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  • darnabeel
    replied
    Thank you all for the input! I didn't know I was going to open a db pension plan & 401k/profit sharing plan when I contributed to the sep ira. Also there will be no tax consequences since I suffered a small loss on my sep ira contribution over the last month.

    Leave a comment:


  • litovskyassetmanagement
    replied




    Another question about DB pension plans. I already contributed to a SEP IRA for 2016 and am now in the process of starting a DB Pension plan and 401k/profit sharing plan for 2016. I have instructed Vanguard to return my SEP IRA contribution for 2016 (since you cannot contribute to both a SEP IRA and DB Pension plan for the same year).

    I also contributed $5,500 into a traditional IRA (for 2016) which was placed into my SEP IRA account at Vanguard (Vanguard allows this). Do I also have to instruct Vanguard to also return the $5,500 traditional IRA contribution to me? Vanguard says I don’t need to (since Vanguard reports thsi to the IRS as a traditional IRA contribution). My accountant says I need to request Vanguard to return the 2016 traditional IRA contribution that went into my SEP IRA account.

    Any thoughts? Please advise..
    Click to expand...


    I wouldn't trust Vanguard to provide any advice or recommendations - they are not supposed to do so anyway.  Go with what your CPA is saying.  For one thing, if you had any growth in your SEP account, that's one issue right there that your CPA would have to take care of.  Anything that went into the SEP account would have to be pulled out, such as any Traditional IRAs that you rolled into it.  Stuff like this happens when proper planning isn't done - especially if you knew that you wanted a combo plan, someone should have told you not to fund a SEP for 2016 to avoid such issues altogether.   Things get a lot more complex with a combo plan if things are not done right.

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  • jfoxcpacfp
    replied




    Another question about DB pension plans. I already contributed to a SEP IRA for 2016 and am now in the process of starting a DB Pension plan and 401k/profit sharing plan for 2016. I have instructed Vanguard to return my SEP IRA contribution for 2016 (since you cannot contribute to both a SEP IRA and DB Pension plan for the same year).

    I also contributed $5,500 into a traditional IRA (for 2016) which was placed into my SEP IRA account at Vanguard (Vanguard allows this). Do I also have to instruct Vanguard to also return the $5,500 traditional IRA contribution to me? Vanguard says I don’t need to (since Vanguard reports thsi to the IRS as a traditional IRA contribution). My accountant says I need to request Vanguard to return the 2016 traditional IRA contribution that went into my SEP IRA account.

    Any thoughts? Please advise..
    Click to expand...


    As long as Vanguard reports correctly to the IRS, you are ok. Your accountant is being cautious and I don't really blame him/her. If the IRA is reported incorrectly, then you'll have to request an amended 5498 and make sure the IRS gets it and it could cause a bigger headache than going through the motions now. I would trust Vanguard to know what they are talking about, but it does rest on the knowledge and experience of the person you spoke to on the other end of the line! Of course, you may not want to cash out your TIRA contribution and pay unnecessary fees.

    If it were my client, I'd probably trust Vanguard and offer to do the cleanup if there is a mistake (which is what your CPA may be afraid of :-) ) I can't fault him for that.

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  • darnabeel
    replied
    Another question about DB pension plans. I already contributed to a SEP IRA for 2016 and am now in the process of starting a DB Pension plan and 401k/profit sharing plan for 2016. I have instructed Vanguard to return my SEP IRA contribution for 2016 (since you cannot contribute to both a SEP IRA and DB Pension plan for the same year).

    I also contributed $5,500 into a traditional IRA (for 2016) which was placed into my SEP IRA account at Vanguard (Vanguard allows this). Do I also have to instruct Vanguard to also return the $5,500 traditional IRA contribution to me? Vanguard says I don't need to (since Vanguard reports thsi to the IRS as a traditional IRA contribution). My accountant says I need to request Vanguard to return the 2016 traditional IRA contribution that went into my SEP IRA account.

    Any thoughts? Please advise..

    Leave a comment:


  • spiritrider
    replied
    Keep in mind that the PBGC like the FDIC for bank accounts only guarantees pensions to a certain level. For a person retiring in 2016 at 65 that is $60,136.32. This not to say you won't get more.

    When the FDIC takes over a failing bank, depositors are guaranteed $250K, but many times depositors receive a high percentage or possibly even all of their deposits.

    When the PBGC takes over a pension fund, the pensioners are guaranteed the minimum, but depending on the health of the pension fund, may receive more.

     

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  • ndayev6
    replied
    Thanks for the information and resources Kon & Johanna!

