Form 1099-R Series for Corrective Distributions, Roth Distributions and Other Unusual Transactions. Agenda 10/9/2014

Transcription

1 Form 1099-R Series for Corrective Distributions, Roth Distributions and Other Unusual Transactions William C. Grossman, ERPA, QPA, GFS,APA, MBA McKay Hochman Consulting Provided by DST 1 Agenda Form 1099-R Reporting Rollover to Roth IRA and In-plan Roth Rollovers Reporting Deemed Loans and Offset Loans Reporting Corrective Distributions HCE Total Distribution, then Refund of Excess Contribution Excess Deferral Correction Correction of Deferrals by Ineligible Employee Permissible Withdrawal Reporting Reporting Refund of Excess Annual Additions Reporting Excess and Excess Aggregate Contributions After-Tax Reporting for Qualified Plan; IRAs 2 1

2 Form 1099-R Form 1099-R 4 2

3 ROLLOVER TO ROTH IRA; DESIGNATED ROTH REPORTING; IN-PLAN ROTH ROLLOVER 5 Designated Roth and Form 1099-R A separate Form 1099-R must be issued for designated Roth account distributions. Code B is for all Roth distributions. (Qualified distributions and distributions which have not yet become qualified). Box 11 is for reporting the first year of the designated Roth account Box 10 is for reporting the distribution of an In-plan Roth Rollover (IRR) that has been distributed before 5 years after the conversion McKay Hochman Co., Inc

4 Designated ROTH Distribution Severance and Partial Distribution Participant has $10,000 balance $9,400 of designated Roth contributions $600 of earnings Participant withdraws $5,000 $4,700 is Roth; $300 earnings Form 1099-R Box 1 $5,000 Box 2a $300 Box 4 $60 (20% mandatory withholding) Box 5 $4,700 (Roth basis) Box 7 Code B Box 11 First year of 5-year clock. 7 Designated ROTH Distribution Severance & Direct Rollover to Roth IRA Participant has $10,000 balance $9,400 of designated Roth contributions $600 of earnings Participant directly rolls $5,000 to Roth IRA $4,700 is Roth; $300 earnings Form 1099-R Box 1 $5,000 Box 2a $0 Box 4 $0 Box 5 $4,700 (Roth basis) Box 7 Code H Box 11 First year of 5-year clock. McKay Hochman Co., Inc

5 QP Non-ROTH Distribution in 2014; Severance & Direct Rollover to Roth IRA (Conversion) Participant has $120,000 balance $108,000 of ER, EE non-roth contributions. Plus earnings $12,000 of after-tax Participant directly rolls $120,000 to Roth IRA Form 1099-R Box 1 $120,000 Box 2a $108,000 Box 4 $0 Box 5 $12,000 (after-tax basis) Box 7 Code G 9 QP Non-ROTH DISTRIBUTION in 2014 Direct Rollover to Traditional IRA JP Participant has $200,000 balance $190,000 of ER, EE non-roth deferrals + earnings $10,000 of after-tax JP Participant directly rolls $200,000 to Traditional IRA Form 1099-R Box 1 $200,000 Box 2a $0 Box 4 $0 Box 5 $10,000 (after-tax basis) Box 7 Code G Form 5498, Traditional IRA Box 2: $190,000 No taxation on entire amount 10 5

6 QP Non-ROTH DISTRIBUTION in 2014 Direct Rollover to Traditional IRA JP Participant:$200,000 balance; arranges total distribution $190,000 of ER, EE non-roth deferrals + earnings $10,000 of after-tax JP Participant directly rolls $190,000 to Traditional IRA Form 1099-R Box 1 $190,000 Box 2a $0 Box 4 $0 Box 7 Code G Form 5498, Traditional IRA Box 2: $190,000, No taxation on entire amount Form 1099-R Box 1 $10,000 Box 2a $0 Box 5 $10,000 Per IRS Notice on multiple destinations scheduled at the same time 11 QP In-plan ROTH Rollover in 2014 aka In-plan Roth Conversion Participant M: $75,000 balance; over age 59½; in-service distribution; all pre-tax sources: $75,000 of ER matching and EE pre-tax elective deferrals. Plus earnings Participant M makes an in-plan Roth Rollover to a designated Roth account of all $75,000 Form 1099-R Box 1 $75,000 Box 2a $75,000 Box 4 $0 Box 5 $0 Box 7 Code G 2014 Form 8606, Participant Files with Form 1040 Part III: Report in-plan Roth Rollover 12 6

