My mother inherited an IRA when my father passed away in 2009. Prior to 2009 all RMDs had been taken and 2009 they were suspended. Somehow in 2010 the first year she should have taken an RMD it was missed for the new account. She got some letters from custodian of the IRA in early 2011 and has since taken the 2010 RMD (late) and setup monthly payments which will be larger than the reqired 2011 RMD.

It's a pretty small IRA and not a teribbly large amount we are talking about but how often does the IRS waive the 50% penalty for reasonable cause in this case? And is it as simple as sending a letter with the 1040 and 5329? Also do you still pay the 50% exicse tax and request a refund or do you assume they will waive it for cause and not pay the excise tax with the 1040?

Any experince with this would be appreciated.

We are a TPA shop...

Has anyone gone "paperless" yet? I'm just curious to know because it seems a lot of the paper reports could easily be scanned and used by anyone from anywhere, etc. Also, it would make it easier for multiple people to work on the same spreadsheet without having to know what the name of the spreadsheet is.

I'm looking for a paperless binder that can store all file types...

A self employed taxpayer with 4 employees made monthly conribuitons to the profit sharing plan during 2010. Now that his schedule C is being prepared, he no longer wants to make/deduct a profit sharing contrib for 2010 (Sch C income less than expected, cost to cover employees more than expected, large amount of tax due, bad economy). Can he withdraw the 2010 contributions plus earnings without a penalty?

I want to get some opinions about what seems like a complicated situation regarding the Age 55 exception on the 10% early distribution penalty. Here are the details:

Employer A and Employer B are both related, participating employers in a Profit Sharing Plan.

Employee X works for Employer A and has received contributions over the years to the Profit Sharing Plan from A.

On 9/1/2009, X terminates employment with A, but is employed by B.

Because of a business transaction, Employer B is no longer related to A and ceases being a participating employer in the Profit Sharing Plan effective the same date -- 9/1/2009.

X turns age 55 in June of 2010.

X terminates employment from B in September of 2010 and receives a lump sum distribution from the Profit Sharing Plan in October of 2010.

Based on your knowledge of the age 55 exception, do you think this employee would be eligible for the exception and have Code 2 on the 1099-R?

Thanks.

I have a participant who cannot pay on thier loan and wants to have it deemed distirubted, even tho they are an active participant. I have also heard that some states do not not allow a loan to be irrevocable.

I have a client that contributed to a DB plan for 2009 but no contribution was deductible. My understanding is that it is too late to go back and re-do the val with a different funding method (change to beginning-of-year val) since the SB and 5500 were filed. Is there a solution?

Refund was completed timely, however, was determined to be incorrect and requires a re-issue for a different amount. Would the refund then be considered late and subject to the excise tax penalty since the corrected refund is past March 15th?

Two plans merging 6/30 due to company sale. How are 7 keys determined with combined plans. What takes precidence, compensation or attribution as far as eliminating a key person? Thanks.

If an employer wishes to have its health plan remain grandfathered and if the employer has been paying 100% of employee premiums and 50% of spouse/dependent premiums, would they lose grandfathered status by reducing the spouse/dependent employer payment to 25% or 0% even if the employer keeps paying 100% of employee premiums? In other words, does the grandfathering issue pertain only to how the employer pays for employee coverage in addition to other factors or might changes to spouse/dependent premium payments by the employer also impact the grandfathered status?

I have a question concerning safe harbor and required top heavy contributions. A calendar year plan is determined to be top heavy on December 31, 2009 (plan has always been top heavy). The plan adopts a safe harbor basic match provision for January 1, 2010. All the key employees have received at least a 3% contribution from the employer in 2010. Does the plan administrator need to provide a top heavy minimum contribution (in other words be sure that all the non-keys employed on the last day of the plan year receive at least 3% from the employer) for the 2010 plan year? I know that if the plan was not determined to be top heavy at the end of the 2009 plan year, no top heavy contribution would be required, if the plan only has safe harbor contributions contributed in 2010, the plan is exempt from having to run the top heavy test.

