follow up to Trad vs Rollover IRA post

L1: follow up to Trad vs Rollover IRA postCan you answer some additional questions related to the previous post:
1) Isa 401K funded by employee with before-taxcontributions and with a trustee to trustee transfer of a pension considered to be an “all before-tax contribution” 401K?
2) If 1) is true [that is, the 401K is made up of”all before-tax contributions”], then would a Rollover IRA funded froma total distribution from this401K mean that any funds distributed through a SEPP distribution be all taxable as oridinary income?
3) Does it makes sense [and is possible to fundthe SEPP IRAall with before-tax contributions], that the SEPP IRA be fundedwith only after-tax funds? Tha way, one doesn”t have toremeasure the basis every year.
Thanks, Roger2003-02-26 21:14, By: roger, IP: [127.0.0.1]

L2: follow up to Trad vs Rollover IRA postHello Roger:
1. Yes.
2. Yes.
3. No. But I will profess to be confused by the question.
TheBadger
wjstecker@wispertel.net

2003-02-26 22:03, By: TheBadger, IP: [127.0.0.1]

L2: follow up to Trad vs Rollover IRA post1) I”m not sure why 3) was answered with a “No”……..if one has sufficient funds to fund the SEPP IRA with all pre-tax money, then isn”t all the SEPP distributions for any given year just included on a line 15b as taxable income and one doesn”t have to compute the taxable versus non-taxable income amounts?
2) Also one wouldn”t have to remeasure the ratio each year when the SEPP IRA gained or loss money if it were all funded with pre-tax money…..is this correct?
Perhaps my understandingis not clear, so I would appreciate any clarifications.
Thanks…..we allappreciate the great info you and Gordon are providing to all of us SEPP neophytes.
Roger2003-02-26 22:30, By: roger, IP: [127.0.0.1]

L2: follow up to Trad vs Rollover IRA postIf there are ANY after-tax dollars in an IRA, then a portion of ANY distribution is considered to be part taxable and part non-taxable.
You can NOTallocate only pre-tax dollars to a SEPP it there are ANY post-tax dollars in ANY of the IRA accounts.
2003-02-27 04:38, By: Gfw, IP: [127.0.0.1]

L2: follow up to Trad vs Rollover IRA postLet’s see if we can solve this issue with an example. Assume John has two IRAs: one, a rollover IRA from his 401(k) plan with a balance of $400,000 (by definition, this account can have no basis as after tax contributions would have been returned directly to John when the rollover occurred); two, John also has a contributory IRA worth $200,000 with a basis of $40,000 (actually quite high) in it.
John wants to setup a SEPP program paying $12,000 per year which given other factors/methods selected will require a corpus of $200,000. John has three fundamental choices:
1. Split IRA #1 into two IRAs of $200,000 each (IRAs A & B). Commence SEPPs on IRA A. 100% of the SEPP distribution is taxable because there was no basis in the rollover IRA.
2. Commence SEPPs on IRA #2 in which case; at least in year one, $2400 (20%)of the $12,000 will be return of basis and $9,600 will be taxable.
3. Create a new IRA X funding it 50% from IRA #1 and IRA #2 with $100,000 from each. Now you have a new IRA with $20,000 of basis in it as the basis from IRA #2 travels ratably into IRA X. Thus, in year one $1200 is return of basis and $10,800 is taxable income.
I was simply suggesting that option #3 above rarely makes sense for several reasons: more often than not, the basis one has in a contributory IRA tends to be pretty small — it’s just not possible to build an IRA of any substantial size with a large basis; annual recalculation of basis percentages is a pain in the butt; therefore why go through it twice when it is just as easy to get all the basis in one place.
TheBadger
wjstecker@wispertel.net2003-02-27 08:17, By: TheBadger, IP: [127.0.0.1]

L2: follow up to Trad vs Rollover IRA postThanks, your replies clear this up completely in my mind….examples really help in resolving issues like this and I appreciate your time and thoughtin spelling it out for us….have a good day….Roger2003-02-27 09:47, By: roger, IP: [127.0.0.1]