Hello. I have a question I'm hoping for some advice... After I was laid off last year, I withdrew my 401(k) and had it deposited into an IRA account. That all went smoothly. However, this fall, I was contacted by the former 401(k) custodian, indicating that they discovered an incorrect divided had been included in that account and therefore an overpayment had been made. They requested the excess payment be returned in order to avoid tax consequences for the incorrect distribution.

I delivered that correspondence to the IRA custodian. The IRA custodian sent me TWO checks--payable to me--one for the exact amount of the overpayment, and a second check for the earnings attributable to that overpayment.

I questioned why the checks were made payable to me instead of the new custodian, and spoke with the 401k custodian--who advised that some brokerages do it that way and it was not a problem--and she instructed me to deposit the checks and write them a check out of my own personal account--and the IRA custodian, who confirmed that she had followed company procedure and had coded this all as a "withdrawal of excess contribution." Anyway, so far so good.

Upon receipt of my check (as instructed), the 401k custodian advised that she had misunderstood my question, and that they were unable to accept any of the earnings from that initial incorrect dividend. She is having a check cut, payable to me, refunding the amount of the check that represented the earnings from the incorrect dividend. She stated that it was improper for the 401k custodian to have withdrawn those funds and this will result in a tax consequence to me.

401k custodian insists that she did nothing wrong or improper and tells me I should just deposit the "earnings" in my bank account and pay the associated taxes and any penalties.

I'm caught in the middle. Who is right? In my mind, the ITA custodian/fiduciary withdrew my money improperly, and now I have a tax hit, which I did not want or anticipate. But, perhaps if the earnings were based on money that was not supposed to be in the account in the first place, that is just the way it works and there is nothing to be done.

Is there a way to correct/undo all of this, or is this just how it works. Thanks for your thoughts and advice.

When you need a tax attorney that can argue anything without blushing, here might just be the guy.

Halby v CIR

I am preparing a 1099-R for 2008, which was inadvertently overlooked.

Questions:

1. Can we simply "type" the form on the form I printed from the IRS website and submit it, or is there a special type of paper I should use which can only be ordered from the IRS? As you can tell, this is my first venture into reporting land in awhile.

2. Should we simply file it as if it were not late and wait for any repercussions from the IRS, or is there a "late" procedure I need to be following?

Thank you, and Happy Rosh Hashanah to Jewish users.

I ran across a prospect that uses Davis Bacon fringe as ER match in a SIMPLE IRA. Can Davis Bacon fringe be used for ER match or ER nonelective contribution in a SIMPLE IRA?

I ran across a prospective client that uses prevailing wage fringe as the employer contribution in a SIMPLE IRA. Can prevailing wage fringe be used as an employer contribution or match in a SIMPLE IRA?

Is anyone having any issues with ensuring that items contained within the 2008 Cumulative List are incorporated into the PPA amendment that needs signed by 12/31/09? Maybe it depends on your document provider? Our document Provider has yet to provide us with the necessary amendment to incorporate the 2008 cumulative list items that need signed by 12/31/09.

I am curious how others are including 08 Cumulative list items: are they already incorporated into your EGTRRA restatements? Do you have a separate amendment?

Any help/guidance/opinions would be GREATLY appreciated!!

Suppose you have a 401(k) plan sponsored by Employer A. Employer B is 100% owned by the 100% shareholder of Employer A so we have a controlled group. Employer B is more profitable than Employer A.

Employer A has 20 employees. Employer B only has 3 employees including the 100% owner.

Employer B adopts Employer A's plan as a participating employer.

The participating employer agreement indicates that "any contributions made by a Participating Employer will be allocated to all Participants employed by the Employer and Participating Employers".

Question:

Does this mean that Employer B can fund any portion of the match and profit sharing contribution (perhaps even all) for all participants of the plan? Certainly they would not want to exceed their 404 deduction limit but this could be quite advantageous.

