With the new legislation regarding the availability of an In-Plan Roth Rollover without the requirement of a "distributable event", would the participant be able to have Federal Withholding distributed from the account also?

Hi All,

I am the owner and single employee of my LLC, taxed as an s-corp.

This year I set up a defined benefit plan for myself, paid from the LLC.

I *think* this DB is a qualified plan. Vesting is either immediate, or after a year (I'll have to check my plan.)

While I am clear that neither FICA or income taxes are paid on the contributions the year they are deposited, while distributions in retirement are treated as income and subject to income taxes, I remain confused whether the contribution amounts are subject to FICA taxes in the future.

Non-qualified defined benefit plans ARE subject to eventual FICA taxation. How about this plan ?

Thanks much!

Eric

I'm a bit of a novice trying to figure out how contribution limits apply to 401(k) or other DC plans. My main interest is in percentage limits rather than the dollar limits.

I see that under section 415, total DC contributions are limited to 100% of compensation. At least, loosely speaking. The questions I have are:

1.) What language specifies whether the 401(k) contributions themselves are included in compensation? Obviously, if 401(k) contributions were included in comp, then it isn't a limit on 401(k) contribs.

2.) I read somewhere that the comp figure is based on the previous rather than the current year. Where would that be specified?

3.) What are the consequences of over-contributing? I mean, if a correction is not attempted.

Also,

4.) Do I gather correctly that the 25% limit under 404 is based on a company's total workforce, so a particular employee could receive well over that amount?

Thanks!

We have client with funds in John Hancock. Owner was instructed to take RMD of $3,893 BEFORE 12/31/12. We provided him with JH form, which we just got back from him in the mail YESTERDAY asking if it was completed properly.

Does anyone see any way we can have this treated as a 2012 RMD as it was intended in order to avoid the penalty?

This seems to be a stupid question, but I need a quick answer and cannopt find it.

A husband and wife own an S Corp. They employ a housekeeper, but not as an "employee". If they put in a plan, do they need to cover her?

Quick thoughts are QSLOB and non-related service to the company.

I can find no guidance or disussion on changing the plan year of an ERISA 403(b) arrangement. Can someone please point me in the right direction? Thanks.

The TPA is advising me that a 2013 RMD is based on the owners 12/31/12 account balance for his profit sharing plan.

THis sounds correct.

But they are also saying that this calculation will be impacted if the client decides to make a 2012 profit sharing contribution ( in 2013 ) and he gets an allocation.

Is this correct ?

THank you.

I have client that does 8% of pay every year. They only need to give 5% to the staff to max out the owners at the full $50,000.

We're failing the ADP test, and a 3% QNEC allocated pro rata substantially reduces the refunds to the owners. Add in a couple of the lowest paid people with a bottom up QNEC and, hey we're passing.

Any issues with using both allocation methods in one year? We use the Corbel Prototype 401k.

The TPA is advising me that a 2013 RMD is based on the owners 12/31/12 account balance for his profit sharing plan.

THis sounds correct.

But they are also saying that this calculation will be impacted if the client decides to make a 2012 profit sharing contribution ( in 2013 ) and he gets an allocation.

Is this correct ?

THank you.

Husband owned company which sponsored a profit-sharing plan and money purchase pension plan.

The only 2 participants in the plans are husband and wife.

Company went out of business and company was administratively dissolved due to not making annual filings with Secretary of State.

Husband has now died.

There is no plan document for either plan.

These are orphan plans and I am familiar with EPCRS and DOL guidance on how to handle.

My question is, is there another way to go about terminating an orphan plan? For instance, could wife create a new entity to "adopt" the plans, sign new plan documents and then terminate the plans?

I have a client who wants an update on the status of this. Has the IRS said when this will be available?

Treasury Regulation Section 1.401(a)(4)-5(b) limits the annual amount of pension payments made to one of the plan sponsor's 25 most highly compensated current or former employees ("restricted employees") in any plan year to the amount that would have been paid to the restricted employee in that year if he or she had received a straight life annuity. This restriction ensures that a pension plan will not discriminate in favor of highly compensated employees by paying out their full benefits, while leaving insufficient plan assets to pay out the benefits of lower-paid employees. The restriction does not apply if (i) the value of the distribution is less than 1% of the value of the plan's current liablilities before distribuion is made, (ii) after the distribution the plan assets will equal or exceed 110% of the plan's current liabilities, or (iii) the plan terminates with sufficient assets to pay out benefits to all participants.

Treas Reg. Section 1.401(a)(4)(b)(3)(v) states "any reasonable and consistent method may be used for determining the value of current liabilities and the fhe value of plan assets" for purposes of the high-25 restriction. Guidance issued to date under MAP-21 describes specific cases where MAP-21 rates apply and specific cases where they do not apply. However the guidance does not address whether the modified segment rates under MAP-21 may be used to determine a plan's "current liabilities" for purposes of applying the restriction on lump sum payments to the top 25 most highly compensated employees.

Is it reasonable for a plan to use the modified segment rates under MAP-21 for this purposes? Summaries prapred by actuaries and consulting firms list this as an open issue. I heard that either Mike Spaid or Tony Montanaro stated it was reasonable in the course of Qs and As following an IRS phone forum, but can't verify this.

Put your thinking caps on - Multiple Employer Plan, and of course a Key Employer draws pay from both employers.

