Return to www.Rollover.net Home                                                         First Quarter 2012

FINAL YEAR OF ACCELERATED TAXATION FROM 2010 CONVERSIONS

Under a provision in the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA), the $100,000

AGI restriction was eliminated for Roth IRA conversions. This allows taxpayers with AGI of $100,000

or more to convert their retirement plan assets or Traditional, SEP, or SIMPLE (after two years) IRAs to

Roth IRAs.

Tax consideration

For conversions completed in the year 2010, taxes could be deferred. Unless a taxpayer affirmatively

elected full taxation in 2010, a 2010 Roth IRA conversion was taxed “ratably," by reporting 50% of the

taxable amount converted in 2011 and 50% in 2012.

Accelerated taxation for distributions

TIPRA includes a provision intended to discourage the withdrawal of converted assets until their 2011 and

2012 tax obligations were satisfied.

Under the provision, if a 2010 converted amount is subsequently withdrawn in 2010 or 2011, the amount

of the distribution must be reported as ordinary income in the year of the distribution. The same amount

must be subtracted from the income that would have been reported in the individual’s 2012 tax filing.

Accelerated Taxation for Distributions of 2010 Conversions

Year

Action

Income Reportable

in 2010

Income Reportable

in 2011

Income Reportable

in 2012

2010 Converted $100,000

(50/50 taxation)

$0

$50,000

$50,000

2010 Withdraw $25,000*

(50/50 taxation)

$25,000

$50,000

$25,000

2011 Withdraw $25,000*

(50/50 taxation)

$0

$75,000

$25,000

2012 Withdraw $25,000*

(50/50 taxation)

$0

$50,000

$50,000

*10% premature penalty applies if under 59 ½ years of age

Distribution ordering rules

Assets must be distributed from Roth IRAs in a defined order. Annual contributions must be distributed

first, followed by taxable conversions, non-taxable conversions, and lastly earnings. In the event that a

Roth IRA owner has other assets held in Roth IRAs in addition to amounts converted in 2010, the indi-

vidual must determine (according to these ordering rules) what portion, if any, of a distribution in 2010 or

2011 was subject to the accelerated 2010 conversion taxation rules. Note that all Roth IRAs owned by the

individual must be taken into consideration.

Non-Roth employer plan conversions

In addition to conversions from Traditional, SEP, or SIMPLE (after two years from the first contribution

date) IRAs, the two-year ratable 50/50 taxation option was available for 2010 conversions from non-Roth

type employer-sponsored plans. The tax acceleration rules for pre-2012 distributions will also apply.

This information is for educational purposes only. It is always recommended that you seek the aid of a

competent tax advisor or tax attorney to assist you with tax advice and guidance.

2011 AND 2012 SAVER’S TAX CREDIT LIMITS

Under a provision in the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA),

certain individuals became eligible to receive a federal tax credit for retirement plan contributions in

addition to the tax deduction that may apply to the contribution. Although this provision was due to

expire December 31, 2006, the Pension Protection Act of 2006 (PPA ’06) made permanent this tax credit.

Retirement

Plans Quarterly

1st Quarter 2012

Eligibility

To be eligible for this credit, an individual must be at least 18 years of age (as of the close of the taxable year), may not be claimed

as a dependent on another person’s tax return, and is not a full-time student. Eligible individuals are allowed a contribution tax credit

based on a percentage of the amount they defer into their employer-sponsored 401(k), 403(b), SIMPLE, SAR-SEP, or eligible govern-

mental 457(b) plan. In addition, a tax credit can be claimed for those who contribute to Traditional or Roth IRAs. Although deferrals

to employer-sponsored plans were already made for the 2011 calendar year, eligible individuals may set up a new Traditional or Roth

IRA, or add money to an existing IRA until April 17, 2012, and still qualify for a 2011 tax credit.

Contribution credit

A contribution credit is a non-refundable income tax credit for individuals with adjusted gross income (AGI) under $28,250 ($56,500

for married filing a joint return) for 2011 or $28,750 ($57,500 for married filling a joint return) for 2012. Individuals who qualify

may receive a tax credit of up to 50% of the amount they contribute to a plan, with a maximum credit of $1,000 per year. For married

couples filing a joint return, the maximum credit is $2,000 per year. The following chart outlines the maximum AGI allowed and the

applicable contribution credit.

2011 AGI Limits / Credit

Married Filling Jointly

$0-$34,000

$34,001-$36,500

$36,501-$56,500

Over $56,500

Head of Household

$0-$25,500

$25,501-$27,375

$27,376-$42,375

Over $42,375

All Other Filers

$0-$17,000

$17,001-$18,250

$18,251-$28,250

Over $28,250

Credit

50% of Contribution

20% of Contribution

10% of Contribution

Credit Not Available

Married Filling Jointly

$0-$34,500

$34,501-$37,500

$37,501-$57,500

Over $57,500

Head of Household

$0-$25,875

$25,876-$28,125

$28,126-$43,125

Over $43,125

All Other Filers

$0-$17,250

$17,251-$18,750

$18,751-$28,750

Over $28,750

Credit

50% of Contribution

20% of Contribution

10% of Contribution

Credit Not Available

2012 AGI Limits / Credit

Double benefit

For those who qualify, salary deferrals into employer-sponsored plans, or tax deductible contributions into IRAs, plus a tax credit of-

fers an excellent tax savings opportunity.

