (not a good choice, since I plan to roll it into another 401K)? Roll over equivalent cash? In that case, do I use the taxable amount, the market value of the distribution, the value of the stock when the stock is finally sent (a bit higher)? Brad ------------ 2 Home Office/Small Busines Category 7, Topic 17 Message 70 Wed Nov 04, 1992 JSLICK [JACK] at 19:50 EST Brad, No you can't roll over equivalent cash. If you want to use cash your only option is to sell the stock and rollover the proceeds. This is specifically allowed, but the contribution by you of the cash equivalent and keeping the stock is specifically disallowed. Your options are pretty limited roll it over to the IRA or new 401K plan, or pay the tax and keep it. Rollover amount is the cost value of the account provided by the plan administrator to you. The unrealized gain is taxable upon the distribution and you would need to keep track of it so you can handle it properly when you get the distribution at a later date. Jack ------------ 2 Home Office/Small Busines Category 7, Topic 17 Message 71 Wed Nov 04, 1992 PATRIKA at 23:20 EST Just a note of warning...the IRS has a new ruling, as of 1/1/93 I think: If you have a 401K and it is time to roll it over.....you MUST have your employer roll it over for you. Notify your employer in writing as to how and what and where you want it rolled over. If you roll it over yourself, the IRS will no longer consider it a 401K and you will be hit with a penalty and taxes. This holds true if you leave your current employment, you cannot take your 401K with you, you must request your former employer to do whatever paperwork is necessary to change your 401K to your new employer. I am pretty sure all the above is correct...if I mucked any of it up, hopefully it will be corrected by someone more knowledgeable than I. Patrika ------------ 2 Home Office/Small Busines Category 7, Topic 17 Message 72 Thu Nov 05, 1992 BRAD [Brad Solomon] at 04:54 EST Jack, I'm a little confused here: > No you can't roll over equivalent cash. If you want to use cash > your only option is to sell the stock and rollover the proceeds. > Rollover amount is the cost value of the account provided by the > plan administrator to you. The unrealized gain is taxable upon > the distribution and you would need to keep track of it so you > can handle it properly when you get the distribution at a later > date. I'm going to sell the stock. Do I sell the stock, report NOTHING as a gain/loss, ignore the NUA, and roll over net proceeds? Or do I roll over net proceeds less NUA, and keep track of NUA? -=-=-=-=-=-=-=-=-=-=-=-=-=- Patrika, If you get the cash, the employer will have to withhold 20%. Then you can roll it over, but unless you fork over that 20%, it will be considered a distribution subject to tax and penalty. In some cases, that 20% is too much to dig up, and you're stuck unwittingly paying the penalty (gee, could this be what Congress intended - rip off a small group, while not officially increasing taxes?). Brad ------------ 2 Home Office/Small Busines Category 7, Topic 17 Message 73 Thu Nov 05, 1992 JSLICK [JACK] at 18:06 EST Brad, If you are going to sell the stock, and you want to roll over the proceeds, then the total you receive for the sale of the stock must be rolled over, including any gain or loss. If on the other hand your just going to sell the stock and keep the proceeds, then you have long-term capital gain up to the unrealized appreciation and short-term gain for any amount above that. The basis would be reported as a pension distribution and the total would be subject to the penalty for early distribution. Is that any clearer Brad? Jack ------------ 2 Home Office/Small Busines Category 7, Topic 17 Message 74 Thu Nov 05, 1992 DIANNE.OLSEN [Dianne] at 20:37 EST Patrika, what if you are leaving a company and want your 401K money because you aren't going to a new employer. What do you do then? -Dianne ------------ 2 Home Office/Small Busines Category 7, Topic 17 Message 75 Fri Nov 06, 1992 BRAD [Brad Solomon] at 01:15 EST Jack, A little clearer. Since I will be rolling the cash, that is what I will do. Now, how do I report this? I'll be getting a 1099R from the company, with taxable and NUA. I'll also be getting a 1099B from my broker (and, since I have the same stock personally that I was going to sell, perhaps combined with personal sales). I have to either put an entry on schedule D, or explain the discrepancy. BTW, all I have at home is Master Tax