Payroll records shows he deferred and received a match from only one employer.

The question is, do we use his balance in the Top Heavy test for only the employer from which he recevied the match (and made his deferral), or do we include his balance in both tests?

Or maybe we prorate his balance based on his (average) pay from each employer?

Thanks all for your ideas (and cites if there are any).

in nj if ex has entitlement for life insurance policy to be held as long as there is an alimony obligation does that have to be included in qdro for it to be valid and one of the policies was a non contributory through this pension and now will have to be converted at 545.00? public pension

was divorced 13 years ago have a qdro order..may receive accidental dis. pension.. will the ex's amount be based on my accrued pension at time of divorce or on my accidental award amount?

Hi, I'm new here and dying to ask some good questions. Myself and some co-workers have been racking our brains over these.

I have what I think is a dandy of a set of questions.

First one, with regard to double taxation of a traditional 401k loan. I don't see how the loan portion is not double taxed when you consider the retirement part (not just when you take the loan and pay it back). When you pay back the pre-tax money, you pay it back with after tax money. Then at retirement, when you take a distribution, you pay tax again on that money that was borrowed at some point. So that, to me, is a double taxation is it not? THere's alot online talking about double taxation, but the articles never include the distribution tax (which will vary depending on the size of the tax) at retirement. I am always trying to think long term.

Second one, much more involved, and I have to give a bit of backstory.

I've been at my company for 13 years now, started when I was 21. I am 34 now. WHen i started, I opened a traditional 401k account. They did not offer ROTH 401k accounts until THIS YEAR. They match 6% no matter which account you contribute to.

So, if you're answering this question, you know that the Roth 401k means you pay after tax contributions, then don't pay taxes anymore on that money when you take distributions at retirement. The opposite is true with traditional 401ks, you pay pre tax contributions to your account and then pay distributions at the ordinary income rate depending on the size of the distributions.

SO, now for the interesting part.

Would it be beneficial to borrow against a Roth 401k instead of from a Traditional 401k?

It seems to me that I could exponentially build up a Roth 401k in a more tax efficient manner by at first maxing out the contributions for say, 2 years (17.5k x 2 years = 35k), and then at the end of 2 years, borrow 50% of the balance. I then set up a loan repayment for a term of 1 year and drop my contribution rate down to 6%. The money I borrowed is kept in a savings, to supplement income or to hold in case of some emergency, where I need to pay that loan back off in the event I might lose my job. But, I could effectively save up a lot more than the 17.5k limit per year because you end up paying back that loan quickly (1 year), and then take out a loan for more and more until you reach the 50k limit). This takes some years to achieve obviously. But you never have to worry about distributions ever again becuase you've already paid the tax.

And, you're going to pay the tax on your income ANYWAYS, whether i borrow against the Roth 401k and pay it back with after tax money, or not borrow from the Roth 401k and put the after tax money in my savings account. It's just a way to possibly 'loophole' yourself to a higher contribution.

Thirdly,

I called my HR dept. and also called Wells Fargo advisors and both told me I cannot distinguish where the money comes from if I were to take a loan out. Say I had 100k in a 401k and 100k in a Roth 401k. Then say I apply for a 50k loan. I cannot choose to remove 50k from the Roth 401k specifically. The WF advisor says it all comes out of the 'pile'. There are 2 separate balances, but it is all considered 1 pile to borrow from. I thought that was a little bit silly. I stated that this has major tax implications at Retirement, becuase I would never know how much money came out of which account, and at retirement the taxes on distributions are different. The WF advisor told me in this case money would be pulled equally from both balances. Seems a bit strange. What if I had 100k in the traditional and 20k in the Roth? Are they gonna pull 5 times the amount from the traditional then? Seems odd to me.

That's a lot to stew on. Any views on this would be appreciated.

Hi Everyone:

Although I know this answer, I have a client denying this is how it is applied and wants some type of legal reference and I am unable to find a specific point.

Client requires One Year of Service (12 months and 1000 hours) for initial eligibility. I have told her that once someone meets eligibility they do not need to continue to meet eligibility (12 months and 1000 hours) every year. She is claiming that they remove people each year they do not complete 1000 hours. This is not only absurd from a tracking perspective but also wrong.

Does anyone know how I can provide some support that eligibility is not a revolving requirement each year?

andmik

Employee, age 75 (not a 5% onwer) retires on 12/31/12. Compensation is paid in 2013 for services rendered in 2012. Would the RBD be 4/1/2013 and the compensation paid after 12/31/12 would have no effect on the RBD? Does this sound correct? Thanks.

We amended a plan last year to add a participating employer based on the plan sponsor's representation that it was acquiring the participating employer. It is set up as a cross tested allocation with each employer as an allocation group. We now have been told that both companies are part of a much larger controlled group that includes at least one other plan. (Apparently this was also true in 2011 and the other company's TPA did some sort of combined testing, but didn't feel the need to share it. I have no idea where they got the data.)

I've never done a cross tested allocation that included only some of the companies in the a controlled group before. Do I have to include the other companies' employees in the 401(a)(4) test as zeros, or just in the coverage test?

Can a plan that currently allows for immediate distribution (upon termination of employment) be amended to allow distributions only in the plan year following termination of employment without violating the anti-cutback?