Leaderboard

When I was in Benefits at a large corporation, the only time we made a disability distribution was when "total and permanent" had been found under the long term disability plan or if the participant brought proof of Social Security disability. Otherwise as noted twice above, the participant's method of claiming the exemption is Form 5329.

Working from memory, I am pretty sure there are at least some recordkeepers who will not code a distribution with the disability code under any circumstances; they leave it to the participant to report it as exempt. As noted above there is a Form 5329 for that. I imagine they will follow up and ask for proof of disability, but I doubt that they will ask for proof that the termination is "due to" the disability.

Does the participant have any proof that her enrollment form was definitely received by the HR dept? Just because she has a copy, doesn't mean the HR dept received it in good order.

ETA Consulting and jpod, thank you for the good help. In my experience, many participants prefer to avoid a need to explain a tax position, and so try to persuade the payer to tax-report a payment so everything is logically consistent for the IRS's computers. Does any BenefitLink maven have experience with how a payer reacts to a request that the payer make a finding that the plan's administrator had not made?

As a matter of curiosity only - why would you have a 401(k) if you have $100,000 in W-2, and wish to contribute exactly $25,000? I should think a SEP would be the better choice. Granted that you have no 5500 forms until your assets are high enough, the document/amendment/update requirements alone would seem to tip the scales in favor of the SEP. But perhaps the investment choices are better in the 401(k)? Just wondering...

Salary Deferrals are subject to FICA taxes. Employer contributions from corporations are not subject to FICA taxes Your CPA sounds correct in his analysis given your stated facts and desire to contribute exactly $25K. In fact if you only want to contribute 25K you don't need any salary deferral, you can simply make a 25K PS contribution since you have 100K in w-2 wages. If you want to contribute more than 25K, then you could make an additional salary deferral of up to $18K ($24K if you are age 50 or older), though that needs to run through payroll and time for that is getting a bit short. edit - though in the long run it doesn't matter if your gross w-2 wages are $100K you will pay the same FICA taxes if your salary deferral is $0 or $18,000. The difference will be whether you have more pass through income reported to you and a lower taxable wage on your W-2 or a higher less pass through income and higher taxable wage in your W-2. Now if you have to raise your income to $118,000 to make an $18,000 deferral that would change my answer.

but then of course, I'm sure the following rule probably applies It's not my job to run the train, The whistle I don't blow. It's not my job to say how far The train's supposed to go. I'm not allowed to pull the brake, Or even ring the bell. But let the damn thing leave the track And see who catches hell!