Anyone have any experience or able to offer any insight with respect to the treatment of IRAs in bankruptcy and the potential loss of a bankruptcy exemption due to the IRA owner's prior distribution / rollover of an amount within the IRA during the 60-day rollover period?

Facts are as follows: IRA owner has an IRA with a fairly large balance. IRA owner had expenses to pay and was nearing possible bankruptcy filing. IRA Owner went to bank with intention of taking an early distribution from the IRA (and paying applicable taxes and penalties) in order to get sufficient funds to cover immediate expenses until his tax refund arrived Bank told him instead that he could take money out as a "rollover," use the funds to cover expenses, then use his tax refund to redeposit the amounts without adverse consequences provided the amount was replaced prior to the 60-day rollover period expiring. IRA Owner did that just that, took a distribution, used the funds, received tax refund and made the redeposit within 60 days. The bank and IRA owner have considered IRA to remain qualified / tax exempt IRA for all purposes.

IRA owner then filed for bankruptcy. Bankruptcy Trustee is now challenging exemption for the IRA account saying the entire IRA account was disqualified due to prohibited transaction created by virtue of IRA Owner's use of the rollover amounts before redepositing. Basically the Bankruptcy Trustee claims such use constitutes an impermissible loan of the IRA funds to himself and/or use of the IRA funds for his own benefit and/or general self-dealing. The Bankruptcy Trustee points to a couple of Florida Bankruptcy Cases--In Re Hughes, In Re Willis--where the bankruptcy court appears to have held in favor of the Trustee on somewhat similar facts finding that the withdrawal and repayment of the withdrawn amount within 60 days resulted in a prohibited transaction under the tax rules thereby disqualifying the entire IRA for tax purposes and thus causing the IRA to lose bankruptcy exemption.

Has anyone dealt with anything similar? Interestingly, the Bankruptcy Courts in these cases appear to arrive at this conclusion by applying the tax laws but it is unclear whether the IRS has ever considered much less arrived at a similar holding with respect to these particular IRAs. Indeed, the IRS has numerous PLRs which would seem to suggest this same thing is generally possible in a non-bankruptcy context without disqualifying the IRA. Specifically, there are rulings where the IRA amounts are withdrawn but repaid within the 60-day period and even cases where the funds were apparently used for the IRA Owner's benefit during the 60-day period. Am I missing something? How can the Bankruptcy Trustee claim the bankruptcy exemption is lost because there has been a prohibited transaction under the tax rules resulting in the IRA's loss of tax exempt status when the IRS has not made that determination and appears to have permitted similar transactions without disqualifying the IRA on similar facts. Given that having access to / holding the distributed amounts during the 60-day rollover period could arguably be viewed as providing a general benefit to the IRA Owner even if he or she does not actually use the IRA amounts to cover expenses during the rollover period, it seems that the prohibited transaction issues would likely always be such a concern in any IRA rollover scenario that the IRS would not / could not permit the 60-day rollover policy in the first place.

How do you calculate a Top Heavy Minimum on a Plan that is terminating (shutting down) midway through the year? Technically the Top Heavy minimum is based on "end of year balances". But if you cannot shut down a Plan until the balance is at zero, how do you "go back" and calculate the TH Minimum - Is freezing the Plan an option?

Key-employee borrowed approximately $15,000 more than permitted. We intend to correct under VCP.

QUESTION: Must we also file VFCP with DOL's Employee Benefits Security Administration and report this as a prohibited transaction?

Can't seem to find a precise answer.

Thanks.

A client is changing to an S-Corp, so their fiscal year will be moving to a calendar year. Previously, they had an 8/31 plan year end.

To amend the plan to a calendar year, do the amendment and resolution need to be signed by 12/31/2012 (the last day of the first short plan year) or before 8/31/2013 (the old fiscal plan year end)?

Thanks for any direction you have on this!

It's understandable how the frustration can mount over dealing with government agencies. (It does for me.) There is no doubt that government professionals may be experiencing similar frustrations when dealing with practitioners.

The GP are people trying to do a job that many of us wouldn't want. More likely than not their personsal opinions sometimes differ from how their job description demands they must opine. You can be assured that their eyes are not totally blind to our comments on these boards. They bleed if cut.

These boards are generously peppered with criticism, direct and indirect slurs, and inuendo regarding the integrity and honesty of the agencies with which we must work. This furthers no one's cause and does not foster a working relationship.