7 QP In-plan ROTH Rollover in 2014 aka In-plan Roth Conversion Participant M: $150,000 balance; age 40; in-service distribution for purpose of in-plan Roth rollover under ATRA; pre-tax sources: $145,000 of ER matching, safe harbor QNEC, EE pretax elective deferrals; $5,000 after-tax and earnings Participant M makes an in-plan Roth Rollover to a designated Roth account of all $150,000 Form 1099-R Box 1 $150,000 Box 2a $145,000 Box 4 $0 Box 5 $5,000 Box 7 Code G 2014 Form 8606, Participant Files with Form 1040 Part III: Report in-plan Roth Rollover 13 QP Designated ROTH Direct Rollover to Roth IRA 2014 JP Participant has $50,000 Roth balance $50,000 Roth contributions. $4,000 of which is earnings JP Participant directly rolls $50,000 to ROTH IRA Form 1099-R Box 1 $50,000 Box 2a $0 Box 4 $0 Box 5 $46,000 (after-tax basis) Box 7 Code H 1 st year of Roth 2008 Form 5498, Roth IRA Box 2: $50,000 No taxation on $4,

8 LOANS 15 Timing of Offset 1099-R is issued when deemed distribution occurs. OFFSET of loan note is linked to the occurrence of a distributable event. If no distributable event at the time the loan is deemed, then the loan note may not be offset. The loan is kept on the books. When a distributable event occurs, the loan is offset but the amount is not reported again on a 1099-R. If there is a distributable event at the time the loan is deemed, then the loan is offset at the time it is deemed. 16 8

9 Report Deemed Distribution on a 1099-R A deemed distribution is reported on Form R using Code L in box 7; may also use Code 1 if the participant is under age 59½. The deemed distribution is subject to normal distribution rules including the rules for return of aftertax amounts (basis). Deemed distributions are subject to the 10% early distribution tax under section 72(t), unless a known exception applies. 17 Report Deemed Distribution on a 1099-R Deemed distributions are not eligible: to be rolled over to an eligible retirement plan, nor for the 10-year averaging tax option. Roth 401(k) deferrals. A deemed loan that contains Roth 401(k) deferrals, must always be treated as a nonqualified distribution Even if the participant is over age 59½ and the 5-year clock has been satisfied. Thus, pro rata distribution of designated Roth and earnings. Permitting Roth into loan calculation, but not as a source for the loan funds Meeting requirement for loans to be available on an equivalent basis 18 9

10 Distribution of a Loan At Severance Withholding Rules Employee terminates and requests entire balance. When the participant wants a cash distribution, the 20% mandatory withholding requirement is subject to a maximum not exceeding the non-loan-offset amount of the distribution. 19 Outstanding Loan Distributed At Severance: Withholding Rules Example 1 Outstanding Loan (not deemed) of $10,000 and $20,000 additional participant balance. $30,000 is eligible for rollover times 20% = $6,000 withholding. Form 1099-R Box 1 = $30,000 Box 2a = $30,000 Box 4 = $6,000 Box 7 = 1 or 7 depending on the participant s age 20 10

11 Outstanding Loan Distributed At Severance: Withholding Rules Example 2 Participant in example 1 instead desires a direct rollover of the non-loan part of the balance. Outstanding loan (not deemed) of $10,000 and $20,000 additional participant balance. The $20,000 is directly rolled over to an IRA. The $10,000 loan is reported as a distribution. There is no withholding on the loan distribution, as no cash is being distributed, (nor on the direct rollover amount). 21 Outstanding Loan Distributed At Severance: Example 2: Form 1099-Rs Requires Two Form 1099-Rs One Form 1099-R for Direct Rollover of $20,000 to IRA Box 1 = $20,000 Box 2a = $0 Box 4 = $0 Box 7 = G One Form 1099-R for Distribution of loan to participant Box 1 = $10,000 Box 2a = $10,000 Box 4 = $0 Box 7 = Code 1 or 7 depending on participant s age 22 11