I know that a top heavy minimum can be satisfied by the safe harbor match. However,

5 non-keys did not make any 401(k) deferrals and therefore did not receive a match and 6 non-keys did not make enough 401(k) deferrals to receive at least a 3% match. I understand the coordination of a safe harbor provision and the possibility of not having to for performing a top heavy test for a plan year in which a plan made a safe harbor contribution and satisfied the ADP/ACP tests. However, the plan was found to be top heavy for the 2009 plan year when the plan did not have a safe harbor provision in place and therefore was subject to top heavy testing; a top heavy contribution would be due at the end of the subsequent plan year. I believe that for the 2010 a top heavy minimum is still owed to the non keys still employed on the last day of the 2010 plan year to the extent that they did not receive at least a 3% safe harbor match.

I hope this makes some sense.

I've faced an issue several times and have not come across clear IRS guidance on its resolution. What are the 457(f) taxation rules for an employer's payment of a retired executive's taxable of out-of-pocket medical expenses incurred in years after retirement (vesting)?

The plan would vest in the retired executive the right to have the employer provide the executive an individual health insurance plan (non-taxable under 106) and would further reimburse any and all out-of-pocket uninsured medical expenses the retired executive incurs every year for the remainder of his life. It will comply with 409A, so I'm not worried about that aspect. Under my reading of 105 and 106, these payments would constitute taxable income to the retired executive, but would be the only feasible method of providing complete coverage after PPACA applied the nondiscrimination rules to insured plans.

As the executive will have the vested right to future medical expense reimbursements in the year in which he retires, how would that benefit be immediately taxed under 457(f) without having any idea what the eventual amount of payments would total? The present value of a best estimate? If so, how do you recoup any differences in later years? Section 72 rules?

I appreciate any input.

Have a 2 participant Husband/Wife plan that was initially filing a 5500-EZ. Hired an employee at some point and began filing 5500's. Employee eventually termed and paid out in '09 so they are eligible to file an EZ again beginning in '10.

Here's where I'm uncertain: As far as I'm aware the EZ's don't go to the DOL and I have little faith that the IRS and DOL communicate closely enough to realize what's going on (yeah, I'm cynical, so what ). Will the DOL come looking for the 2010 5500 since the 2009 was not filed as 'final'?

IRA owner turns 70 1/2 in 2010 but died before required beginning date of 4/1/2011. Is the RMD still required? The available guidance appears to conflict:

1. Treas. Reg. Sec. 1.402©-2, Q&A-7(b): "Any amount that is paid before January 1 of the year in which the employee attains (or would have attained) age 70-1/2 will not be treated as required under section 401(a)(9) and, thus, is an eligible rollover distribution if it otherwise qualifies." Treas. Reg. Sec. 1.408-8, Q&A-4 (regarding RMDs for IRAs) cross-references Treas. Reg. Sec. 1.402©-2, Q&A-7 to determine the RMD.

This indicates that on and after the January 1 of the year in which an IRA owner turns 70 1/2, the RMD is required to be made.

2. Treas. Reg. Sec. 1.408-8, Q&A-5(a) provides that a surviving spouse who is the sole beneficiary of an individual's IRA and has unlimited rights to withdraw amounts from the IRA may elect to treat the surviving spouse's entire interest as a beneficiary in the individuals' IRA as the surviving spouse's own IRA. If the surviving spouse makes this election, then the RMD for the calendar year of the election and subsequent years is determined with the surviving spouse as IRA owner. However, if the election is made in the calendar year of the IRA owner's death, then, although the surviving spouse is not required to take an RMD as the IRA owner for that calendar year, the surviving spouse is required to take an RMD for the year of the IRA owner's death determined with respect to the deceased IRA owner under Treas. Reg. Sec. 1.409(a)(9)-5, Q&A-4.

This indicates that a surviving spouse (who is the sole beneficiary) of an IRA owner must take the RMD, one way or the other, to the extent that the RMD was not taken by the IRA owner before death.

3. Treas. Reg. Sec. 1.409(a)(9)-3, Q&A-3(b) provides that RMDs must commence by the later of the end of the calendar year immediately following the calendar year in which the employee died or the end of the calendar year in which the employee would have attained age 70 1/2.

This indicates that the surviving spouse must take RMDs.

4. Publication 590 regarding IRAs states on page 33: "If an IRA owner dies after reaching age 70 1/2, but before April 1 of the next year, no minimum distribution is required because death occurred before the required beginning date."

