I have a client that is part of a city sponsored 457b plan. He is a firefighter and part of the firefighter's union. My question is can the union break off and set up their own plan with another vendor? (assuming all of the firefighter's agree). Do they need to get approval from the city to do this?

It is my understanding that, for individuals who have attained age 70.5, the IRS will consider the first dollars that are paid from IRAs during a Distribution Year to be in satisfaction of their RMD for that year.

If an individual completes a Roth Conversion of one IRA, and later takes a distribution from another traditional IRA "to satisfy his RMD requirement for the year", am I correct in thinking the IRS would consider the first transaction (the Roth Conversion) to be an ineligible rollover up to the amount of the taxpayer's RMD for the year, and subject to an excise tax (treated as excess contribution to Roth)?

My reference point is Treasury Regulation 1.408(a)(4), Q- A 6 which states, in part..© If a required minimum distribution is contributed to a Roth IRA, it is treated as having been distributed, subject to the normal rules under section 408(d)(1) and (2), and then contributed as a regular contribution to a Roth IRA. The amount of the required minimum distribution is not a conversion contribution.

I am looking for cases, rulings, etc where this scenario is discussed - where the taxpayer converted an IRA to a Roth prior to having satisfied his/her annual RMD requirement. Thanks!!

I wasn't sure what board to post this in, so I am posting it here and in the IRA section.

I have a client (the participant) who received a lump sum payment in December 2007 of around $150,000 from a defined benefit plan, and she rolled that over to an IRA. Last month, the participant received a notice from her former employer that the plan overpaid her by about a thousand dollars, and that the overpayment may be treated as an excess contribution to her IRA, subjecting it to a 6% excise tax, imposed each year until the excess contribution is distributed.

Questions:

What is the best route for the client if she does not want to repay the overpayment?

Can this amount really be treated an an excess contribution?

And even if it can, wouldn't the best fix be for the client to take out the excess amount from IRA and keep it? I doubt the employer would sue over a thousand dollars.

Thanks for any adive you may be able to provide

Two consultants each have their own S-corps. Somehow each consultant also receives a w-2 from the other's S-corp. They each also receive a W-2 from their own S-corp.

To make it more interesting, the two consultants both provide consulting services to a common client (who happens to be each consultant's largest client).

There is no common ownership between the two S-corps, and the two consultants have no family relationship.

If they each set up a retirement plan, are they really considered separate employers and can therefore max out under each plan?

There has to be something wrong here, I just can't put my finger on it.

Do rate of pay assumptions work under PPA? For example, if I'm running a beginning of year val for a 1 man plan where the only participant enters the plan on January 1 and takes his first paycheck during the plan year. What comp do you have to use? or must you run an end of year val in this case? I had thought that prior to PPA, you could use a rate of pay assumption for that first year.

Any thoughts?

I' ve got HEART on the brain today. Just to see if you agree: If someone who is on qualified military duty of more than 30 days receives differential wage payments from the employer, then deferrals can still be currently made from these payments, under the effects of 414(u)(12)(A)(i). If, however, the employee took an in-service distribution of deferrals under 414(u), then deferrals must be suspended for the normal 6-month period.

Agree/disagree?

But this same treatment wouldn't require a current employer profit sharing contribution unless the employee actually had the requisite hours for the year in question, right? This would be covered under the make-up provisions of USERRA.

A couple of our clients are asking about the relative advantages of rolling DB distributions into Roth versus regular IRAs. Is there a good resource on that topic?

I have a client (the participant) who received a lump sum payment in December 2007 of around $150,000 from a defined benefit plan, and she rolled that over to an IRA. Last month, the participant received a notice from her former employer that the plan overpaid her by about a thousand dollars, and that the overpayment may be treated as an excess contribution to her IRA, subjecting it to a 6% excise tax, imposed each year until the excess contribution is distributed.

Questions:

What is the best route for the client if she does not want to repay the overpayment?

Can this amount really be treated an an excess contribution?

And even if it can, wouldn't the best fix be for the client to take out the excess amount from IRA and keep it? I doubt the employer would sue over a thousand dollars.

Thanks for any adive you may be able to provide

Company A & B are brother sister controlled group (each has identical shareholders) with all A & B employees covered by one health plan.