12 Outstanding Loan Distributed At Severance: Withholding Rules Example 3 Outstanding loan balance of $40,000 and additional balance of $5,000. $45,000 times 20% equals $9,000. Participant requests payout of an eligible rollover distribution. The maximum that could be withheld is $5,000. Form 1099-R Box 1 = $45,000 Box 2a = $45,000 Box 4 = $5,000 Box 7 = Code 1 or 7 depending on participant s age 23 Withholding on Deemed Loans Example 4 At the time a loan is deemed, if there is no distributable event, there is no withholding When a severing participant s deemed loan is offset in a later year, there is no withholding on deemed loan then either. Participant defaulted on a $3,000 loan balance in In 2014 the participant severs service and takes a total distribution of a $15,000 in cash. The mandatory withholding is calculated only on $15,000, even though the balance was $18,000, the deemed loan which had been taxed in 2012 is merely offset in 2014 and not subject to withholding

13 Withholding on Deemed Loans Example 4: Form 1099-Rs Form 1099-R in 2012 for Loan Default of $3,000 Box 1 = $3,000 Box 2a = $3,000 Box 4 = $0 Box 7 = 1L or L depending on age of participant Form 1099-R for 2014 for lump sum of $15,000, deemed loan of $3,000 offset Box 1 = $15,000 Box 2a - $15,000 Box 4 = $3,000 Box 7 = Code 1 or 7 depending on participants age 25 Loan Distributions Example 5 Distribution of lump sum in cash of $90,000 at severance where there is an outstanding loan of $20,000 to be paid off. Form 1099-R Box 1 = $110,000 Box 2a = $110,000 Box 4 = $22,000 Box 7 = Code 1 or 7 depending on participant s age Note, the cash distributed to the participant is $68,000 ($90,000- $22,000). Loan is offset for $20,

14 Loan Distributions Example 6 Statement shows a balance of $67,000. Distribution of lump sum in cash of $50,000 at severance in 2014 where there is a deemed loan that occurred four years earlier of $15,000 plus $2,000 in phantom interest that needs to be offset when a distributable event occurred Form 1099-R Box 1 = $50,000 Box 2a = $50,000 Box 4 = $10,000 Box 7 = Code 1 or 7 as applicable Cash Distributed to participant = $40,000 Loan Receivable Balance = $15,000 Loan offset and wiped off books Phantom Earnings on Loan = $2,000 wiped off the books Note: Form 1099-R was issued in 2010 for $15,000 deemed loan 27 Deemed Loan Where 1099-R Inadvertently Is Not Issued: Example 7 Correction for deemed loan without a Form 1099-R: 1. In year error is discovered, the EPCRS Self Correction Procedure (SCP) method is to issue a Form 1099-R for the tax year in which the loan was deemed. Participant amends his or her tax return for the year loan was deemed. OR 2. In the year error is discovered, EPCRS Voluntary Correction Program (VCP) which requires submission to the IRS under VCP and payment of the applicable fee permits the Form 1099-R to be issued for the year that the error was discovered, in lieu of the year that the deemed loan occurred. Remember VCP submission is required to provide the 1099-R for the year the error discovered instead of the year the loan was actually deemed

15 CORRECTIVE DISTRIBUTIONS 29 Failing ADP or ACP After a Total Distribution HCE severs and takes a total distribution, then later, when testing is run, the ADP test fails and that HCE is due a refund. Notify HCE of the change in the taxation treatment and that new corrected 1099-R forms will be sent. Example on next slide 30 15

16 Example of Failing ADP or ACP After a Total Distribution Nov. 11, 2014: Total distribution of $220,000 to an HCE. Feb. 28, 2015, Form 1099-R filed with IRS for $220,000. Mar.12, 2015 plan fails either ADP or ACP test for Mar. 12, 2015, notify HCE of changes. Recharacterize part of the total distribution as an excess contribution and/or excess aggregate contribution. File a CORRECTED Form 1099-R for 2014 for the correct amount of the total distribution (less the excess and earnings). File a new Form 1099-R for 2014 for the excess contributions and/or excess aggregate contributions and allocable earnings. 31 Example of Failing ADP or ACP After a Total Distribution: 1099-Rs File a CORRECTED Form 1099-R for 2014 Box 1 $216,780 (Less the excess and earnings) Box 2a $.00 Box 7 G for direct rollover amount File a New Form 1099-R for 2014 for refund Box 1 $3,220 Gross Distribution Box 2a $3,220 Taxable Amount Box 7 Code 8, Excess contributions Amount directly rolled over must be reduced by the excess contribution plus earnings, as those amounts are not eligible for rollover Citation: 2014 Form 1099-R Instructions, Page Form 1099-R Instructions, Page 7 to