This last one is confusing. It seems to imply that no RMD is required if the IRA owner dies after attaining age 70 1/2 but before the RBB. Even if the IRA owner himself doesn't have to take the RMD (due to his death before the RBB), an RMD still must be made, correct? It would just be subject to all the Regulations cited above for when the RMD must be taken by the surviving spouse, correct?

We have a couple of June 30, 2010 plan year ends for which the audit and 5500 are still in process. They were extended to April 15th but does anyone know if they actually have until April 18th to file due to April 15th being Emancipation day????

I am trying to puzzle out the application of the restriction on prohibited payments under Code Section 436 to plans that are aggregated for purposes of satisfying minimum coverage (and thus 401(a)(4) as well). Here are the facts:

To satisfy minimum coverage, a defined benefit plan is permissively aggregated with a defined contribution plan. The DB plan's AFTAP will fall below 80% and therefore the limitations on prohibited benefits will apply. Because the DB and DC plans are aggregated for 410(b) purposes, the plans are aggregated for 401(a)(4) purposes, including the nondiscriminatory availability of benefis, rights and feature ("BRF") rules of 1.401(a)(4)-4. Take it as a given that the BRF test could not be satisfied if only the DC plan offerred the lump sum.

Do we have a 401(a)(4) problem regarding availability of BRFs - namely, the lump sum option currently offerred under both plans - if lump sums are restricted in the DB plan, but not in the DC plan? To say it another way, if lump sums are required to be restricted in the DB plan due Code Section 436, must they also be restricted in the DC plan as a result of the aggregation?

Clearly, we have 411(d)(6) relief for the restriction of the lump sums in the DB plan. But, because Code Section 436 by its terms as no application to a DC plan, I don't think we get any relief for an amendment to restrict the lump sums in the DC plan. Thus, while an amendment of the DC plan to restrict the lump sum in the DC plan might avoid a BRF problem, it would seem to create a 411(d)(6) problem in the DC plan?

Can we disregard the 436 restrictions on the lump sum under the DB plan when determining compliance with the BRF rules for the aggregated plans and continue to allow unrestricted lump sums in the DC plan?

Any thoughts or suggestions would be appreciated.

Let me rephrase the question, We have a tax client that mother passed away in 2009. she had an IRA. She was over 70 1/2 and had started taking her required minimum distributions. Beneficiary is her son. He is age 55. What is the latest he must start taking distributions from the IRA? does the 59 1/2 penalty apply to him if he takes a lump sum payment

A church, as defined under §3121(w)(3)(A), sponsors a 403(b) plan. An affiliated tax exempt 501©(3) organization (not treated as a qualified church-controlled organization) wishes to participate in the plan. I have concerned about the related employer being treated as a single employer under the plan. However, I think it would be permissible under the Permissive Disaggregation rules. It is my understanding if two more entities make contributions to a church plan as defined in code §414(e), the controlled group rules may be applied separately to the entities that are churches and the entities that are not churches.

What do you think?

Say a plan has a safe harbor 3% nonelective, and provides the 3% to all employees. If mid-year they decide they want to amend to provide only to NHC, can they do this?

Since the safe harbor regulations provide only that to qualify, you mst provide the SH for NHC, it would seem that such an amendment is permissible. However, I think you'd have to provide the 3% to the HC through the effective date of the amendment, give a proper notice, etc...

I've never actually seen such a request, but a question came up. Thoughts?

Employee has IRA account and wants to roll it into company 401(k) plan. It's a regular IRA, not Roth. The IRA is also not a rollover IRA. In other words, it's just a regular IRA the employee has been contributing to, so it doesn't contain any assets from another qualified retirement plan. Is the employee allowed to roll that type of IRA into the 401(k)? I thought only rollover IRA's could be rolled into a qualified retirement plan, and that the same amount that was rolled into the IRA had to then be rolled into the qualified retirement plan?

Thanks to anyone who can help explain this.

I own 100% of an S-corp which provides consulting engineering services. I also own 50% of a c-corp which provides technical field services (electricians, mechanics, etc...). When either firm needs the services of the other those services are subcontracted to the other firm. Both firms have worked for each other at various times, but never for more than 10% of either firm's revenue.

Does this make the S-corp or C-corp an affiliated service group, a controlled group or both?