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Retirement Acronyms Stage a Jail Break: Part 2

Retirement Acronyms Stage a Jail Break: Part 2

by Charles McCain

A Conversation with Larry Divers

The second part of our series begins with this comforting statement by Chief Buttonwood of the SEC Retirement Police. “I’m pleased to report that we closed the barn door just after the acronyms ran out and I think we did a darn good job of it.”

Maybe not. Fortunately, with Cannon EVP and Retirement Services Expert Larry Divers as temporary Senior Investigative Agent, the acronyms which remain on the lam shall be caught, he tells me. That very moment something catches my eye. “Larry! The Roth IRA just ran past!”

We give chase. Larry says we must capture the Roth IRA because if it mixes in with traditional IRAs—either deductible or not deductible— there will be lots of problems.  “Remember”, Larry yells, “there are many different types of Individual Retirement Accounts and they are not the same. You can’t take money from a Roth IRA and put it into a traditional IRA without converting it.” (Note: this is not a religious ceremony. It is a taxation ceremony).

Moments before Roth tries to mix with traditional IRAs, which would create a taxable event, Larry tackles the acronym.  We drag it to his car and lock it in the trunk. Unfortunately, the other IRAs and IRA-based account acronyms have run away.

“You live in Washington, DC,” Larry says to me, “where would they go?”

I don’t even have to think about it. “To O’Neil’s, it’s an Irish pub on Capitol Hill where lobbyists hang out. I’m certain all the IRAs ran there to see if they could get their contribution limits increased or better tax treatment.”

“Let’s get the more complicated ones first,” he says. We jump into Larry’s car and he drives through DC traffic like a madman, which means we are going ten miles an hour. We pull up to O’Neil’s and burst in. There they are:  a SEP, a SIMPLE, and a SARSEP sitting at a table drinking beer with a dozen lobbyists.

What’s important to know is these three miscreants were established by the Federal Government as variations on a standard IRA to serve different purposes. According to the Internal Revenue Service, there are three of these plans.

The first is “A Simplified Employee Pension (SEP) plan which provides business owners with a simplified method to contribute toward their employees’ retirement as well as their own retirement savings. Contributions are made to an Individual Retirement Account or Annuity (IRA) set up for each plan participant (a SEP-IRA).*

The second says the IRS, is “A SIMPLE IRA plan [which] provides small employers with a simplified method to contribute toward their employees’ and their own retirement savings. Employees may choose to make salary reduction contributions and the employer is required to make either matching or non-elective contributions. Contributions are made to an Individual Retirement Account or Annuity (IRA) set up for each employee (a SIMPLE IRA).”**

The third plan is a SARSEP, or Salary Reduction Simplified Employee Pension Plan. Because the SIMPLE IRA replaced the SARSEP, this last isn’t as common since it had to be established before 1997.  But you could easily run across such a plan for the following reason. According to the IRS, “Employers who established SARSEPs prior to January 1, 1997, can continue to maintain them and new employees of the employers hired after December 31, 1996, can participate in the existing SARSEPs. ***

Because they don’t go away or convert automatically to a SIMPLE IRA, they sit in the tax code ready to trip an unsuspecting FA. The most important thing to remember about all three of these plans is that they are just variations on a traditional IRA and the IRS says the plans must follow “the same investment, distribution, and rollover rules as traditional IRAs.”

However, Senior Investigative Agent Larry Divers points out that there is a different regulation which applies to a SIMPLE IRA that doesn’t apply to the others. If you make an early withdrawal within the first two years after you establish a SIMPLE IRA, the IRS levies a 25% early withdrawal penalty plus regular income tax.  With the other IRAs the early withdrawal penalty is 10%.

“Friends,” Larry says, “when working with different types of retirement accounts, you need to remember how dangerous retirement acronyms can be.

 

http://www.cannonfinancial.com/article/retirement-acronyms-stage-a-jail-break-part-1

 

 

 

To learn more about this topic, register for our Retirement Plan Services I  course.

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Sources/Resources
* https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-seps
** https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-simple-ira-plans
*** https://www.irs.gov/retirement-plans/operating-a-sarsep

COMMENT FROM CHARLES McCAIN: Cannon Financial Institute is the “gold standard” for wealth management training, development and consulting. I worked at the firm for many years and my colleagues were the most talented people I have ever worked with.  Last year the firm sought me out to write articles for them which I started doing in January of  2016. After a hiatus of nine years, I am pleased to report that my colleagues continue to be the most talented people I have ever worked with and it is a pleasure to be working with them again.  I take them directly from the Cannon website and the links work.  I will posting the articles I write for them on my blog after they appear on Cannon’s website. https://www.cannonfinancial.com

Cool Vid USAF Mid-Air Refueling French Mirage Fighters Over Iraq

 

 

US Air Force KC-135 Stratotanker of 340th Expeditionary Air Refueling Squadron fuels French Mirage fighters over Iraq in June of 2015. Official US Air Force video.

Peru to tourists: ‘Stop getting naked at Machu Picchu!’ – CNN.com

A rash of “naked tourism” at the historic site has raised the ire of Peruvian officials.

I was researching something about Machu Picchu and came across this article which I found fascinating since it is so off the wall. Who would even have thought of this? Apparently a handful of people climb up to the ancient city and disrobe. That’s fine by me. I think the world would be more peaceful if people practiced nudism more. Nonetheless, I just never thought of people climbing all the way to Machu Picchu and then taking their clothes off. Besides, at that altitude, the sun is very strong and could sunburn one’s……

Source: Peru to tourists: ‘Stop getting naked at Machu Picchu!’ – CNN.com

Sitting Really Can Kill You, Heart Experts Say – NBC News

Evidence is building that sitting for too long can cause heart disease and diabetes – even in people who exercise, n Heart Association experts say. (Comments Charles McCain: a good way to avoid sitting too much is to be blown out of a cannon on a regular basis.

Source: Sitting Really Can Kill You, Heart Experts Say – NBC News

A Bloody Massacre Happens in the US Every Day and No One Takes Action!

 

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Wreck of District of Columbia fire chief’s car. January 5, 1921

 

Every day in America 90 men, women and children are killed. Yet no one seems to care. Yes, 90 innocent people die every day in a massacre which happens before our eyes and we do nothing. The media doesn’t report it. The President doesn’t address the nation.

Are these people being killed by Islamic terrorists? Right wind terrorists? Psychotic terrorists? No. They are being killed on the roadways of the United States. In 2014, the US National Highway Traffic and Safety Administration reported 32,675 men, women and children died in accidents associated with vehicular traffic.

 

 http://www.nhtsa.gov/