17 Failing ADP or ACP After a Total Distribution To avoid a late filing penalty if the new Form 1099-R is filed after the due date, enter in the bottom margin of Form 1096, Annual Summary and Transmittal of U.S. Information Returns, the words Filed To Correct Excess Contributions. 33 Excess Deferrals W-2 Not Adjusted W-2 not to be adjusted to correct an excess deferral. W-2; Box 12 Codes: Code D = 401(k) Pretax Deferrals Code E = 403(b) Pretax Elective Deferrals Code F = SARSEP Pretax Elective deferrals Code G = 457(b) gov t. /non-gov t. deferrals or ER contributions Code H = 501(c)(18)(D) tax-exempt organization plan deferrals Code S = SIMPLE IRA deferrals Code Y = 409A nonqualified deferred comp. plan deferrals Code AA = 401(k) Roth deferrals Code BB = 403(b) Roth deferrals Code EE = governmental 457(b) Roth deferrals 34 17

18 Excess Deferrals RETURNED BY APRIL 15 Excess deferrals distributed by April 15 th of year after excess occurs: Excess is taxable in the year of deferral. Earnings are taxable in the year distributed. No Gap earnings Not subject to income tax withholding, social security or medicare taxes, no 10% early distribution penalty, or spousal consent. Catch-up rules 35 Reporting Excess Deferrals Returned by April 15 Excess deferral distributed in same year it occurred: Issue ONE 1099-R for the total of the excess plus earnings. Use Code 8. Excess deferral distributed: Jan. 1 to April 15 of year after excess occurred: Issue TWO 1099-R Forms. One for the excess deferral with a Code P for prior year, and One for the earnings, with a Code

19 Example Participant, age 45, makes pre-tax elective deferrals of $18,400 for Participant notified of excess deferral (may require filing amended tax return). On Feb.16, 2015, $900 excess plus $50 in earning is distributed. Reporting: W-2 is not changed. (But 1040 wages increased $900.) R for $900 excess deferral, Code P R for $50 earnings, Code Designated Roth Excess Deferral Example Participant, age 38, makes designated Roth deferrals of $17,950 for Participant notified of excess deferral on Dec. 10, On December 16, 2014, $450 excess plus $30 in earning is distributed. Reporting: W-2 is not changed R Box 1 = $480 Box 2a = $30 Box 7 = Code

20 EXCESS DEFERRALS RETURNED LATE (AFTER APRIL 15) If excess deferrals are returned after April 15 th : Excess is taxable in the year of deferral AND the year distributed. A late distribution is subject to: In effect, double taxation. 10% penalty on early distribution, 20% withholding and spousal consent requirements. For a SARSEP, excess not returned by April 15 th becomes a regular IRA contribution subject to the IRA limits. 39 Reporting an Excess Deferral Returned After April 15 Reporting excess deferrals distributed after April 15: Excess taxable in the year deferral made, though no 1099-R needs to be issued for that year, and, Excess also taxable in the year the excess is distributed, Form 1099-R issued, Code 8. Designated Roth 401(k) contributions subject to the same rules. In effect, this is the only time a Roth contribution is taxable twice

21 Excess Deferral Returned After April 15 Example Using the earlier example of $18,400 for 2014; but, distribution of $900 plus $60 in earnings is made on June 13, W-2 elective deferral total not changed. On the , the $900 included as wages. No 1099-R issued for 2014, as there was no distribution R for $960, code 8, fully taxable on Form 1040 for Excess Deferral Returned After April 15 Designated Roth Example Participant, age 32, makes Roth deferrals of $18,000 for Distribution of $500 plus $30 in earnings made June 13, W-2 elective deferral total not changed. On the , the $500 excess Roth deferral was reported as wages and taxes were paid. No 1099-R issued for R for $530, code 8, fully taxable on Form 1040 for Box 1 =$530, Box 2a = $530 Leaving excess deferrals in plan causes what amounts to double taxation 42 21

22 NET LOSS ON EXCESS DEFERRAL If the participant s deferrals suffered an investment loss (as occurred often in 2000 to 2002; 2008/2009). A net loss on the corrective distribution of an excess deferral -- distributed in the year after the excess is made -- is reported as follows: The entire elective deferral is reported as income in the year the deferral occurred. Form 1099-R is issued for the year of distribution for the net amount of the elective deferral amount less the loss. For the year of distribution, the loss may be taken on the employee s tax return. 43 Reporting for a Loss on Excess Deferral Issue one Form 1099-R for the net amount distributed (excess deferral, less loss). Issue a statement to the participant that the entire excess deferral amount must be reported for income for the year of the deferral