Guide, and almost all the IRS pubs. I check there just there. They agree with the taxability, but have no hint of where to report the numbers. Brad ------------ 2 Home Office/Small Busines Category 7, Topic 17 Message 76 Fri Nov 06, 1992 PATRIKA at 01:28 EST Well, according to the November issue of Home Office Computing if an employee who is leaving a company and doesn't IMMEDIATELY have the 401K funds transferred into an IRA by their employer or another new plan by their employer, the 20 percent tax will take effect. I would gather from that, you could have your former employer(before they become your former employer!!), transfer the 401K into an IRA for you if you are not going to another job. HOC also stated that it would be a good idea to set up an IRA before you leave a job and have your employer, (soon to become ex) transfer your funds directly from their 401K to your now already established IRA. If you request the funds rather than rolling them over into a new account, your employer MUST withhold 20% and send it to the Feds. Evidently this new rule is to circumvent the old 60 day window which disallows a person to give themselves a "short term loan" as it were. By the way, I stand corrected that the above does not effect one's 401K roll over if one stays at the same job. Guess I got carried away <GGGG>! Patrika ------------ 2 Home Office/Small Busines Category 7, Topic 17 Message 77 Fri Nov 06, 1992 BRAD [Brad Solomon] at 03:55 EST Patrika, The rule is, if the employer issues the check to you, there's a 20% withholding. If you want to avoid that, you have to have them issue (and presumably send, but I'm not sure) the check to wherever you're rolling it over: a successor 401K, an IRA, etc. It isn't really to avoid the "free 60 day loans," since it doesn't seem to apply to money FROM IRAs - you can have them issue the check to an IRA, and then get 60 days every year. No, it's simply a way of forcing/tricking employees into being subject to that 20% withholding, which can force them into the 10% penalty because either they didn't know, or couldn't come up with the money to replace that withheld money. Brad Solomon Marlton, NJ ------------ 2 Home Office/Small Busines Category 7, Topic 17 Message 78 Fri Nov 06, 1992 JSLICK [JACK] at 22:07 EST Brad, The reporting is the easy part, right?:> Anyway the total proceeds of the sale would be included in your pension distribution. Or in other words you add any gain to the rollover amount reported to you on the 1099R, or subtract any loss. As far as reporting the sale of the stock I would show it on Schedule D with a corresponding offset stating "gain ( or loss) on Stock sold as part of rollover in accordance with Code Section 402(a)(6)(D)(ii)". Jack ------------ 2 Home Office/Small Busines Category 7, Topic 17 Message 79 Sat Nov 07, 1992 DIANNE.OLSEN [Dianne] at 10:29 EST Patrika - What if I withdraw my 401K before 1/3/93 - what type of taxes will I have to pay on it? I am definitely moving in 1993 and definitely not going to another employer. Would it be worth my while to take the money out before 1/3/93? -Dianne ------------ 2 Home Office/Small Busines Category 7, Topic 17 Message 81 Sat Nov 07, 1992 JSLICK [JACK] at 22:19 EST Dianne, The taxes Patrika was talking about are withholding taxes. Before 1993 you could receive a withdrawal from a 401K plan without taxes withheld under the assumption that you were going to rollover the proceeds, etc. After 1992 the rule bvecomes that they withhold the tax regardless, unless you tell them where to rollover the money and they do it for you. Now if you get a distribution from a plan and don't roll it over to another, you are subject to normal income tax on the distribution plus a 10% penalty if you don't meet certain requirements. Basically the requirements are showing a hardship, or having attained 59 1/2 years of age. Thoise are the taxes you would be subject to IF you don't roll it over. If it is rolled over you aren't subject to any taxes. JaCK ------------ 2 Home Office/Small Busines Category 7, Topic 17 Message 82 Sun Nov 08, 1992 BRAD [Brad Solomon] at 00:43 EST Dianne, I just want to emphasize something Jack said. The taxability of distributions did not change. What changed, is that employers are now required to withhold on the money if THEY do not roll it over for you. This can hurt if you intend to roll it over yourself, as there will be no tax due that year. Brad Solomon Marlton, NJ ------------ 2 Home Office/Small Busines Category 