DATE:_September 28, 1998

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DATE:_September 28, 1998 Powered By Docstoc
					DATE:          October 11, 1999
TO:            All D.P. Coordinators
FROM:          Randall Rushing, Account Manager
SUBJECT:       IRA Tran Code Enhancements



CSI is releasing several enhancements to transaction code processing on the IRA system. A new MSA
transaction code has been added for Death Distributions and processing changes have been made for
system-generated forfeitures and Roth Re-characterizations. These changes are highlighted below. If
you have any questions or need clarification after reviewing the enhancement information, please contact
the CSI Customer Resource Center or your Account Manager.

A manual revision is enclosed to provide you with an updated reference to Transaction Codes on the IRA
system. A complete Index is also included to aid you as a reference tool. Please update your IRA
Manual with the new Tran Code and Index sections. This information is also included in the CD-ROM
version of the CSI manuals that you received bundled with the EOY Manual.


New MSA Tran Code and Fair Market Value

The IRS has added a new type of death distribution transaction to the 1099-MSA form. Tran Code 196
has been added to the IRA system to distribute MSA account funds to a non-spouse beneficiary in the
year following the date of death. TC 196 transactions will be reported on the 1099-MSA form as
Disbursement Code 6. These transactions will only be allowed on MSA accounts. They will be
unposted on all other types of IRA accounts.

You should continue to use TC 139 (Death Distribution) for death distributions to a non-spouse during
the year of death. TC 139 transactions will be reported on the 1099-MSA form with a Disbursement
Code 4.

If the beneficiary is not the spouse, the IRS also now requires the reporting of the Fair Market Value on
the date of death. Use F/M Code 459 to enter the Fair Market Value on the IRA sub-account (10
positions, 2 decimals).

If entered, the Fair Market Value at death will be printed on the 1099-MSA along with Disbursement
Codes 4 (Death Distribution) or 6 (Death Distribution to non-spouse the year following death). If a TC
139/196 is entered without a Fair Market Value at date of death, then that box will be left blank on the
1099-MSA form.




                                                    1
IRS Changes to Handling 1099-MSA Death Distributions

The following description of the new requirements for reporting death distributions from an MSA was
taken from the instructions published by the Internal Revenue Service – 1999 Instructions for Forms
1099, 1098, 5498 and W2-G. The full IRS document is available through the Internet at
http://www.irs.ustreas.gov/forms_pubs/index.html.

       Death of account holder. If the account holder dies and the
       beneficiary is the spouse (1) an MSA becomes the spouse's
       MSA, (2) the spouse may continue an M+C MSA, but no new
       contributions may be made to the account, and (3) distributions
       from an MSA or M+C MSA are taxed under the rules that apply
       to MSAs that are not M+C MSAs. If the beneficiary is not the
       spouse or there is no named beneficiary, the account ceases to
       be an MSA or M+C MSA.

       Distribution in year of death. If you learn of the account
       holder's death and make a final distribution to the beneficiary in
       the year of death, issue a final Form 1099-MSA reporting the
       gross distribution in box 1. Enter code 4 in box 3 (CSI TC 139),
       and report the fair market value of the account on the date of
       death in box 4 (F/M Code 459). If the beneficiary is the estate,
       enter the name and TIN of the estate as the recipient's name
       and TIN on the form.

       Distribution after year of death. If you learn of the death of
       the account holder after the year of death and make a final
       distribution, issue a final Form 1099-MSA in the year you learned
       of the death of the account holder. Report the gross distribution
       in box 1. In box 3 enter one of the following codes:
       1–if the beneficiary is the spouse (CSI TC 132),
       4–if the beneficiary is the estate (CSI TC 139), or
       6–if the beneficiary is not the spouse or estate (CSI TC 196).
       Report the fair market value of the account on the date of death
       in box 4 (F/M Code 459).




                                                         2
IRA Disbursement Code Changes Initiated by the IRS

Disbursement Codes appear on the 1099-R forms that are produced at end of year, and CSI reports the
appropriate Disbursement Code based on the Tran Code used to enter the distribution. To further
streamline reporting, the IRS has added Disbursement Code R and discontinued several other
Disbursement Codes.

   TC 194 Distributions to re-characterize a Roth Contribution as a Traditional IRA contribution in a
    trustee-to-trustee transfer will be reported as a Disbursement Code R.

   The IRS has eliminated Disbursement Codes 1K and K and will instead use 1J and J when a
    distribution is taken from a Conversion Roth in less than 5 years after the Roth Date. The CSI system
    will automatically report these distributions as 1J and J, which are the codes currently used for
    regular Roth accounts. There is no impact on your bank’s procedures.

   The IRS has also eliminated Disbursement Codes B (Death Benefit Exclusion) and C (Averaging and
    Death Benefit Exclusion). These codes could only be entered on the CSI system with a TC 145, and
    you probably do not have any of these transactions on the system, because the death benefit
    exclusion was repealed for those who died after August 20, 1996.




                                                    3
IRA TC 130 Changes

Earlier this year, CSI added TC 130 (Prior Year Rollover) to allow your customers to move funds from a
Roth IRA back to a Traditional IRA if the original Roth contribution was made during the previous year.
(Refer to the CSI memo dated June 30, 1999.)

