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Don’t Make the Same Mistakes These Advisors Made: This Week’s Q&A

By Beverly DeVeny
Follow Us on Twitter: @theslottreport

This week's Slott Report Mailbag looks into inherited SEP-IRAs, 403(b)s and inherited IRAs. As always, we recommend you work with a competent, educated financial advisor to keep your retirement nest egg safe and secure. You can find one in your area here.

Question:

I attended a past seminar and was extremely impressed with your knowledge of retirement plans.  I was hoping that you could provide some guidance regarding one of my clients, a husband and wife.  The two of them own an S Corporation and each will receive enough wages that would allow the company to contribute the maximum amount of $54,000 to a SEP-IRA for each.  The wife also receives wages from a college where she plans on maximizing her 403(b) contribution at $24,000.  It’s not clear to me if the husband and wife can each contribute and deduct $54,000 to a SEP-IRA and therefore deduct a total of $108,000 on the S Corporation return.  I’m also not certain if the 403(b) contribution has any effect on the SEP-IRA contribution limitation for either the husband and wife on the S Corporation return (i.e. – whether or not the $54,000 amount of either has to be reduced by the $24,000).  They’re looking to maximize the total amount that they can contribute to retirement plans in 2017. Any input would be greatly appreciated.

Regards,
Dave        

Answer:

This is a complicated area of employer plans and we are not experts in this area. As a general rule, if the 403(b) owner (in this case the wife) is also an owner of the business, the maximum amount she can contribute to both plans combined is $54,000. The issue that needs to be clarified is what constitutes ownership of an S Corporation which again is an area where we are not experts. If they are considered to be self-employed, then their maximum contribution will be approximately 20% of their income, not 25%. You should consult with a TPA in this matter.

Question:

Hello,

I would appreciate any help in this matter.

I have a client whose parent recently passed away with an inherited IRA. When the first spouse passed away the IRA was coded incorrectly to the surviving spouse as an inherited IRA instead of a spousal IRA rollover. Both parents were over 70 at the first spouses passing. The second spouse passed away and left the inherited IRA to her children. The children have been told that the RMDs will be based on the deceased mother's age instead of the children's ages. Is there any way to correct this mistake?

Answer:

Unfortunately, there is no remedy for this problem. Many custodians do exactly what this custodian did which is clearly not in the best interests of an older surviving spouse. They automatically transfer the IRA to an inherited IRA and stop there. The assets remain in an inherited IRA instead of being put in the surviving spouse’s own name. If a spousal rollover was requested and the IRA was incorrectly coded, then you should be able to get the custodian to correct the situation. You would need to have paperwork from the surviving spouse showing that they requested the transfer to an IRA in their own name.  

 
 

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