Shareholders of Company A sell all assets to Purchaser. Purchaser hires all former A employees and covers them under its plan.

Shareholders of Company A & B drop their health plan as a result of the asset sale.

Company B employees remain employed by Company B but they have now lost their insurance.

Are Company B employees entitled to COBRA?

My thought is no, because they have not had a qualifying event.

Does anyone agree/disagree?

DB plan with top 25 restriction provided large accrued benefit to owner, who then retired and also got divorced.

Full benefit (at 415 limit when owner retired) assigned by QDRO to former wife, who started collecting in as a life annuity with the intent to convert to lump sum when plan is sufficiently funded.

Now the plan sponsor (company is now run by the son) wants to terminate and fully fund the plan. Mom has been receiving a large pension monthly for several years now.

How is the amount payable as a lump sum to be determined considering the payments received since the 415 regulations have this section "reserved"? Must the old 415 limit be used and the lump sum reduced by the pv of the monthly payments?

Any suggestions to avoid a cutback to Mom other than to have the plan buy Mom an annuity of select a reduced lump sum?

Can we put Mom on the payroll for 1 hour and then take advantage of the current 415 limit? Or can we use the current 415 limit regardless?

I have a dental practice with a calendar year PS/401k with a 3% non-elective SH contribution. On 12/1/09 a Safe Harbor notice was given to the employees stating a 3% non-elective contribution would be made for them in 2010.

The doctors now say they don't have the money to fund a 3% SH for 2010 due to their economic situation. I prepared an amendment to cease their SH non-elective contribution on 1/6/10. The SH non-elective will be funded through 2/5/10 and we'll use ADP testing for the 2010 plan year.

This plan is also top heavy and there is not much 401k participation with the staff. This severely limits the doctors to what they can contribute to the 401k.

Now the doctors are talking about starting a SIMPLE IRA for their company. Since the PS/401k will be funded through 2/5/10 with a SH contribution, doesn't this prevent them from starting a SIMPLE IRA during 2010?

Also they are asking if they can retroactively terminate their plan as of 12/31/09 to avoid making contributions for the 2010 plan year. I don't think this would work either.

Any other suggestions of what can be done?

A 401(k)/PS plan is still on a GUST document. They intend to terminate the plan in March 2010, so they have no intention to restate the document.

If they restated to an EGTRRA document, they can submit their 5310 after April 30, 2010 and ask for a D letter on the termination - no problem.

But, if they do not restate for EGTRRA (they adopt interim amendments only), and they want their Form 5310 accepted, must the 5310 be submitted by April 30, 2010?

Currently we have our software set to sixty month maximum loan duration. We have a concern that we are setting up the loan to exceed the five year limit from the start. We are considering changin the maximum to 59 months. Is anyone doing this?

401(a)(37) as amended by the HEART act seems innocuous enough. But the devil is in the details.

It's clear enough that someone who dies while performing qualified military service would become 100% vested if the plan provides for 100% vesting at death.

What happens when you have a Profit Sharing plan that provides for life insurance? While the Code itself says nothing about this, the JCT explanation includes the term "ancillary life insurance" benefits. So, must an employer continue to pay premiums for any person who is in qualified military service?

Let's assume the answer is yes. Is the premium deductible as a contribution under 404? And if the participant never returns to qualified reemployment, is the increase in value then treated as a forfeiture?

The same basic issue could apply to a DB plan as well, I suppose, modified due to the differences in benefits vs. account balances.

And another thing - I have an impression that perhaps not all life policies pay the full face amount for death due to war/military service? If so, then this could require some pretty fancy plan language to make sure the plan itself doesn't incur a huge liability for which it doesn't receive the requisite face amount from the insurance company.

I've seen a big fat nothing in terms of IRS discussion/guidance. Does anyone with "contacts" there know if they are considering this issue?

Top Heavy Plan with NRA of 55 amends NRA to 62 because 55 cannot be statistically supported.

Two employees were accruing top heavy 2% for five years. Assume regular formula was 1.2% x YOP.