CAN MINORS HAVE IRAS.

Did you know that under federal tax laws there are no minimum

age restrictions for minors wishing to establish and fund

Traditional or Roth IRAs. If a minor has earned income, he or

she may establish and contribute the lesser of 100% of their

earned income or $5,000 into an IRA for 2011 and/or for 2012

(no increase in contribution limits for 2012).

Earned income

The definition of “earned income" is earnings from personal

services rendered. This is generally the income that appears on

IRS Form W-2. However, a Form W-2 is not a requirement for

contracted self-employed individuals. They generally receive IRS

Form 1099-MISC that reports amounts received for services in

their trade or business. In addition, other income, such as non-

reported tips, or household employee income (if less than $1,700

paid in 2011), is not reportable by the employer on Form W-2.

IRS reporting

When IRAs are established for minors, the address and Social

Security number are used. When institutions report IRA

contributions to the IRS (Form 5498), the minor’s Social Security

number is included in the report. So, no matter the source of the

income, it is important that records are kept as to exactly when

and how the income was earned in case the IRS ever questions the

reported contributions vs. the non-reported income.

State laws vary

An IRA is a contract between a financial organization and an

individual, and state laws pertaining to minors signing contracts

should be reviewed. In many states, minors are restricted from

entering into valid contracts, and in other states, a contract requires

a co-signature of a parent or legal guardian. Therefore, if a parent

or guardian of a minor intends to establish and fund an IRA on

behalf of a minor, it is suggested that they contact their CPA or

tax advisor to review the proposed strategy before finalizing the

transaction.

NOT TOO LATE FOR 2011 SEPS

An employer must establish a Qualified Retirement Plan (QRP)

by the end of the tax year for which a tax deduction is taken

(Rev. Rul. 76-28). If an employer’s tax year is based upon the

calendar year, December 31, 2011 was the last day a QRP could

be established for 2011. However, employers have until the due

date of their federal income tax return for the business, including

extensions, to establish a Simplified Employee Pension (SEP) Plan

and make SEP contributions (Prop. Treas. Reg. 1.408-7(b): IRC

Sec. 404(h)) for 2011.

Contributions

The maximum amount that can be contributed for 2011 on behalf

of SEP participants is the lesser of:

• 25 percent of compensation (IRC Sec. 402(h) limit) up to the

compensation cap of $245,000 (increased to $250,000 for

2012) or

• $49,000 (increased to $50,000 for 2012)) (IRC Sec. 415(c)

dollar limitation)

Closing comment

A SEP plan is a very attractive plan for small business owners

considering the benefits offered, ease of establishment, and little

or no fiduciary responsibilities. In addition, it’s a great plan for

those business owners who file for an extension, as they can still

open and contribute to a SEP and take advantage of receiving a tax

deduction for the 2011 tax year.

THE NEW DISCLOSURE REQUIREMENTS FOR

PARTICIPANT-DIRECTED INDIVIDUAL ACCOUNT

PLANS

Over the last several years, the DOL has focused on the expenses

and fees charged to retirement plan participants. Participant law

suits, fee transparency problems, as well as the 408(b)(2) (service

provider fee disclosures to plan sponsors) regulations gave rise

to the increased scrutiny. Consequently, the DOL has published

a Regulation under ERISA, Section 404 requiring the disclosure

of certain plan and investment-related information, including

expense and fee information, to participants in participant-directed

individual account plans, such as 401(k) plans. The Regulation

will apply on May 31, 2012 (60 days following the 408(b)(2),

April, 1 2012 effective date), which, per some industry experts,

may be extended.

Retirement plan vendors are preparing to provide the required

disclosures on their platforms, but plan sponsors, administrators,

and other involved parties should be aware of the upcoming

requirements to understand the changes and anticipate possible

questions from plan participants.

Plan-related information to be disclosed

The following plan-related information must be based on the latest

information available to the plan and must be provided by the plan

administrator (or its delegate, typically the retirement plan record

keeper) before the date that a participant can first direct his or her

investments and at least annually thereafter. Subsequent changes

to the information generally must be provided to participants

at least 30 days, but not more than 90 days, in advance of the

effective date of the changes.

General information

General information includes how and when participants may

give investment instructions (as well as any limitation on such

instructions), the names of the designated investment alternatives

(investments available for participants to direct their individual

account assets), or investment manager(s), and a description of any

brokerage windows or self-directed brokerage accounts available

under the plan.

Administrative expenses and fees

Administrative expenses and fees include an explanation of

general plan administrative service fees (to be provided at least

quarterly) and, for the preceding quarter, the dollar amount of the

expenses and fees (and their associated services) that are actually

charged to the participants, and whether some of the plan’s

administrative expenses were paid from the annual operating

expenses of one or more of the plan’s designated investment

alternatives (e.g., through 12b-1 fees, sub-transfer agency fees,

etc.).