23 Loss on Excess Deferral Example Example 2014 excess deferral of $900 Allocable income is a net loss of $50. Distribution of $850 on Mar. 1, R for $850, Box 1 and 2a $ Code P. Participant adds $900 excess deferrals to 2014 income. Participant takes loss of $50 on 2015 tax return (the distribution year). 45 CORRECTION OF DEFERRALS BY INELIGIBLE EMPLOYEE 46 23

24 Correction of Deferrals by Ineligible Employee Correction methods under EPCRS: 1. Amend plan retroactively to permit employee to enter. Correction may be made under SCP 2. Make the employee whole either by: A. Forfeit deferrals and earnings to plan and make employee whole outside the plan. I. Through payroll; however, there is double FICA B. Distribution of deferrals, plus earnings to ineligible employee. 47 Distribution of Deferrals of Ineligible Employee Return of deferrals and earnings. Taxed in year returned to employee. Issue Form 1099-R with a Code 8. ADP test would need to be redone if the ineligible amount was included in it. Any associated match would be forfeited

25 Permissible Withdrawals Under 414(w), Reporting 49 Permissible Withdrawals; Section 414(w) Eligible Automatic Contribution Arrangements may permit an individual to opt out of automatic enrollment up to 90 days after the first deferrals Distribution included in income for year deferrals are distributed Report principal and earnings in box 1 and 2a. If deferrals are designated Roth, only report the earnings in Box 2a 50 25

26 Permissible Withdrawals; Section 414(w) Distribution is not subject to 10% penalty under age 59½ In Box 7: Use Code 2 If a designated Roth: Use 2B Permissible withdrawal distribution must be elected by participant no later than 90 days after the first deferral 51 EXCESS ANNUAL ADDITIONS 52 26

27 Excess Annual Additions We will only address the correction made by a distribution of excess annual additions as that requires Form 1099-R reporting. Distribution of excess annual additions: Are not eligible rollover distributions; Are subject to voluntary federal income tax withholding under section 3405; Are not subject to social security, Medicare, or Federal Unemployment Tax Act (FUTA) taxes; Are not subject to the 10% early distribution tax. 53 Excess Annual Additions Distribution of excess annual additions, plus gains, are reported on a separate Form 1099-R. Elective deferrals and employee contributions and gains may be on the same form. If the participant received other distributions during the year, report them on a separate Form 1099-R. A corrective distribution of excess annual additions from a 403(b) plan is to be treated the same as corrective distribution of elective deferrals under a 401(k) plan

28 Reporting the Return of Excess Annual Additions on Form 1099-R Return of elective deferrals is taxable in the year distributed and reported on 1099-R as: Box 1 and 2a = Total amount of the distribution Box 5 = Blank Box 7 = Code E Return of employee contributions or designated Roth account contributions, plus gains is reported on the 1099-R as follows: Box 1 = Gross distribution Box 2a = Gains distributed on employee contributions or designated Roth contributions Box 5 = Employee or designated Roth contributions Box 7 = Code E 55 EXCESS CONTRIBUTIONS AND EXCESS AGGREGATE CONTRIBUTIONS 56 28

29 Excess and Excess Aggregate Contribution Basics Refund to pass ADP/ACP test within 2½ months of end of plan year avoids penalty to the employer. Refund of excess plus earnings no gap period income Unlike excess deferrals, excess and excess aggregate can not be refunded until after the plan year is over (even if you know the ADP and/or ACP test is going to fail). Eligible Automatic Contribution Arrangement (EACA) that covers all the plan s participants to return the excess and/or excess aggregate contributions up to 6 months after the end of the plan year. 57 Excess and Excess Aggregate Contribution Returned Within 12 Months after Plan Year End An HCE is receiving a refund distribution of $2,490 on March 3, 2015 to pass the ADP test for The earning are calculated to be $210 (gap income is not to be included). A 1099-R is issued for the 2015 calendar year with a Code 8 (indicating taxable in current tax year). Box 1 and 2a = $2,700 (If this was an excess aggregate, box 2a would be decreased by any after-tax amounts.) The participant is notified on March 3 to include the $2,700 on his 2015 tax return. Not subject to social security, Medicare, nor spousal consent rules. Voluntary withholding at 10% applies, unless participant waives 58 29

