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Author: kse4 Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 120809  
Subject: Re: S.O.S! broker screwed up my IRA Date: 2/5/2000 2:36 AM
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Dear Roy,

I appreciate your time and I'd love to relax on your reassurances, but I'm not sure you have a clear picture. Forgive me, but I can't help but think you're missing at least two key points in all this:

You wrote:
"So...essentially...your SEP got moved into your traditional IRA...right? This is really no big deal. Certainly not something that you might like or want, but no big deal from a tax standpoint."

POINT #1: Turns out I WASN'T ENTITLED TO THE SEP, didn't qualify for one, so the SEP had to be closed down. (This info was in my original message.) I'd already maxed out my 1998 IRA contribution. That's why I assumed the $600 (plus earnings) deposited in the SEP in 1998 had to come out. I was not entitled to more than $2000 in tax-deferred income for the year 1998.

I could have just had the broker bail everything out of the SEP, then put $2000 into my existing IRA for 1999. But I wanted to avoid any penalty on the SEP's 1999 earnings (10%), since the rearranging didn't happen until April 99. So I asked to have the 1999 contributions to the SEP ($1,800) recharacterized as an IRA. That way, I'd get to keep the earnings AND I could still add $200, to get the actual 1999 contribution up to the allowed amount.

POINT #2: Instead, the brokerage moved the entire $2,400 I had put in the SEP in '98 and 99, plus the earnings, into the existing traditional IRA as my 1999 IRA contribution. But the IRS doesn't allow an IRA contribution of $2,400 (PLUS at least five months' earnings) in one year. THAT's my big tax worry.

You also wrote:
"Recharacterizations, in the true sense of the word, can be for any appropriate amount. Not limited to $2,000."

Hmmm. Not sure what this means: so what's an "appropriate amount" in this case? I've been assuming that only an original contribution of up to $2,000 in any one year could be recharacterized from an SEP into an IRA--plus the earnings on that up to the date of the recharac'n. In other words, up to but only $2000 in original 1999 funds from my SEP could be recharacterized as my 1999 IRA, regardless of when the recharac. took place. Of course, more earnings would be included the later the recharac'n took place, so the total could theoretically be much more than $2,000--depending on the return on investment.

Am I totally misunderstanding recharacterization?

I appreciate that you're probably the busiest Fool of all, and I see that my tax problem is not monstrous--heck, my real problem is with Edward Jones as a brokerage firm, totally mishandling instructions. If all of the above is, in fact, as kosher as you've assured me it is, I owe EJ a big apology, for complaining loudly about this whole transaction.

My last message about this, I promise.
kse4
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