7, Topic 17 Message 83 Mon Nov 09, 1992 J.ATTARD [Janet(sysop)] at 21:40 EST Just one other note, too.. Jack is a CPA; Brad a tax preparer. Both have access usually to the latest laws. However, please remember that on a public board like this, even professionals can only provide general answers. If you need more specific advice you should talk to a local accountant who can advise you based on access to all your financial information. --Janet ------------ 2 Home Office/Small Busines Category 7, Topic 17 Message 84 Wed Nov 11, 1992 DIANNE.OLSEN [Dianne] at 20:18 EST I talked to the lady who handles benefits at work. She said that because I am leaving the company in 1993 that it won't matter if I stop my 401K now or not. Guess I'll just be paying the taxes either way. -Dianne ------------ 2 Home Office/Small Busines Category 7, Topic 17 Message 85 Sat Nov 14, 1992 BRAD [Brad Solomon] at 00:01 EST Jack, I spoke to my new company, and they told me some limitations that may only apply to their plan, and some that might even be wrong. They said that to roll to a 401K, you have to roll over all or nothing. This is OK for me, since I plan to roll it all, but it this true? I know that it's not true for IRA. They actually want the two payments together (I got a check for all but the stock, and the stock will follow). They also wanted the check that I got, so I'm holding onto that check until I can get and sell the stock. This is probably so that they can verify the amount of the distribution, but is it required? Next, if the stock comes more than 60 days after the check, they said that I should still wait. The money has to come into the new plan together, and the 60 days starts from the last piece. I don't know if it will take that long, but if so, this can get me in trouble if it is wrong. Finally, and this doesn't really apply to me: If there was no withholding (1993 rules) because the distribution came in 1992, then it MUST be rolled over in 1992. I thought the withholding requirements only applied to when the distribution came, not when it is rolled over. Brad ------------ 2 Home Office/Small Busines Category 7, Topic 17 Message 86 Sat Nov 14, 1992 JSLICK [JACK] at 23:38 EST Brad, I can't find any mention of these rules in the tax service we use so I have to believe that they are rules specific to the new plan. Anyway if the 60 day period is close to expiring I don't understand why they won't handle it as a partial distribution. Seems to me that the plan administrator is trying to be a pain. The rules relating to the withholding requirements I'll have to look into at the office, I don't have those here. Jack ------------ 2 Home Office/Small Busines Category 7, Topic 17 Message 87 Sun Nov 15, 1992 BRAD [Brad Solomon] at 06:25 EST Jack, The stock came today, so I should not have a problem. Fortunately. There was no other tax info there, regarding the stock distribution. They never indicated that the full proceeds should be rolled over, or anything specific to the stock. They gave no indication that it needed any special treatment. What a crock. I wonder how many people get into trouble with that plan. Brad ------------ 2 Home Office/Small Busines Category 7, Topic 17 Message 88 Sun Nov 15, 1992 JSLICK [JACK] at 19:25 EST Brad, Good question and of course the IRS is not sympathetic in regards to the time it allows for rolling over pension distributions. Jack ------------ 2 Home Office/Small Busines Category 7, Topic 37 Message 1 Sat Mar 07, 1992 RUSSH at 10:42 EST Hi, What is supposed to happen with an IRA filing when: 1. I am self employed. My wife works part time for another employer. in previous years she did not hav an employer retirement plan of any kind. How should we have put money into an IRa, so we would have saved taxes on the current income at the time. I am suspscioning that we paid tax on her income, then turned around and put money into an IRA assuming it was a deductible type investment. What should have been done, and what indicates ie paper work that it was done correctly? 2. Senario #2, I am self employed. My wife works part time for another employer. and in Oct 19 her employer started a SEP plan. Can I still contribute to a previously established IRA for my wife? If so, how is that supposed to be done properly, and without penalty from IRS or financial disadvantage now and later in life when the IRA is to be withdrawan? 