30 Recharacterized Excess or Excess Aggregate Contributions Excess contributions recharacterized as after-tax contributions reported as a corrective distribution. Earnings remain in plan as earnings. Example: HCE recharacterized an excess contribution of $493 on Feb. 14, A 2015 Form 1099-R Box 1 and 2a = $493, Code 8. The HCE notified to include $493 in the 2015 tax return. Earnings allocated to the recharacterized amount stay in the plan, and thus, the earnings are not taxable. 59 Excess or Excess Aggregate Contribution After 12 Months under EPCRS Plans that do not correct a test failure within 12 months after the close of the plan year are subject to disqualification. EPCRS has two self-correction procedures which may be followed within two years of the end of the testing period. One is to provide a QNEC. The other is the one-to-one correction method

31 Excess or Excess Aggregate Contribution After 12 Months One-to-One Correction One-to-One correction method would require: a refund of the excess, plus earnings, to the HCE(s), and a contribution of the same amount to the NHCEs. (Excess aggregate non-vested amounts would be forfeited.) 61 One-to-one Correction Form 1099-R Reporting The reporting of the refund of the excess contribution would be done on a Form 1099-R for the year of distribution. The amount is taxable to the HCE in the year of distribution. Code 8 indicates excess for the year distributed

32 After-tax in a Qualified Plan Versus After-tax in an IRA The Impact on the Participant 63 QUALIFIED PLAN AFTER-TAX Post 1986 after tax contributions to a qualified plan (QP) are to be distributed pro rata with pre tax amounts. E.G. as part of periodic payments such as required minimum distributions or non periodic payments. Pre 1987 after tax contributions may be distributed upon request without being pro rata Plan administrator s responsibility to track and report correctly 64 32

33 Qualified Plan After-tax Example Employee who worked for three unrelated employers since Employer A Employer B Employer C Total Pre-tax $6,000 $10,000 $18,000 $34,000 After-tax $2,000 $4,000 $6,000 $12,000 Total $8,000 $14,000 $24,000 $46,000 Distribution of $5,000 from Employer C s QP this year. The after-tax portion of the distribution is calculated as follows: Basis at ER C over Balance at ER C (as of last Dec. 31) $6,000/$24,000 times $5,000 = $1,250 Gross distribution $5,000, Taxable Amount $3,750. Gross distribution, Box 1 = $5,000 Taxable Amount, Box 2a = $3,750. ER C reduces Basis $6,000 - $1,250. = $4, IRA After-tax (Basis) Tracking Issue IRA holder responsible for tracking IRA basis Aggregate all IRAs (other than Roth) for accounting of after tax IRA contributions Calculation of the pro rata after tax amount of IRA distributions requires adding together all after tax amounts in all IRAs (other than Roth). Why would a TPA/record keeper wish to know about this? When advising clients about directly rolling after tax funds to an IRA, it is important to understand the impact of after tax dollars on IRA recordkeeping 66 33

34 IRA After-tax Example IRA Owner has three traditional IRAs with aftertax. Institution A Institution B Institution C Total Pre-tax $6,000 $10,000 $18,000 $34,000 After-tax $2,000 $4,000 $6,000 $12,000 Total $8,000 $14,000 $24,000 $46,000 Distribution of $5,000 from IRA at Institution C this year. The after-tax portion of the distribution is calculated as follows: Total Basis over Total Balance (as of Dec. 31) $12,000/$46,000 times $5,000 = $1, Gross distribution $5,000, Taxable Amount $3, Gross distribution, Box 1 and 2a = $5,000, Institution Checks: Taxable Amount Undeterminable, Box 2b 67 IRA After-tax Tracking Issue Form 8606 (Filed with Form 1040) After-tax basis in traditional, Roth, SEP and SIMPLE IRAs Distributions and contributions for the year Roth IRA distributions Tracks conversions; until the IRA holder closes all of his/her IRAs 68 34

35 IRA After-tax Tracking Issue Once after-tax dollars are in any of the IRA owners traditional IRAs, all of the traditional IRAs are affected and all distributions from then until the IRAs are all closed must be done on a pro-rata basis of pre-tax and after-tax. Tracked and calculated on Form 8606 Lack of accurate recordkeeping by an IRA owner can (and sometimes does) result in the payment of income taxes on what is actually an after-tax IRA amount being distributed from the IRA. It is suggested as a best practice for TPAs/record keepers not to roll after-tax amounts into a participant s traditional IRA without the participant s express authorization. 69 That s All Folks Thanks for attending Questions or comments: wcgrossman@dstrs.com 70 35