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  • jfoxcpacfp
    replied







    How do you guys characterize pension plans?  Since they are tied to the security of the employer who provides it, a dollar in the pension plan is inherently of lower value than the dollar that is set aside by the investor for retirement.  Therefore, the pension plan dollar should be discounted when preparing for retirement.  How much should it be discounted?
    Click to expand…


    I don’t know of a quantitative guideline. If the plan is covered by the PBGC, then I would not see the reason for a discount.
    Click to expand...


    Per the PBGC FAQs:

    Q: What happens when PBGC takes over as trustee of my plan?

    A:  PBGC reviews your plan's records to determine the benefits each person will receive. The amount we pay is subject to limits set by law.

    If you are already receiving a pension, we will continue paying you without interruption during our review. These payments are an estimate of the benefits that PBGC can pay under the insurance program. We will pay these benefits in the annuity form you chose at retirement, but they may be less than you were receiving from your plan.

    If you have not yet retired, we will pay you an estimated benefit when you become eligible and apply to PBGC to begin payments. About four months before you are ready for your benefits to begin, contact PBGC by calling the Customer Contact Center toll-free at 1-800-400-7242.

    We deposit most benefits into participants' accounts electronically, the safest, most secure, and simplest method. If you do not want to use direct deposit, you may still receive your benefit by check.

    Leave a comment:


  • litovskyassetmanagement
    replied










    How do you guys characterize pension plans?  Since they are tied to the security of the employer who provides it, a dollar in the pension plan is inherently of lower value than the dollar that is set aside by the investor for retirement.  Therefore, the pension plan dollar should be discounted when preparing for retirement.  How much should it be discounted?
    Click to expand…


    I don’t know of a quantitative guideline. If the plan is covered by the PBGC, then I would not see the reason for a discount.
    Click to expand…


    Johanna,

    If the pension plan is insured by PBGC does this ensure that if the hospital system goes under that all employees eligible for a pension will receive 100% of their pension?

    Thanks,

    Nick
    Click to expand...


    Most likely.  PBGC does not have enough money to bail everyone out, but similar to FDIC, you'll get your money (if everyone else is not going bust at the same time). I'd say DB plans are an amazing deal.  You get the money and someone else sweats the details. There is no security like this anymore, even with PBGC going broke.  The company is legally obligated to manage this plan prudently and if it does not, lawsuits...so even if PBGC is not there, if this is the fault of the company, chances are it would have to make you whole (of course, if it goes bankrupt your best bet is PBGC).  Unfortunately, pension obligations are 'unsecured' debt:

    http://dtpemail.freshfields.com/35736dtp/Pensions%20debts.priority%20of%20claims.220.pdf

    So in case of bankruptcy, most likely that other creditors get their money first.  And this is where PBGC would step in to make you whole (with certain limitations):

    http://www.pbgc.gov/wr/benefits/guaranteed-benefits/your-guaranteed-pension.html

    There are limits to PBGC guarantees, so it is a good idea that you are familiar with this, and also that you keep track of your plan's funding status (you should get a report from the plan periodically).  Also it is a good idea to locate your plan's investments and audited statement so that you know what's going on, especially the closer you are to retirement.

    Leave a comment:


  • ndayev6
    replied







    How do you guys characterize pension plans?  Since they are tied to the security of the employer who provides it, a dollar in the pension plan is inherently of lower value than the dollar that is set aside by the investor for retirement.  Therefore, the pension plan dollar should be discounted when preparing for retirement.  How much should it be discounted?
    Click to expand…


    I don’t know of a quantitative guideline. If the plan is covered by the PBGC, then I would not see the reason for a discount.
    Click to expand...


    Johanna,

    If the pension plan is insured by PBGC does this ensure that if the hospital system goes under that all employees eligible for a pension will receive 100% of their pension?

    Thanks,

    Nick

    Leave a comment:


  • jfoxcpacfp
    replied




    How do you guys characterize pension plans?  Since they are tied to the security of the employer who provides it, a dollar in the pension plan is inherently of lower value than the dollar that is set aside by the investor for retirement.  Therefore, the pension plan dollar should be discounted when preparing for retirement.  How much should it be discounted?
    Click to expand...


    I don't know of a quantitative guideline. If the plan is covered by the PBGC, then I would not see the reason for a discount.

    Leave a comment:


  • fam
    started a topic Pension Plans

    Pension Plans

    How do you guys characterize pension plans?  Since they are tied to the security of the employer who provides it, a dollar in the pension plan is inherently of lower value than the dollar that is set aside by the investor for retirement.  Therefore, the pension plan dollar should be discounted when preparing for retirement.  How much should it be discounted?

     
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