Leaderboard

I tend to find it disappointing when there is so much focus on the required withholding. The amount withheld is NOT the tax hit. The withholding serves the primary purpose of bringing the tax liability and the amount withheld into a rough sort of agreement. 10% (or even 20%) will often be insufficient to cover all the taxes due on the distribution (which would almost always be treated as ordinary income, over and above employee compensation when the payment is being made to someone remaining in employment). Assuming that all distributions from pension plans will be reported on their income tax returns (thanks to the mandated 1099-R filed by the payer), the bottom line is really covering the tax liability for the distribution. Is it not more or less disastrous when there is not enough withheld, and, come the following April 15, the recipient must come up with $$$$ to cover the unpaid taxes?

An internal email I just sent that I decided to share with my BL Buddies! When you are processing lost interest for a lot of people, the hard way is to calculate the total interest and then use a somewhat complicated formula to prorate based on total interest and total 401k. Here is an easier way. Enter the loss amount as $100,000. Whatever the interest is can easily be converted to a percent. So if the interest comes out to be 6,472.32, the interest rate (or "factor" to be more precise) is 6.47232% which ought to be precise enough to get us within a penny or two of what interest ought to be. So just multiply each person’s 401k by 6.47232%. No calculator required for that conversion, just pretend the comma is the decimal point. If you are using this technique, I would still calculate what the total interest is supposed to be (i.e., enter the actual loss amount with the same dates) so you can prove you did it correctly. I guess it will only work with one loss date at a time. I hope you like it...

I thought the "lost interest" portion of the title meant something else.

From IRS Notice 2013-74: Q–7. Would a plan with an ongoing qualified Roth contribution program violate § 411(d)(6) if it discontinued in-plan Roth rollovers? A–7. No. An employee’s ability to make an in-plan Roth rollover is not a section 411(d)(6) protected benefit. However, an amendment to eliminate in-plan Roth rollovers is subject to the rules in § 1.401(a)(4)–5, relating to whether the timing of a plan amendment or a series of plan amendments has the effect of discriminating significantly in favor of highly compensated employees or former highly compensated employees.