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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 3995
Experience:  Juris Doctorate, CFP and MBA, Providing Financial & Tax advice since 1986
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Does a SARSEP 408(k)(6) retirement plan balances have to be

Resolved Question:

Does a SARSEP 408(k)(6) retirement plan balances have to be included in the total IRA balances when doing a Roth conversion from traditional IRA.

Facts are: Client does a nondeductible IRA for $5,000 as income is over the limits, in addition at her job she is a participant in a SARSEP (set-up prior to 1997). Now she converts the 5000 to a Roth ( back-door Roth) with this $5000 being her only traditional
IRA funds. For the prorata rule does she need to include the SARSEP funds as IRA funds in the calculation on form 8606? Instructions say traditional, SEP and SIMPLE IRA?

Please help, thanks
Submitted: 11 months ago.
Category: Tax
Expert:  Lane replied 11 months ago.

Lane :

Hi, yes all tax-deferred IRAs, including Traditional, Rollover,SIMPLE, SEP, and SAR-SEP IRAs, are eligible for a Roth IRA conversion (With one caveat - SIMPLE IRAs may not be converted until two years from the date the account owner first began participating in the plan). Further the SARSEP, along with all of the others must be counted

Lane :

When IS references SEP, Salary Deduction SEPs are included ... Understanding that any money contributed as a salary deferral AS WELL AS contributions by an employer being completely vested and under the control of the Owner of the SARSEP helps to explain ....

Lane :

The way ine when dollars were contributed to a SEP don't change the nature of the SEP as it exists today

Lane :

Hope this helps

Lane :

Lane

Lane :

I still don't see you coming into the chat session, so I'll move us to the "Q&A" mode. … Maybe that will help … (We can still continue a dialogue there, just not in real-time chat, as we can here)


Please let me know if you have any questions as all ...


Lane


Expert:  Lane replied 11 months ago.
Our chat has ended, but you can still continue to ask me questions here until you are satisfied with your answer. Come back to this page to view our conversation and any other new information.

What happens now?

If you haven’t already done so, please rate your answer above. Or, you can reply to me using the box below.
Expert:  Lane replied 11 months ago.

Hi Sam

... just checking back in here, as I never saw you come into the chat

But again, yes the SARSEP does need to be considered (added to the balance for the calculation)

Let me know if you have any questions at all

Lane
Customer: replied 11 months ago.

Lane, it seems to me the SARSEP is more like a 401K, as the money going in does not count against the $5000 contribution limit, so then


why does it need to be counted as a IRA balance?

Expert:  Lane replied 11 months ago.

How it the money got there isn't actually, the issue.

It's the NATURE of what the account is today, a SEP.

And the the SEP is an IRA.

The SARSEP (Salary reduction SEP) is still an IRA.

401(k)'s are ERISA plans (subject to ADP and ACP and many other tests by IRS As WELL AS MANY other tests relative to plan document, employee communication and education , etc. by the Department of Labor)

SEPS are just a super IRA and don't fall under ERISA Labor Law at all.

IN, fact Salary Reduction SEPS were eliminated (better said, getting money into a SEP via a salary reduction was eliminated) to, among other things, more clearly separate SEPS as an individually owned, non ERISA, always automatically vested, IRA plan.


SEPS are IRAs.

A SEP, for example, doesn't have true plan document, as an ERISA plan does, one simply fills out a 1/2 page 5305 form, and that's it.

Here's how IRS puts it: from http://www.irs.gov/Retirement-Plans/Retirement-Plans-FAQs-regarding-SEPs

"A SEP-IRA account is a traditional IRA and follows the same investment, distribution, and rollover rules as traditional IRAs."


Hope this helps,

Lane
Customer: replied 11 months ago.

Lane, not the answer I was looking for, but lets me know what direction


to go with my client, thanks.

Expert:  Lane replied 11 months ago.

Hi Sam,

We must be on the same wavelink. I was just about to post this.

Also, when I find a rev procedure, bulletin, or reg I'll post that as well ... looking at West right now.

I've been looking for some other documentation for this, in a effort to make you feel comfortable with the answer.

So much of what IRS says has to be translated (from a SARSEP IS a traditional IRA account TO the use of all traditional IRAs in the aggregation balance)

Here's a piece - on the bottom of page six (and coincidentally footnote 6 at the end of the piece) that says this in a direct way:

http://retirementincomejournal.com/upload/567/pdf/roth-ira-conversion-nov-2009.pdf

You might want to check back in a couple of hours... at least that way you'll have some documentation for the file.

Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 3995
Experience: Juris Doctorate, CFP and MBA, Providing Financial & Tax advice since 1986
Lane and other Tax Specialists are ready to help you
Expert:  Lane replied 11 months ago.


Thanks for the rating Sam!

Still looking for something specific, in terms of a reg or something that can be cited.

Now it's a quest!

Lane

Expert:  Lane replied 11 months ago.
Here we go Sam.

This should connect all the dots:



(a) Different types of IRAs--(1) IRA. Sections 408(a) and (b), respectively, describe an individual retirement account and an individual retirement annuity. The term IRA means an IRA described in either section 408(a) or (b), including each IRA described in paragraphs (a)(2) through (5) of this A–1. However, the term IRA does not include an education IRA described in section 530.(2) Traditional IRA. The term traditional IRA means an individual retirement account or individual retirement annuity described in section 408(a) or (b), respectively. This term includes a SEP IRA but does not include a SIMPLE IRA or a Roth IRA.(3) SEP IRA. Section 408(k) describes a simplified employee pension (SEP) as an employer-sponsored plan under which an employer can make contributions to IRAs established for its employees. The term SEP IRA means an IRA that receives contributions made under a SEP. The term SEP includes a salary reduction SEP (SARSEP) described in section 408(k)(6).

26 C.F.R. § 1.408A–8


Lane
Customer: replied 11 months ago.

Thanks Lane, that should do it.

Expert:  Lane replied 11 months ago.

Great.

Helped me add to the library too.

If you'd like to work with ME again just say "For Lane only," at the beginning of your next question.

Thanks again,
Lane

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