Fed Government Civil Service Annuity plan
If you are a government employee, civil service employee or officer, you might still be under the old plan, ie not social security contributor but rather eligible for civil service annuity. This plan allows for a one time voluntary contribution to the plan. This amounts to an after tax contribution to the plan. This can then be rolled over to an IRA or converted to a Roth IRA. My question is this: many writers and commentators have suggested that this after tax balance must be aggregrated with other IRA assets. The ability to execute Roth Conversion is fairly recent as authorized by OPM -likely to conform to IRS law. My take is that the voluntary contribution balance is part of an employer plan. I can’t understand the basis for stating that aggregation is required. Anyone have experience or thoughts on this? I believe that the governmental plan is not a qualified plan per se, but I also believe it is not one of the plans that must be included in aggregation per Form 8606 instructions etc.
Thanks
Jim
Permalink Submitted by Alan Spross on Tue, 2010-02-09 00:23
Jim,
You are correct. The only balances that are applied on Form 8606 are IRA balances, ie TIRA, SEP and SIMPLE IRAs. All other plans qualified plans basically have their own basis which is used for the pro rated amount of distributions or direct Roth conversions. The responsiblity for reporting the after tax basis rests with the plan administrator on the 1099R issued, not on the taxpayer via Form 8606.
Direct Roth conversions are only in their 3rd year now, but a plan as large as this should have a website explaining some of the plan features, like the TSP does. The impression that aggregation with IRAs is required might date back to the time when all lump sum rollovers from qualified plans had to go to a TIRA before conversion to a Roth IRA, and now the TIRA can be bypassed entirely. The exception is a recharacterization of a Roth conversion, when the funds must be sent to a TIRA rather than back to the original qualified plan.
The big question with the current situation that needs IRS clarification is how to do direct Roth conversions of the after tax balance while transferring the pre tax amount to a TIRA and avoiding the pro rate rules. This is understandably what most people want to do, but so far the IRS Notices do not clarify that this can be done by direct rollovers while avoiding pro rating the after tax amounts into each type of IRA. It can be done by indirect rollover, but then you have 20% mandatory withholding to deal with.
Permalink Submitted by JAMES MAGNO on Wed, 2010-02-17 22:54
Thank you Alan.
Point of clarification on my last post. I still do not know why the opinion is floating out there that voluntary contribution plan assets (all after tax dollars) must be aggregated. Alan made good point. After further review and research, it appears that some might be treating VC plan assets as a deemed IRA pursuant to Rev Proc 2003-13 and code section 408(q).
In reading 408(q) it appears that this VC plan would not qualifed as an IRA as stipulated under 408(q) and therefore is not a deemed IRA.
I don’t expect much response to this post . I figured that I would update my posting given that I am now cognizant
of this line of thinking. I would pay to attend one of Ed’s two day sessions just to get the answer to this questions!!! 😛 (but sadly I will be knee deep in tax returns in March rather than in Orlando. Go figure.
All the best to everyone on this forum.
Jim Magno