Defined Benefit Plan and 2010 Roth Conversion
I have a substantial amount of consulting income (self-employed income) and have already maxed out my SEP IRA. I want to put as much income into a retirement account that I can then convert into a Roth IRA (or into a traditional IRA and then a Roth IRA) in 2010 (when the income limits lift). My question is this: should i set up a defined benefit plan and put as much income as i can into it so that i can covert the defined benefit plan into a traditional IRA and then a Roth IRA in 2010. Or does the fact that i am setting up the defined benefit plan in 2008 mean that i can’t convert it into a Roth IRA in 2010 given that it would have been in existence for only 2-3 years? Help! thanks.
Permalink Submitted by Denise Appleby on Mon, 2008-06-16 09:20
The short period for which the plan would be maintained may be problematic. While an employer can terminate a plan at anytime, one of the general requirements for a plan to be qualified is that it must be permanent. [Treas. Reg. § 1.401-1(b)(2)]. Of course, if you satisfy the plan’s requirements for [url=http://www.retirementdictionary.com/Triggering-Event.htm%5Dtriggering events[/url], you could then make withdrawals.
Maintaining a defined benefit plan for two years and then terminating the plan for reasons other than business necessity could result in disqualification.
NB. Conversions directly to Roth IRAs ( instead of to traditional IRAs, then Roth IRAs) are now permissible.
If you maintain another plan with the SEP, the SEP document cannot be the IRS Model 5505-SEP. A prototypes or individually designed SEP plan that does not disallow pairing can be used