Does the top heavy minimum simply become 2% x YOP max 20% payable at age 62, or is some type of conversion of the top heavy accrued benefit also needed to avoid a cutback and that becomes a grandfathered benefit, which in effect substantially reduces future top heavy accruals? Anybody dealt with this issue?

(This is a real situation but I don't know what was done, so I cannot answer "What does the document say?" I am trying to determine what was required to be done.)

Thanks for any comments.

Company has SIMPLE IRA.

They do not want to fund any match for 2009 and they have never given out notices to the eligible employees.

They want to terminate the plan but have already withheld from the 3 participants' first paycheck in 2010.

They seem to think they do not have to fund a match if it is not "feasible". I told them the must fund at least 1%.

I don't know how you terminate a SIMPLE IRA. Just stop making contributions?

I told them they should refund the amounts already withheld from the participants wages but she couldn't figure out how to do that because of the taxes, etc.

I guess I have 2 actual questions:

1. Must they fund a match for 2009, and since they never told the participants they were getting anything, may it be 1% instead of 3%?

2. How do they terminate this plan?

Thank you.

Kate Smith

For purposes of IRAs, is there any real distinction between trustee or custodian?

1. A "bank" may be either a trustee of an IRA under IRC section 408(a)(2) or the "bank" may be a custodian of an IRA under section 408(h).

2. A "person" (a non-bank, i.e. brokerage firm, insurance company, etc.) may apply to the IRS to be a trustee of an IRA under IRC section 408(a)(2) or a custodian of an IRA under section 408(h).

3. IRC section 408(h) treats a custodial IRA as an IRA trust, and the IRA custodian as an IRA trustee.

4. The "Specific Instructions" for both form 5303 (IRA Trust) and 5305-A (Custodial IRA) both state that: "Article VIII and any that follow it may incorporate additional provisions that are agreed to by the grantor/depositor and trustee/custodian to complete the agreement. They may include, for example, definitions, investment powers, voting rights, exculpatory provisions, amendment and termination, removal of the trustee/custodian, trustee/custodian’s fees, state law requirements, beginning date of distributions, accepting only cash, treatment of excess contributions, prohibited transactions with the grantor/depositor, etc. "

With that in mind, why would a "bank" set up a Custodial IRA, for example, for an IRA CD, and in the trust/investment department of the bank set up its accounts as IRA Trusts?

Given the Specific Instructions regarding Article VIII, do I understand correctly that either an IRA Trust or a Custodial IRA may be used for a self-directed IRA or a managed IRA?

For IRA purposes, do the terms "trust/trustee" or "custody/custodian" carry much of any of the conventional meanings as they are understood beyond there usage in the IRC?

If there is a meaningful distinction, in what situation might a brokerage firm prefer to apply to become an IRA trustee instead of an IRA custodian?

We have looked for an answer on this but have not found it.

A plan clearly has more than 5% of its assets invested in non-qualifying assets. Therefore, to be exempt from the small plan audit, they will purchase a bond "equal to 100% of the value of non-qualifying assets".

Is the value of non-qualifying assets equal to the net value of non-qualifying assets?

For example, suppose you have a plan with just a real estate investment with a market value of $900,000 but a mortgage payable of $500,000.

Must the bond be for $900,000 of coverage or $400,000 of coverage?

Thanks a million.

The sole owner of a plan sponsor, who also participates in the plan and is the trustee, would like to lend her sister money from the plan. The sister is not involved at all with the sponsor or the plan, however, the concern is whether she would be considered a "joint venturer" under the party-in-interest/disqualified person definitions because she and the trustee are 50/50 owners of a rental property. The rental property has nothing to do with the sponsor or the plan. Is "joint venturer" meant to be only in relation to the company sponsoring the plan, or does it apply to anything they're both invested in? All help is greatly appreciated.

I looked at the 5305-a-Sep and the rules, and a SARSEP document from American Funds. They all seem to say that the allocation to an individual is limited to the LESSER of 25% of pay or $49,000.

I thought this was changed in 2002 with EGTRRA, and in fact 1.408-1(d) says the limits are from 415. This of course is now 100% or $49,000. Is there another reg that limits SARSEP, or is everyone not updating (including the IRS!) because they cannot be established since 1997?

Note this limit is NOT mentioned in the 5305-SIMPLE forms.