Comments?

http://blog.nj.com/njv_johnbury/2009/12/actuaries_suck.html

Taxpayer on 12/31/09 has a Traditional IRA of $30,000. Basis in this IRA with nondeductible contributions is $30,000. So the IRA has no appreciation.

Taxpayer also has a 401k with $200,000 in which he plans to roll over into Traditional IRA from former employer in 2010 or 2011.

Question - Taxpayer wants to convert Traditional IRA to Roth in 2010. Doing so would result in no additional tax liability since the FMV = tax basis. Lets say they convert in January, 2010. What effect, if any would the transfer of the 401k plan to IRA have on the ROTH conversion if it is done AFTER the conversion but in the same 2010 tax year. I assume you look at the value of all IRAs at the time of conversion and that any amounts added to traditional IRA's after the conversion have no effect?

Edited later - answered I believe lies in the form and instructions to form 8606.

In computing the basis used in the conversion, you divide the accumlated cost basis by the IRA distribution during the year PLUS the balance in the IRA as of the END of the year. therefore, if you happen to empty out the IRA earlier in the year, then transfer from a 401k to the traditional IRA later in that same year, the 401k would effect the out come of the conversion. So it would make sense to hold off rollovers from qualified plans until a later year.

We have a 401K plan with a 3% non-elective Safe Harbor contribution. I know that this 3% will count towards determing the contribution amounts for cross testing. So, in a simple case, if a 5% total allocation rate for NHCEs is required to meet the gateway, the 3% match will count because the plan has a 3% non-elective Safe Harbor as opposed to a matching Safe Harbor. So we would have to provide, in this case, a 2% profit sharing allocation.

But 3% is the minimum contribution. What if our plan contributes 4%? In the simple case above would this mean that we would only need to provide a 1% profit sharing allocation to NHCEs. The software we currently use to cross test, uses a fixed 3% Safe Harbor contribution, so I can't test the effects of increasing it to 4%. Perhaps, 3% is all that can be used for cross testing. I don't know, hence this question. Thanks.

Is it possible to switch from the matching safe harbor 401K plan to a nonelective 3% safe harbor 401K plan during the plan year? Currently, our plan provides the typical 3% match up to an employee's elective contribution of 3% of compensation and then 50% of additional elective contributions up to 5% of an employee's compensation. So the maximum match is 4% of compensation. If we can make the switch to the nonelective 3% safe harbor, then we will actually contribute 4% this year for all eligible employees. This is because some employees have already received the 4% match based on the elective contributions they have made to their 401K plans and we wouldn't want to reduce the match as a result of the proposed safe harbor switch.

We would like to make this switch effective for the 2009 plan year.

A prior recordkeeper has just provided a check to the current recordkeeper, along with an explanation that the prior recordkeeper had overcharged participant accounts for the prior record-keeper's fees back in 2008. At that time, the recordkeeper’s fees were paid from plan assets.

The current recordkeeper, upon receiving an allocation breakdown from the plan sponsor, has been directed by the plan sponsor to deposit the overcharged fees pro rata into the appropriate participants' account.

The problem is: The correct money source into which the funds should be deposited for each affected participant.

It can't be in the employer's money source because the funds would be subject to a vesting schedule.

Should these assets be treated as pre-tax?

Any other alternatives?

Any guidance would be grately received and appreciated.

Suppose the owner of a small corp that sponsors a DB plan is also a participant in the plan. He also happens to be the trustee.

He owns 7% of the stock of a privately held company (not the company that sponsors the DB). Can the plan invest in that stock?

Something tells me that it may be a prohibited transaction. Use of plan assets for the benefit of a disqualified person. The disqualified person being him as a plan fiduciary. Suppose instead this was a publicly traded company. Then would it be a prohibited transaction?

Is there a best Website Roth conversion calculator?

Employer merged with another company (new company still considering k plan), old plan had 8 people was safe harbor all contibutions made before all employees including owner went into new merged companies. Owner still had A/R due which has now been collected money could be converted to payroll and was curious about whether he could fund prior 401 k plan. All participants have been paid out except him investment issue delaying his distribution. it sort of brings up questions prior plan was top heavy but only safe harbor match was made he would be only employee in (old company) 14 months with payroll made. thanks for review

Plan has four owners who all receive K1s and W2s. There are no other employees. When running the K1 calculations (by individual) I am getting a negative number for two employees. I am not sure how to handle a negative K1. . .For example:

K1 compensation totals $2,700 (before any deductions)

W2 compensation totals $35,000

After running the K1 compensation thru the self-employment earnings calculation and deducting self employment and the profit sharing contribution for the year I am left with a negative number ($9,500). Can I then add the W2 compensation of $35,000 to the ($9,500) and use the $25,500 as the participant's total compensation for the year?

Also, does anyone know of a good resource to read up on K1 and Schedule C compensation? I feel like I get caught up on this stuff every year. . .