3. Senario #3, I continue to have my own IRA as a self employed, which seems so much easier to understand. I simply put money into the IRA for my account and deduct this from total income during the tax year in question. But I recently read that I can get the same current tax advantage with (example) $1950 contribution to the IRA rather than putting in $2000. I was confused by this statement, and wonder if it makes sense to you? Thanks, Russ ------------ 2 Home Office/Small Busines Category 7, Topic 37 Message 2 Sat Mar 07, 1992 JSLICK [JACK] at 21:35 EST Russ, Scenario 1: Wife works for an employer and neither are covered by employer plans. This is the easiest scenario since both of you could contribute up to the $2,000 maximum to your own personal IRA's as long as you both had income in excess of the $2,000. As far as paperwork you would have needed to contribute the amounts by April 15th of the following year and specified the contributions as being for the prior year. You also needed to fill out both lines on the form 1040 for you and your spouses IRA. Scenario 2: Wife covered by employer plan, husband self- employed. You could still contribute to an IRA but if your adjusted gross income exceeded $40,000 your deduction would be limited. In the alternative you could open a SEP IRA which would allow you to contribute more than the $2,000 but only pertains to self-employed individuals. The phase-out of contributions for regular IRA's is complet at $50,000 so if your adjusted gross income exceeded that you wouldn't be able to make any tax-deductible contributions. You could still make non-tax deductible contributions though. And both you and your wife could put up to $2,000 into your individual IRA's but wouldn't be able to claim the deduction. If you adjusted gross income was below the $40,000 threshhold then both of you could contribute the maximum to your IRA's and all of it would be deductible. Scenario 3: Putting in a lesser contribution and receiving the same benefit. The only way that this makes sense to me is that the lesser contribution is based upon the tax tables. Thus if your income was 20,000 for the year and you made a 2,000 IRA contribution your tax would be using the married filing joint tables $3,004 dollars. If you had made an IRA contribution of $1.951 instead your taxable income would be $20,049 which would yield the same tax using the tables of $3,004. If you can't use the tables then this wouldn't apply, but to my knowledge that's the only way I see the scenario you gave me working. Jack ------------ 2 Home Office/Small Busines Category 7, Topic 37 Message 3 Sun Mar 08, 1992 BRAD [Brad Solomon] at 06:08 EST Russ, If you do put non-deductable money into an IRA, be aware of the following: - You have to retain permanantly, the records of the breakdown. For an IRA that was fully deductable, the history is meaningless. All that would count is how much was in there. - You cannot take out your non-deductable money without also taking out other money, which would be subject to tax and penalty. I'm sure that there are other considerations, those two just came to mind. Brad Solomon Narlton, NJ ------------ 2 Home Office/Small Busines Category 7, Topic 37 Message 5 Wed Mar 11, 1992 RUSSH at 00:11 EST Hi again, After ruminating over the above answers, I have another repeat? question. My wife researched her employers pension program, which as I explained to a certain degree previously, was something my wife really hadn't realized may be important to me as a self-employed, and had not mentioned until the last couple weeks, that the employer had started the program for 1991 in 1991. Tonight, after getting papers from the employer I learn that it is a TSA, non- participating type program. How does this affect #1 my wife's already established IRA Annuity (established privately with another company), #2 my IRA also already establishe (both are for 91) (I should have written IRA annuity. and #3 my intent to also establish a SEP-IRA for myself, (ie would the SEP somehow disqualify either IRA Annuity?). AGI is between $40,000 and $50,000 so I do believe I under stand that the deductions if appropriate are limited. Thanks again, Russ ------------ 2 Home Office/Small Busines Category 7, Topic 37 Message 6 Wed Mar 11, 1992 JSLICK [JACK] at 22:23 EST Russ, Ok, if the plan instituted by your wife's employer had income or contributions allocated to her account then she is covered by a retirement plan and that affects whether your contributions to your IRA annuities are deductible in full. Also starting a SEP IRA does the same