Small Biz Plans
This plan allows for no more than 100 participants
Simple IRA
What is a Roth conversion?
A taxable distribution from a non-Roth IRA or non-Roth employer plan that is rolled over to a Roth IRA
What is removed from the clients account if in current tax period?
Contribution amount AND earnings
What is a recharacterization?
A recharacterization allows a client to change an IRA contribution from one plan type to another.
5498 (What transactions will generate this)
Provides information on contributions, rollover contributions, Roth conversions, and other information for Traditional, Roth, SEP or SIMPLE IRAs.
What plans will allow a client to have access to the SBOL website?
Sep-Multi, Simple, i401k
What tax forms are generated for a conversion?
1099R
5498
8606
What tax forms will this generate?
1099R
5498
8606
Deadlines for Recharacterization
April 15th, October 15th if client qualifies for a tax filing extension.
1099-R
Used when money leaves an IRA
Transactions (Distributions, Corrective Distributions of Excess Contributions, Roth conversions, Recharacterizations, tax withholding, rollover, wire fee's)
If a client processes a distribution from this account before the 2 year period has been met and is also under 59.5, what penalty will they be facing?
Simple IRA; 25%
Who is eligible for a conversion?
Anyone
What is the penalty amount for removing an ineligible contribution after tax deadline?
6% excise tax
Reasons for a Recharacterizations (3)
Clients MAGI exceeds the limit, Client is ineligible to deduct the amount, Client realizes it was not in their best interest to contribute to that type
5329
To report penalties the client would incur on transactions (early distributions, excess removal)
This account type may require in individual to file a Form 5500. Where would the client find this form?
i401k; IRS.gov
What is the process for a backdoor Roth conversion?
Make a non-deductible contribution to pre-tax ira and then convert it to a Roth IRA
What will the client need to do if he requests the removal to be sent to his bank via ACH or sent to the AOR via check?
Funds need to be in settlement fund
What tax forms will a recharacterization generate?
1099r - Money leaving one IRA
5498 - Money coming into the other IRA
8606 - Reporting recharacterization
8606
Used to track cost basis for nondeductible contributions to trad IRA, distributions from roth IRA, Conversions, Excess removal, Recharacterizations.
How can a client contribute to a roth i401k as an ER contribution?
They cannot. IRS does not allow for ER roth 401k contributions
What is pro-rata and when would a client face pro-rata rules?
Term used to describe the taxability of IRA distributions that include both pre-tax dollars (deductible contributions, pre-tax rollovers, growth) and after-tax dollars (nondeductible, after tax rollovers);When clients have both pre-tax and after-tax assets in their non-Roth IRA(s) those assets are commingled, and subsequent distributions (including conversions)
If it is after the tax deadline, what is the process for an excess removal?
Only excess contribution amount will be removed, no earnings calculation. 6% excise penalty for every year it's in account past 12/31.
What pocess(es) are available for a client to Recharacterize a contribution?
Crave, intellidox, physical form
What tax forms are generated for VRIP contributions/distributions?
None; Since Vanguard does not act as trustee and does not perform plan specific record keeping, all distributions from a VRIP plan are treated as redemptions (similar to nonretirement plans).