This is not to suggest that if you have a bad experience that you are urged to bury your head in the sand; rather, there are professional and unprofessional ways to express your disappointment, discomfort, and even your disgust.

I may have violated my own preaching in the past and if so, shame on me (and I apologize). However, if so, this makes my suggestion of acting professional no less meaningful.

Plan has last day rule for profit sharing allocation (plan is 401k w/ match, normally deposits profit sharing annually). 2011 census termination dates were omitted by client who completed census for TPA. TPA inquired as to existence of missing termination dates from 2011 census at the time the 2011 work was being processed, and was adivsed by client that there were none (eg TPA did ask the question). Client is relatively small group w/ little turnover from year-to-year.

I really don't think this omission was deliberate on the part of the client, the person who completed the census is very diligent but has been dealing w/ some medical issues and seems to overlook minute details (eg lack the capacity to handle) sometimes (thus the TPA goes the extra mile and asks lots of questions, but this still got missed). This is probably irrelevant but I wanted to point out that the issue was not a result of carelessness.

2011 profit sharing contribution was timely allocated, and client deposited to plan. Note that the allocation was a percentage of pay, and not a flat dollar amount allocated amongst elig participants. In other words, the allocation to the participants who really were supposed to receive a 2011 allocation are not affected.

Fast forward to 2012 plan year. Three individuals that should have had 2012 compensation and hours based on 2011 census data, did not. TPA inquires. TPA learns that those individuals terminated before the end of the 2011 plan year. Therefore, those three should not have gotten 2011 profi sharing contributions.

Two of the three were NHCE's; one of the three is HCE.

Does anyone have any suggestions as to how to correct this? My inclination is to leave the two NHCE contributions alone, and suggest that the client distribute the contribution that was made to the HCE.

TPA has seen errors like this (eg ones that TPA couldn't have known about through reasonable procedures) get caught on IRS audit, but never one where there has been favor to an HCE. In the cases where the error was immaterial to plan testing (eg this problem doesn't create a 2011 410b failure etc) and the contribution error was in favor of the NHCE, the IRS has allowed the money to stay in the plan even though the terms of the plan were technically not followed.

TPA is not trying to suggest that these kinds of failures are "okay." Trying to find a cost effective way of fixing the problem without ticking off NHCE's by pulling $ out of their account, etc. and also one that would be likely to be acceptable to IRS. Does anyone have experience w/ this type of problem?

Thanks for any help.

ESOP acquires shares w proceeds from a 10-year loan. Note and pledge agreement specify P&I release. Accountant for plan sponsor insists on using a Principal only release for financial statements. Says he called AICPA last week and confirmed his understanding that SOP 93-6 requires the use of the principal only release. Where do I find guidance that says otherwise? I have examples from seminars which he says are not authoritative guidance.

I am an ERPA representing three plans for a very small professional group. The first two plans (a defined benefit and a profit sharing) terminated and the participants were paid out. The owner was unable to liquidate the remainder of the assets and ended up establishing a 0% money purchase plan to hold those assets. The eligibility for the money purchase plan was limited to the owner, on the basis that no other contributions would be coming in, so why subject it to SAR's and the like.

An important point is that the distributions to the staff had already been made at the time the money purchase plan was established.

Now all three plans are being audited by the IRS, and they have raised the question of whether the eligibility restriction on the money purchase plan violates nondiscrimination in benefits, rights and features.

Has anyone had any experience with this kind of situation? Any thoughts?

Dog

A calendar year Plan deferred implementation of MAP-21 for all purposes for 2012. As of 1/1/2013, we have

MAP-21 Pre-Map-21

FT 12,000,000 14,000,000

Assets 15,000,000 15,000,000

PFB 1,525,000 1,525,000

--------------- ---------------

ShortFall ( 1,475,000) 525,000

As it stands, 2013 AFN (in 2014) would have to include supplement because funding shortfall of at least 500,000.

However, if Plan Sponor elects to waive 25,001 of PFB as of 1/1/2013, then shortfall on pre-Map-21 basis becomes 499,999 and 2013 AFN supplement would not be required.

Any disagreement or thoughts?

Company has fully insured wrap welfare plan and has consistently filed one 5500 for medical, dental, life, etc. each year. They also have a pre-paid legal services that they were not aware was to be filed as well. They would like to incorporate it into the wrap plan and begin filing moving forward.