thing for the year. So if your wife hadn't been covered by a plan your starting up the SEP covers you and the IRA deductions would be limited by the formula set forth in the instructions for form 1040. I think what you are asking is whether the fact that you made these contributions prior to being covered by other plans makes the contributions deductible. It doesn't your only recourse if you don't want to make non- deductible contributions to the IRA annuities is to get the plan administrator to refund your contributions. The refund needs to include any earnings on the funds contributed and regardless of the fact that you would receive the check in 1992 you would need to pick up all the earnings on your 1991 return. You have up to the due date of your return including extensions to get the refund back. If you decide to leave the contributions in then you would need to fill out form 8606 for both you and your spouse to report the amount of non- deductible contributions made and to keep track of your basis in the IRA. Hope this is what you are looking for. Jack ------------ 2 Home Office/Small Busines Category 7, Topic 37 Message 7 Sun Mar 15, 1992 RUSSH at 10:39 EST Jack, After contacting the wife's employer administrator of the TSA: Note, the TSA is a NON-Participating Individual Flexible Deferred Annuity Policy. The administrator indicates that the TSA is not an IRA like I was mentioning previously, I was mis-informed apparently. The administrator of the TSA indicates that this TSA has no affect on the other self established IRA annuity the my wife and I set up for her, and it has no affect on my IRA annuity that I set up for my self, and it (the TSA) has no affect on my intent to set up a SEP-IRA yet for the 1991 tax year. Does this information change your answer above? Or am I getting wrong information? I'm afraid I'm still in the middle of a somantics of retirement terms, learning curve, and when I first posted I wasn't aware that a TSA was even a possiblity. But anyway, again I'm told the TSA has no affect on anything else, especially since it was established by wife's employer. And it could be contributed to without affect on any IRA program, if my wife chose to request special permission to add to the Non-Participating TSA (I understand the non-participating can be modified with some special paperwork, to allow contributions if we choose). Anyway back to you!!! Thanks, and sorry for not having the right info at first. Russ ------------ 2 Home Office/Small Busines Category 7, Topic 37 Message 8 Mon Mar 16, 1992 BRAD [Brad Solomon] at 00:08 EST Russ, I somehow doubt that that retirement plan does not disqualify you from a deductible IRA. Did they check the pension plan box on the W- 2? Brad Solomon Marlton, NJ ------------ 2 Home Office/Small Busines Category 7, Topic 37 Message 9 Mon Mar 16, 1992 JSLICK [JACK] at 00:19 EST RussH, The answers are still the same she's considered to be covered under the employers plan, and any contributions to her or your IRA could possibly be non- deductible. The plan administrator said that the plan doesn't affect whether she could contribute to the IRA, which is correct it doesn't but I don't think he spoke of whether the contribution would be deductible. If he's saying it is then in my opinion he's wrong. Also I'm not sure I was clear regarding the fact that if you set up a SEP IRA this year that would have the same effect as your wife's plan on the deductibilty of contributions. Jack ------------ 2 Home Office/Small Busines Category 7, Topic 37 Message 10 Mon Mar 16, 1992 RUSSH at 21:57 EST JACK, OK, THANKS. THIS IS ALL STARTING TO MAKE A LOT MORE SENSE. IGNOR THE COMMENT ABOUT THE "SAME EFFECT AS WIFE'S PLAN ON DEDUCTIBILTIY". THAT OBVIOUSLY DOESN'T MAKE SENSE. THANKS. BRAD, THERE WERE NO BOXES CHECKED ON HER W-2. BUT IT APPARENTLY SHOULD HAVE BEEN CHECKED. SO, can she (through special paperwork that must be filled out) still contribute to this TSA plan for 91? We will check with the administrator, on this, but what should be the answer? Thanks again you guys. Russ ------------ 2 Home Office/Small Busines Category 7, Topic 37 Message 11 Tue Mar 17, 1992 BRAD [Brad Solomon] at 01:27 EST Russ, I'm not sure if the TSA can be contributed to now for last year, although there may be some make up provision that allows her to contribute more than this year's maximum to make up for prior shortcomings. If you can contribute, then don't think there's any tax reason not to - it's the IRA that is