Tran Code 130 can only be used from Jan 1 through April 15 to re-characterize contributions made
during the previous calendar year. Similar to TC 114 (prior year contributions), you must enter a current
year effective date on TC 130 transactions. If the date entered is not in the current year, TC 130 will
now be unposted with the error message “Must be Current Year Date.”

TC 130 transactions will add to a new field on the sub account and master account called Rollovers Last
Year and will force a 5498 form to be produced in April along with Tran Code 114 (Prior Year
Contributions) and MSA Tran Code 128 (Prior Year Employer Contributions).

Rollovers Last Year has been added as an amount field to the IRA Master Online Inquiry (R00) screen.
This field is displayed in the third column below EIRA l/yr. It represents the total dollar amount of Prior
Year Re-characterization transactions (TC 130) for all the IRAs included for this Master.


R00 99999999999                                               01 /40 999/ 99/99/99 99:99
XXXXXXXXXXX NAME1 XXXXXXXXXXXX      bal      RESTRICTED         officer XXX    DECEASED
XXXXXXXXXXX NAME2 XXXXXXXXXXXX      acc int   999,999.96        cont t/yr 99,999,999.99
XXXXXXXXXXX ADDR1 XXXXXXXXXXXX      forfeit   999,999.96        cont l/yr 99,999,999.99
XXXXXXXXXXX ADDR2 XXXXXXXXXXXX      brdy      99/99/9999        roll t/yr 99,999,999.99
XXXXXXXXXXX ADDR3 XXXXXXXXXXXX      sex X      branch XX        tot distr 99,999,999.99
tin 999-99-9999 X cert cd 9         dda sc #    99999999        EIRA t/yr 99,999,999.99
dt open 99/99/99 PAYOUT OVR         bef brdy 99/99/9999         EIRA l/yr 99,999,999.99
                                                                roll l/yr 99,999,999.99
_ #   s/p   rate d/f c p t term   m/date   i/date acc int        itp forfeit balance
999   XX 99.9999 X X X X XXXX     999999   99999999999.99   99999.99 99999.99 999999.99
999   XX 99.9999 X X X X XXXX     999999   99999999999.99   99999.99 99999.99 999999.99
999   XX 99.9999 X X X X XXXX     999999   99999999999.99   99999.99 99999.99 999999.99
999   XX 99.9999 X X X X XXXX     999999   99999999999.99   99999.99 99999.99 999999.99




                                                      4
IRA TC 1135 Forfeitures

Tran Code 1135 is used to identify a system-generated transaction for the amount of forfeiture that is
entered on a reportable distribution. If the distribution is not reportable (a transfer, for example), then
the 1135 transaction is not generated.

The system has been changed so that the 1135 transaction is automatically erased when the distribution
transaction for which the forfeiture was entered is erased or reversed with a TC 119. When the 1135
transaction is automatically erased it is also deducted from Forfeitures YTD.

For non-reportable distributions, it will still be necessary to file maintenance Forfeitures YTD if the
transaction is reversed or erased.


IRA Distributions YTD

TC 152 (Revoked Prior Year Contribution), 153 (Distribution of Excess Prior Year Contributions) and
154 (Interest on excess during prior year) will now add to Distributions YTD on the Master and Sub
account. This will aid in balancing reportable distributions at end of year.


Summary of the Updates to the IRA Tran Code Section

The following Tran Codes were added to the IRA Tran Code section and Quick Reference:

129     Contribution - Re-characterization
130     Contribution - Prior-Year Re-characterization
1135    System-generated Forfeiture
194     Distribution – Roth Re-characterization
196     Distribution – MSA Death Distribution to Non-Spouse




                                                      5
The following Tran Code descriptions were revised in the IRA Tran Code section:

TC     Revision

112    Statement Request: Activity is displayed from the beginning of the year
114    Prior Year Contribution: Not reported if used for Education IRAs
115    Rollover Contribution: contribution to Roth will be reported in box 3 and Roth box checked on
       the 5498. Also added note Use TC 116 to transfer a Roth to Roth or an IRA to IRA if the
       customer does not handle the funds.
119    Reversal Credit: Updated with changes for reversal transaction processing.
131    EIRA Rollover: Adds to Rollovers YTD instead of Contributions Current year
132    Regular Distribution: Disbursement Code J reported for Roth or Conversion Roth
133    Premature Distribution: Disbursement Code 1J reported for Roth or Conversion Roth
134    Education Expense Distribution: Disbursement Codes J and 1J reported for Roth or Conversion
       Roth IRAs
135     Forfeiture: Not reported on 1099-R
139    Death Distribution: 1099-MSA reporting info (Disbursement Code 4) if used for Medical savings
       Accounts.
142    Withdrawal of Excess Contributions: used to correct contributions this year. If the withdrawal
       is greater than contributions made this year, it will be unposted.
144    Correction Debit – used to correct contributions made this year; if the withdrawal is greater than
       contributions made this year, it will be unposted.
145    Other Withdrawal – corrected F/M Code. Was 474, is now 478.
152    Revoke Prior year – Adds to Distributions YTD
153    Withdrawal of excess contributions made during prior tax year – Adds to Distributions YTD
154    Withdrawal of Interest Earned on Excess Contributions – Adds to Distributions YTD
156    Medical Distributions – Disbursement Code J or 1J reported for Roth or Conversion Roth IRAs
177    First Home Purchase Distribution – Disbursement Code J or 1J reported for Roth or Conversion
       Roth IRAs




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