Question - what should they do about the past prior to 2012?

Amend for all 12 years they have had it?

Amend past 3 years?

Not amend at all but include moving forward?

We have about a dozen small 401(k)'s. Recently the holder of the assets (life insurance company) issued a statement that we could no longer enroll new plan participants in their products. This leaves us in an impossible position since it is very difficult to find a company that would take only a couple of new 401(k) participants. The current participants can still put their money into the existing products and aren't interested in making a changing, since they are still getting a decent return on a fixed product. We are at a loss as to what to do with new participants; I'm wondering if anyone has run across a similar situation or has any suggestions.

Hi all. Starting a termination of a 5 year old CB plan covered by PBGC. Our first CB termination. Hard freeze is done. We expect audits by both IRS and PBGC once they know (due to their lack of experience)

Looking for anyone who wants to share traps and pitfalls.

Wondering how to fill out the PBGC Benefit Commitment form since 'monthly accrued benefit' is not what is guaranteed.

Thanks for all suggestions and condolences!

Is an investment in a REIT considered an eligible plan asset? I don't see it in 2520.103-1©(2)(ii)©.

Is it accepatable to use average compensation for this?

I have a DB/DC combo where the current year compensation if far less than the average on which the DB benefit is based. If I have to use current year compensation for testing, my gateway requirment is going to jump from 5% to 7.5%.

For those covered by the employer's health insurance, the employer pays the employee $600/month in cash. For those not covered by the employer's health insurance, the employer pays the employee $200/month in cash. The amount is reported on box 1 of W-2.

Would this be considered fringe benefits or regular compensation? Thanks!!!

The participant's spouse is going to be the only person on the mortgage and, therefore, the deed. Would this qualify as a hardship distribution for the participant whose principal residence this is, but who isn't actually legally a purchaser?

What are you doing to validate when a participant calls up to change their address?

We have been either a) getting verificatiojn from plan sponsor, or b) completed address change form, notarized.

Participant was a greater than 5% owner. Participant did not turn 70 ½ until December 30, 2012 at which time he was no longer an owner. He resigned as an owner on December 26, 2012. i believe he would still have to take the RMD for 2012 because he was a 5% owner during the year. anyone agree or disagree?

Hi folks, it took me a while to notice (almost 10 years to be exact), but I have noticed a huge mistake made by my IRA custodian for one of my IRA funds. The IRA was made in 2003 for the 2002 tax year, and I contributed the maximum allowed, $3,000. It was supposed to be established as a Roth IRA, but all this time it has been structured as a Traditional IRA. I have proof that it is their mistake because I have a copy of the contribution form marking it as a Roth, and when I called up the custodian, they acknowledged it was their mistake.

I first spoke with the custodian February 1st, and haven't heard back from them since. I have called a few times, and they say they will contact me when they find a solution. Understandably, this appears to be a very difficult issue for them, but I'm a little concerned that I'm being ignored, as I only have about $5,000 in the fund. All my IRAs are Roths, spread out among several funds, and I very much prefer Roths so that I can withdraw the earnings tax free at retirement, or possibly withdraw from the principal without consequence if necessary, both of which I cannot do with the Traditional IRA. True, I could just leave it as is as a Traditional IRA, but I never took the necessary deduction in my 2003 tax return. Without the benefit of a deduction, I have no incentive to leave it as is as a traditional IRA!

Has anyone run into a similar situation? I feel foolish that I had not caught this mistake sooner, as it was basically staring me in the face on the fund's website all this time, but I need to correct this soon.

I am unemployed with no income at the moment, and imagine I will be for the near future, so the possibility of taking the missing tax deduction this year or next is not feasible. Is there any possibility I could file an amended 2002 tax year return to retroactively claim the missing deduction? And this is assuming the IRA stays traditional. If they were to correct this issue by converting it to a Roth, I would then be stuck paying taxes on the contribution amount, even though it was supposed to be setup as a Roth in the first place with my after tax dollars!?!?!?!? Since it's the administrator's mistake, shouldn't they eat the loss and reimburse me if I have pay the taxes to the IRS to convert to a Roth, or if nothing can be done, they could reimburse me the opportunity costs of not taking the deduction in my 2002 tax return.

Anyways, this is a rather complex situation that I hope to resolve in a timely manner, and I look forward to your expert analysis!

owner wants to borrow Roth money with high rate of interest. thoughts on max rate that could be charged?