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Author: morninglory Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121568  
Subject: PensionPlansvsDeductible IRA Date: 2/16/2000 11:53 AM
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I am not vested in my companys pension plan and will not be there long enough to become vested, my Turbo Tax software says that I cannot take a full deductible IRA
for 1999 because of the pension plan..this doesn't seem fair as I will collect nothing from the pension plan and am being penalized by not being able to take a 2000. deduct...does anyone have knowledge of a loophole in this particular circumstance.
Thx much
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Author: TMFTaxes Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 28918 of 121568
Subject: Re: PensionPlansvsDeductible IRA Date: 2/16/2000 8:47 PM
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<<I am not vested in my companys pension plan and will not be there long enough to become vested, my Turbo Tax software says that I cannot take a full deductible IRA
for 1999 because of the pension plan..this doesn't seem fair as I will collect nothing from the pension plan and am being penalized by not being able to take a 2000. deduct...does anyone have knowledge of a loophole in this particular circumstance.>>

Not necessarily. Vesting has no bearing on your "participation" in the pension plan. If you are an "active participant", regardless of vesting, then you are a participant. Period.

The following rules apply to defined benefit plans. Most "pension" plans are defined benefit plans.

Generally an individual is an active participant in a defined benefit plan if, for any portion of the plan year ending with or within the individual's taxable year (which is usually the calendar year), the individual is not excluded under the plan's eligibility provisions.

Examples of eligibility provisions are a minimum age requirement, a requirement that the employee have performed a minimum number of years of service, or a requirement of employment in a particular classification of employees (e.g., "all employees in the Acme Division" or "all hourly-paid employees").

The rule's focus on the individual's eligibility to participate has the following ramifications:

• An individual who declines to participate in a defined benefit plan (even if the plan so allows) will still be considered an active participant because he was eligible to participate.

• A failure to make mandatory employee contributions and the resulting failure to accrue a benefit under a defined benefit plan will not avoid active participant status.

• In many defined benefit plans a participant's right to benefit accruals for any particular plan year is conditioned upon the performance of a prescribed number of hours (usually 1,000 hours of service). Even a participant who accrues no benefit because he has not completed the required number of hours will be considered an active participant, because he is not excluded under the plan's eligibility provisions.

• An individual who accrues only one dollar in benefits will be considered an active participant, because the individual has not been ineligible to participate.

But there are some exceptions to these rules...

• If an individual is ineligible for a benefit accrual under an integrated plan solely because his compensation for the plan year ending with or within his taxable year is below the integration level, or because the full benefit will be offset by Social Security, he is not considered an active participant. This is an exception to the defined benefit plan rule that any person eligible under the plan's terms will be an active participant. Similarly, for a defined contribution plan, an individual who is ineligible to receive an allocation in a plan year because his compensation is below the integration level will not be an active participant for the taxable year with or within which the plan year ends.

• An individual is not treated as an active participant solely due to participation in a government plan by reason of his service as a member of the Armed Force Reserves, unless he has served more than 90 days on active duty (other than active duty for training) during the taxable year.

• An individual is not treated as an active participant solely due to his participation in a government plan based on his activity as a volunteer firefighter, if his accrued benefit as of the beginning of the taxable year is not more than an annual benefit of $1,800 (expressed as a single life annuity commencing at age 65).

• Special transition rules apply in determining active participant status in the 1987 taxable year.

Hope this helps...

TMF Taxes
Roy





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