Thanks!

if my client is 1/31/2010 cycle and currently using an individually designed plan but intends on adopting an EGTRRA prototype plan, is it entitled to the april 30 deadline or the January 31 deadline?

Does anyone have a sample irrevocable election out of a plan that they are willing to share?

Hi,

I have a MERP that allows post tax premiums to be submitted for reimbursement.

I was looking for clarification on what is meant by "post tax"

Thank you!!

Can you have different distribution schedules (e.g., 6 month vs. 12 month) for deferred compensation amounts that are distributed upon a separation from service but vary depending upon whether it is an involuntary termination by employer versus a voluntary termination by the individual.

Treas. Reg. 1.409A-3© would seem to prohibit such distinctions to the one time and form of payment rule but I am trying to determine exactly what 1.409A-3©(3) means in this regard. It seems to open the door very broadly to permit distinctions based on any sort of separation from service. Would appreciate any thoughts on how to parse that language.

I want to be clear.

Calendar year DB plan with lookback month of November.

Participant terminated this month (December 2009). If they are paid out in January 2010, it is my understanding that the 417(e) lump sum should be valued using 2010 mortality. But would I use the December 2009 segment rates or the Novemeber 2008 segment rates?

Thanks in advance.

The plan has an alternate payee who elected to not take his distribution out of the plan at the time of the QDRO. Since then, the plan has increased the cashout limit to $5,000 (with automatic rollovers from $1,001 - $5,000). The AP's balance is <$5,000, so the Trustee wants to pay him out. Everything I see says that the automatic rollover is triggered by the termination of a Participant (with a capital "P"), but does AP fall under that umbrella for this purpose? Thanks.

I have inherited the administration of a 401k plan that apparently has never suspended employee contributions after hardship withdrawals have been taken (going back to 1994). Was this ever legal? What is the correction method for this?

Thank you,

Of course in my 2,000 years of practicing, I've never had to determine the maximum distributable lump sum on a deferred pension. Alas, my day has come, in particular, because of the NRA=62 requirement.

So, facts are participant age 52 with NRA=62 has over 10 years of whatever and has accrued the full benefit of the high three (H3) average compensation under 415(b)(1)(B). Since lump sum is available, then presumably "annuity starting date" is at age 52 and not age 62.

So, we do as follows:

(1) Determine the lump sum for a deferred annuity to age 62 valued at age 52 using the plan factors.

(2) Convert this lump sum to an immediate life annuity at age 52 using the lesser of the Plan actuarial equivalence or the applicable mortality table and 5.5% interest. I.e., produce the greater annuity.

(3) Reduce H3 to an immediate annuity using whichever produces a lower factor -- the Plan actuarial equivalence or the applicable mortality table and 5.5% interest. I.e., use the lower amount.

(4) Assuming (3) < (2), the distributable lump sum is (1) / (2) x (3)

Any disagreement?

I have an employer who wants to reward employees who do not need to be covered by the employer's group health plan because they have coverage through a spouse's plan or retiree benefits from a former employer. The Employer would like to make a contribution to the Health FSA for each of these employees. The employees would not have the option of receiving the cash outright.

I am having a hard time figuring out if this is OK.

Reg 1.125-2(b)(2)(ii) seems to permit an employee to opt out of health coverage and receive cash:

The cafeteria plan provides for an automatic enrollment process: Each new employee and each current employee is automatically enrolled in employee-only coverage under the accident and health insurance plan, and the employee's salary is reduced to pay the employee's share of the accident and health insurance premium, unless the employee affirmatively elects cash. Alternatively, if the employee has a spouse or child, the employee can elect family coverage.

Is there any reason an employee can't opt out of health coverage and receive an employer contribution to a Flex FSA instead of cash?

I assume the employer contributions must pass nondiscrimination testing, correct?

I appreciate any assistance.

Plan sponsor has a 401(k)/Profit Sharing Plan. Plan sponsor wants to invest in real estate. I don't know the exact details of what yet. I know there a lot of caveats to having real estate in the plan, but does anyone have a good article on this? This article would talk about real estate in the plan and the step by step guide to how you do it.

Thank you and Happy Holidays!

A company purchased a company that I admin a plan for. The company is not accepting the plan but will accept the rollovers.

The exisitng company would like to keep the plan open and offer the employee the ability to roll into the new company plan, roll to an IRA or keep in exisiting plan.

There are a couple loans in the plan. Can these loans still be paid on (obvioulsy not thru payroll deduction) as to not to default? The loan policy states "MANNER OF REPAYMENT. Loan payments will be repaid by payroll deduction repayments as of each payroll withholding period (but at least quarterly). If the applicant revokes the payroll deduction election, the entire unpaid principal sum ofthe loan plus accrued interest (plus any other amounts due under the loan) will become due and payable."

Can this be changed to accept payments?

What options does the company have for keepign the plan open?