being disqualified, not the TSA. Brad Solomon Marlton, NJ ------------ 2 Home Office/Small Busines Category 7, Topic 37 Message 12 Mon Mar 16, 1992 M.MCGUIRE12 [MARTY] (Forwarded) RECV'D 10% DIST. FROM FROZEN IRA IN CLOSED R.I. BANK WITH NO INSTRUCTIONS. IRS SAID FILE 5329 FOR IRA/SEP #1 BOX ON 1099-R CHECKED. I QUESTION BECAUSE PLAN ADMIN. NEVER SENT EXPL. OF ROLLOVER OPTIONS. WHO'S RIGHT, AND HOW TO FILE 8ok606 USING THE 10% DIST.? ------------ 2 Home Office/Small Busines Category 7, Topic 37 Message 13 Tue Mar 17, 1992 K.PHILLIPS4 [Ken P] (Forwarded) I beleive that there is an IRS rulling that if the RTC or the FDIC did nat actually pay you the money then you owe no taxes on it. However, you must attatch a statement ot this effect to your t ax return. Please move all of this to CAT 7 so the `tax-boys' can get a crack at it. ------------ 2 Home Office/Small Busines Category 7, Topic 37 Message 14 Tue Mar 17, 1992 BRAD [Brad Solomon] (Forwarded) Marty, This question belongs in category 7, Taxes. Also, please do not use all capital letters - it is considered SHOUTING (and is hard to read). When did you get the money? If you are asking now about a 1991 distribution, then it's probably too late. You had 60 days to roll the money over into another IRA. If you didn't, then you have to report the income on line 16 of the 1040, and you report it on the 5329 for the 10% penalty (10% of the distribution). Brad Solomon Marlton, NJ ------------ 2 Home Office/Small Busines Category 7, Topic 37 Message 17 Wed Mar 18, 1992 BRAD [Brad Solomon] at 02:58 EST Ken, Now that these messages were forwarded, I can again see that he "RECV;D 10% DIST. . .", so the money indeed was received. Also, you mention that the RTC has been issuing 1099s for interest not received. That would be 1099-INT, not 1099-R. I would expect the 1099-R to be handled differently. Back when one of the state insurance agencies was in trouble, banks with frozen funds were issuing 1099-INTs with ZERO - as long as there was more money frozen than earned. You had the option to report the interest earned but not paid, or nothing until the money was received. My general recommendation was, unless you knew that it would be significantly better taxwise to do otherwise, you were better off matching the 1099. Why? Two reasons. One, you were less likely to get a letter from the IRS, and two, you were less likely to forget when you get the 1099 when the funds were released. Brad Solomon Marlton, NJ ------------ 2 Home Office/Small Busines Category 7, Topic 37 Message 18 Wed Mar 18, 1992 RUSSH at 08:17 EST Hi again guys, Still waiting to get in contact with the TSA administrator, but in my leisure reading of Pub590 on page 5 there is a paragraph in the IRA publication from IRS that explains" WHEN ARE YOU NOT COVERED? You are not covered by an employer plan if neither you nor your spouse is covered for any part of the year. YOu are also not covered for this purpose in the following .........." Also the table in Appendix A seems to say also that we can still take a full or at the least a partial deduction. Where does it say my wife does not qualify to take a deduction from the separate IRA Annuity, in addition to the TSA for about $185 (which again was set up for the last quarter of 91, by her employer?) Sorry for being so persistent. Also, have I made it clear that we are filing jointly. And although I am self employeed she is not paid as an employee by me/my business. Her only compensation was from her part time job/employer. Note, regarding the W-2 boxes, there was nothing checked as I said earlier. And someone somewhere in the past three weeks since this whole issue came to light, indicated that the box should have been checked. I don't know that this is the fact!!!! I do know that the difference between the Wages amount and the Social security wages amount is exactly the amount, ie about $185 that was put into the TSA. Thanks again, Russ ------------ 2 Home Office/Small Busines Category 7, Topic 37 Message 19 Wed Mar 18, 1992 JSLICK [JACK] at 23:00 EST Russ, I think our just reading the line wrong. Its saying that neither you or your spouse is covered at all during any part of the year. I think your reading it as if you weren't covered for any part of the year then you can't be covered by a plan. Semantics I know but important ones. If she has a contribution made on her behalf or any income of the plan allocated to her account she's covered during the year. Now we never said that she