Participant-specific expenses and fees

Participant-specific expenses and fees include any expenses

and fees that potentially can be charged against an individual

participant’s account, (rather than on a plan-wide basis), e.g.,

processing participant loans, and that are not reflected in the total

annual operating expenses of designated investment alternatives.

Also, at least quarterly, the dollar amount of the expenses and

fees that are actually charged during the preceding quarter to the

participants’ accounts and a description of the associated services.

Investment-related information to be disclosed

The investment-related information must be provided on or

before the date on which the participant can first direct his or her

investments and at least annually thereafter. The plan administrator

(or its delegate, typically the retirement record keeper) must

automatically provide the following information with respect to

each designated investment alternative offered under the plan.

Identifying information

Identifying information includes the name of each designated

investment alternative and investment type, such as a money

market fund, balanced fund, large cap stock fund, employer stock

fund, employer securities, etc.

Performance data, expenses, and fees for non-fixed

investments

For non-fixed investments, disclosures include the average annual

total return of the designated investment alternatives for 1, 5,

and 10 calendar year periods (or for the life of the designated

investment alternative, if shorter) and the returns of an appropriate

broad-based securities market index over the same period(s).

Also, a description of each shareholder-type fee, the total annual

operating expenses of the investment expressed as a percentage

(i.e., an expense ratio), and the total operating expenses of the

investment for a one-year period expressed as a dollar amount for

a $1,000 investment. Statements must be provided noting that:

• Fees and expenses are only one factor that participants should

consider when selecting investments,

• Cumulative expenses and fees can substantially reduce the

growth of a participant’s account, and

• Participants can visit the DOL’s web site for an example of

the long-term effects of expenses and fees.

Performance data, expenses, and fees for fixed

investments

Disclosures here include the fixed or stated rate of return and

whether it is subject to adjustment, the term of an investment, the

minimum rate guaranteed, how to obtain the most recent rate of

return (e.g., telephone or web site), the amount and a description

of shareholder-type fees, and a description of any limitation or

restriction applicable to a purchase, transfer, or withdrawal of the

investment. Also to be provided is certain annuity information, an

Internet web site address for comprehensive information regarding

the designated investment alternatives, and a general glossary of

terms to assist participants in understanding designated investment

alternatives or an Internet web site address containing such a

glossary.

The information contained in this newsletter has been carefully compiled from sources believed to be reliable, but the accuracy of the information is not guaranteed.

This newsletter is distributed with the understanding that the publisher is not engaging in any legal or accounting type of work such as practicing law or CPA services.

Member SIPC and New York Stock Exchange, Inc.

National Headquarters: One Financial Plaza • 501 North Broadway • St. Louis, Missouri 63102

(314) 342-2000 • www.stifel.com

Investment Services Since 1890

Comparative data

The plan administrator (or its delegate) must furnish the

investment-related information described above on a chart that is

designed to facilitate the comparison of such investment-related

information for each designated investment alternative available

under the plan. The DOL has prepared a model statement that

addresses the comparative format requirement. Use of it ensures

automatic compliance, but is not required.

Information subsequent to a participant’s investment

The plan administrator (or its delegate) must furnish to each

participant any materials provided to the plan related to the

exercise of voting, tender, and surrender rights, if such rights are

passed through to participants under the terms of the plan.

Information provided upon participant request

The plan administrator (or its delegate) must furnish to each

participant upon his or her request the following information:

• Copies of any prospectus, or summary prospectuses in an

SEC-approved format.

• Copies of any financial statements or reports relating to

designated investment alternatives.

• A statement of the value of a share or unit of a designated

investment alternative as well as the date of the valuation.

• A list of the assets comprising the portfolio of each

designated investment alternative and the value of each such

asset or the proportion of the investment which it comprises.

Special provisions for qualifying employer securities

and annuity options

In complying with all of the requirements described above relating

to disclosures of investment-related information, there are other

rules if a designated investment alternative is designated to

invest in, or primarily in, qualifying employer securities or if a

designated investment alternative is an annuity.

Conclusion

On May 31, 2012, the new DOL Regulation under ERISA, Section

404 will require the disclosure of certain plan and investment-

related information, including expense and fee information, to

participants in participant-directed individual account plans,

such as 401(k) plans. Plan-related information to be disclosed

includes general information, administrative expenses and fees,

and participant-specific expenses and fees. Investment-related

information to be disclosed includes identifying investment

information, performance data, expenses and fees for non-fixed

investments, comparative data, information subsequent to a

participant’s investment, information provided upon participant

request, and special provisions for qualifying employer securities

and annuity options.

Retirement plan vendors are preparing to provide the required

disclosures on their platforms. It will be important for a plan

sponsors/plan administrator to be aware of the newly required

disclosures in order to understand the changes and anticipate

possible questions from plan participants.