A � 7. Yes. In the case of a distribution from an eligible retirement plan other than a Roth IRA, the modified adjusted gross income and filing status of the beneficiary are used to determine eligibility to make a qualified rollover contribution to a Roth IRA. Pursuant to IRC Sec. 402(c)(11), a plan may, but is not required to, permit rollovers by non-spouse beneficiaries, and a rollover by a non-spouse beneficiary must be made by a direct trustee-to-trustee transfer. A surviving spouse who makes a rollover to a Roth IRA may elect either to treat the Roth IRA as his or her own or establish the Roth IRA in the name of the decedent with the surviving spouse as the beneficiary.

Note that the action to move assets from a deceased participant�s retirement plan directly into an inherited Roth IRA is considered a conversion and direct rollover. Also,

1. The $100,000 AGI conversion restriction still applies for eligibility, and

2. Any pre-tax dollars converted to an inherited Roth IRA is reported as ordinary income.

Prior to PPA �06 and Notice 2008-30, beneficiaries of deceased participants in qualified retirement plans were offered a limited number of distribution options. The new regulations offer non-spouse beneficiaries flexibility to control their investments and the timing of their taxation by directly rolling QRP assets to inherited beneficiary traditional or Roth IRAs.

A military tax bill (HEART) containing a combination of tax benefits and incentives for military personnel was signed into law by President Bush on June 17, 2008.

Included in the Act are provisions that will affect employer-sponsored retirement plans, IRAs, and Coverdell ESAs, such as:

� Death benefits under the Uniformed Services Employment and Reemployment Right Act (USERRA) extended to military survivors � Tax-qualified pension plans are required to entitle survivors of plan participants who die while on active military duty to additional benefits and benefit accruals provided under such plans for participants who resume and then terminate employment due to death.

October 1 is an important date for all new SIMPLE plans. There is a requirement that within a 60-day period preceding the plan year, the employer must allow eligible employees to make deferral elections (IRC Sec. 408(p)(5)(C)). For the plan year 2008, the 60-day election period must begin by October 1 for new plans to include 2008 deferrals.

Assets in U.S. retirement plan arrangements (defined benefit and defined contribution plans) totaled $17.8 trillion as of the third quarter of 2007. Of that total, 27% of the assets ($4.8 trillion) were held in IRAs, 25.2% ($4.5 trillion) in defined contribution plans, 24.7% ($4.4 trillion) in government pension plans, and the balance held in other plans.¹

To explain why IRAs hold the largest share of all of the retirement plan arrangements, the report revealed that 59% of households with traditional IRAs reported that some part of their IRA contained assets rolled over from an employer-sponsored retirement plan. Because accumulations in employer-sponsored retirement plans are often sizable amounts, rollovers have caused the overall total held in IRAs to increase.

In comparing households that have one or more traditional or Roth IRAs to those that do not, the average annual income for those with IRAs was $80,000 vs. $34,000 for households without IRAs. In addition, households with IRAs averaged $250,000 in total financial assets, compared to $40,000 for non-IRA households. Other characteristics of households owing IRAs found owners to be more likely to be married, attended college, and participate in an employer-sponsored retirement plan.

In 1990, there were $637 billion held in IRAs, and that figure has grown to $4.8 trillion. With increased contribution limits ($5,000 in 2008) and the continued growth of rollovers, IRAs certainly are, and will continue to be, a critical piece of Americans� retirement program.

investment advisers, investment managers, recordkeepers, trustees, and appraisers) who received more than $1,000 in indirect compensation from one or more payors, filers would have to provide an additional level of information, including the identity of each payor, the amount of the compensation received, and the nature of the compensation.

The guidance, in Q&A format, clarifies such issues as the alternative reporting option for eligible indirect compensation, electronic disclosure of fee information by service providers, fee reporting for brokerage window options in participant directed plans, and reporting on gifts, entertainment, and other non-monetary compensation.

Service providers that furnish the plan administrator with a written statement indicating that the service provider made a good faith effort to make necessary recordkeeping and information system changes in a timely fashion and, despite such efforts, was unable to complete the changes will not be reported as failing to provide fee and compensation information for the 2009 plan year.

Complete guidance can be found on the DOL website: http://www.dol.gov/ebsa/faqs/faq_scheduleC.html

Most participants who retire before 59 � are not aware that they may be eligible to take distributions from their employer�s qualified plan without penalty. Many assume that they would be required to pay a 10% early withdrawal penalty on any premature distributions from their employer-sponsored plan account. But a little known exception to the 10% early withdrawal penalty is available for those that have separated from service after reaching age 55.

IRC Section 72(t)(2)(A)(v) specifies that participants separating from service after age 55 can receive payments from the plan without penalty. The IRS has interpreted the age 55 separation requirement to be satisfied if the participant separates from service during the calendar year in which the participant reaches age 55. The participant is not limited to substantially equal payments, but can withdraw funds in any manner (lump sum, partial distribution, etc.) that the plan document allows.

Participants may not separate from service in years prior to turning age 55 and expect to receive penalty-free distributions upon reaching age 55, unless a qualified exception applies (i.e., death, disability, etc.). If the participant separates from service prior to turning age 55 and doesn�t meet a qualified exception, he or she would need to satisfy the substantially equal periodic payment exception to receive penalty-free distributions.

Also, the age 55 exception is not available to IRAs. The funds must remain in the qualified plan of the employer with which the participant separated service after age

3. The plan to which such safe harbor contributions will be made (if different than the plan containing the 401K);

4. The type and amount of compensation that may be deferred under the plan;

5. How to make cash or deferred elections, including any administrative requirements that apply to such elections;

6. The periods available under the plan for making cash or deferred elections; and

7. Withdrawal and vesting provisions applicable to contributions under the plan.

The Safe Harbor notice may cross-reference the relevant portions of the Summary Plan Description with respect to items 2, 3, 4, and 7 above.

Plan sponsors may provide the Safe Harbor notice on a written paper document or electronically. If provided electronically, it must be in an electronic medium reasonably accessible to the employee, provided that such electronic medium meets the following conditions: (i) the system under which the electronic notice is provided is reasonably designed to provide the notice in a manner no less understandable to the employee than a written paper document; and (ii) under such system, at the time the notice is provided, the employee is advised that the employee may request and receive the notice on a written paper document at no charge, and, upon request, that the document is provided to the employee at no charge.

Safe Harbor 401K plans have gained popularity, and December 1 is another important date not to forget.

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.

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