can't make a contribution to the IRA, everyone has the right to make up to a 2,000 contribution to their IRA provided they meet the income requirements. What we are saying is that some or maybe all of it won't be deductible by you on your return. Form 8606 is needed to be filed with your return if you decide to make contributions to an IRA that aren't deductible. The box should have been checked on her W-2 the fact that it isn't doesn't mean that you can ignore the issue. I've seen a lot of employers that have screwed that up. Since she is covered the rules regarding the deductibility of the IRA contribution apply to you. The only thing this affects is whether you get to take a deduction, not whehter you can make a contribution. Again if you wnat to make a contribution on your own behalf that's deductible, since you are self-employed you do have the option of opening an IRA- SEP that would let you take a deduction on your return. Also the IRA-SEP contribution limits are much more generous then you would be able to take with a normal IRA. Jack ------------ 2 Home Office/Small Busines Category 7, Topic 37 Message 20 Thu Mar 19, 1992 BRAD [Brad Solomon] at 03:20 EST Russ, Maybe we missed this, but, if you are MFJ and your joint AGI is under $50,000, then you should be entitled to some IRA deduction (assuming that you make the contribution), and if it's under $40,000, you are entitled to a full one, even if covered elsewhere. Brad Solomon Marlton, NJ ------------ 2 Home Office/Small Busines Category 7, Topic 37 Message 21 Sat Mar 21, 1992 RUSSH at 09:54 EST Thanks again guys, Brad hit on the thought regarding under $50000 which is why I have kept at the subject, because other sources are saying we do in fact have some IRA deduction left. And Jack, the only quirk that is left, unfortunately is the the income used on Schedule C, line 31, is low because of a number of 179 deductions this year, so that I am able to take a larger deduction with a standard IRA than with a SEP-IRA. That is income about $22000 on this line 31 times the 15% deduction (I think it is a number .090909, but it isn't right in front of me) is less than $1800 deduction, while I personally could still deduct $2000 with an standard IRA. I assume I have calculated this correctly. Any other thoughts? Thanks again, Russ ------------ 2 Home Office/Small Busines Category 7, Topic 37 Message 22 Sun Mar 22, 1992 JSLICK [JACK] at 00:04 EST Russ, Okay but the full amount of the SEP is deductible regardless of employment plan coverage. Whereas the normal IRA may not be deductible up to that amount. Also if you wanted to contribute to a regular IRA besides the SEP you can do this too. So if the SEP limit is 1800, you could still make a contribution up to 2,000 to your regular IRA. So in all likelihood your total deductible contributions would exceed what you could take by just placing the money in a normal IRA. I guess I just wasn't clear about the income thing <G> was trying to be though. If your income doesn't exceed $40,000 no limit applies. If your income does exceed the $40,000 but is less than $50,000 then the deduction is limited by $1 for every $5 your income exceeds 40,000. This limit applies across the board to botth your and your wifes IRA so if your joint gross income was 45,000 for example, the each of you would only be able to deduct 1,000 for an IRA or what you actually contributed wichever is less. If your gross income exceeds the $50,000 limit then no deduction is available. If you want to make contributions in excess of the deductible amount but not more than the 2,000 limit you can do this too, but you just need to file form 8606 with the return to keep track of your basis and report the non-deductible portion. Hope this is a little clearer. Jack ------------ 2 Home Office/Small Busines Category 7, Topic 37 Message 23 Sun Mar 22, 1992 BRAD [Brad Solomon] at 05:30 EST Russ, Just one thing - if you make any nondeductable contributions, realize two things: - You get no deduction, yet you can't pull that nondeductable money out without penalty, since the IRS allocates any withdrawal between before and after tax money. - You have to keep the records, and file that 8606 at least every time you take money out. A fully deductable IRA has virtually no recordkeeping requirements. I know that you didn't say that you plan to make any nondeductable contributions, but since Jack mentioned them, I wanted to get my $.02 in on the subject. Brad Solomon Marlton, NJ ------------