A one participant plan wants to invest in out of country real estate. Is this ok? I don't see why not at first blush. Actually owner wants to invest in a corporation (purchase stock) that invests in th is real estate.

Silly question? Does the SAR get distributed to participants who have no balances? Example would be eligible for the 401(k) plan but choose not to defer.

If a plan's trigger is a separation from service, and it currently provides that any benefit will be paid in a single lump sum payment within 90 days after separation from service, why would it include the following provision: "with respect to Participants who Separate between December 15 and December 31 of a year, payment will be made on or before March 15 of the following calendar year." I cannot think of a reason for including this provision in the Plan, as I do not believe the payment will qualify as a short term deferral under 409A for prior year deferrals.

Any thoughts?

I have a nonmarketable asset in my Traditional IRA, that I would like to remove. I turn 59 1/2 in 2010. I would like to take the asset as a distribution in 2010, (I have a valuation of the asset) and then within 60 days roll cash (instead of the nonmarketable asset) into a ROTH Conversion account. Is anyone aware if this is permissible?

Any reason why an employer couldn't sponsor two separate Section 127 Plans?

In this case, employer wants to implement a new tuition assistance plan to a narrow and specific (but nondiscriminatory) class of employees.

But employer already has another plan in place.

I don't see a problem with two Section 127 plans as long as all other compliance (reporting, disclosure, etc.) requirements are satisfied.

Am I missing anything?

If a plan year is defined as 12/17 - 12/16, what date is the minimum required contribution due (8 1/2 months after the plan year end)? Is there any guidance on the issue?

Employee has a daughter going off to college. If he signs her up for the college health plan, can this be reimbursed through a Premium Reimbursement account? I can see how if the policy was for the employee it would work, but I'm not seeing anything for dependent only coverage.

Assuming a 401k plan passes coverage, are resident aliens excludable from the plan? Is there any possibility this would violate any federal non-discrimination laws regarding discrimination based on race or national origin?

A small business is ready to begin a new 401(k) retirement plan. The business is the manager of an SEC-registered publicly available mutual fund. The business wants to include this fund as a plan investment alternative. (In addition to the specified fund, the plan fiduciary will select prudently at least one fund in every recognized general investment category, other than the category of the settlor-named fund.) Instead of a typical discretion that allows a plan fiduciary to select the investment menu, the business will create the retirement plan only if the plan specifies the "inhouse" fund as a settlor act.

1) Does any documents provider offer a prototype or volume-submitter plan that allows a user to specify a plan investment alternative by name?

2) Would such a plan have language (whether in the base plan or an adoption agreement) that precludes every fiduciary from removing the settlor-named investment alternative?

3) Would such a plan have language that precludes the plan sponsor from amending the plan to remove the creation-named investment alternative?

Or would a lawyer be right to tell this business that implementing its purpose means paying for a custom plan document?

I hopefully have some basic questions that maybe someone could shed some light on.

A client sponsors a nongovernmental 457(b) plan which they have funded and established individual accounts for each of the plan's participants. The plan only allows employer contributions.

In general, how does vesting under a nongovernmental 457(b) plan work? Must it be specified in the plan's document? In this particular plan's document, there is no mention of vesting or forfeiture.

This is a new takeover for us. A participant is going to be terminated for "cause" and the sponsor is insisting that they can take back the money that has been funded and not pay anything to the participant.

Any input would be appreciated.

So, a company has a retirement plan that they institute, and add a reference to it in their Employee Handbook. The Handbook reads (in full):

YOU ARE ELIGIBLE TO PARTICIPATE IN THE [name] RETIREMENT PLAN. PLEASE CONSULT THE PLAN DOCUMENTS FOR SPECIFICS.

YOU WILL BE AUTOMATICALLY VESTED AFTER THREE YEARS OF CONTINUOUS SERVICE.

The next year, the company decides to offer a retirement bonus (unrelated to the retirement plan.) Another sentence is added to the Employee Handbook (between sentences 2 and 3, above):

AN EMPLOYEE WHO RETIRES IN GOOD STANDING WITH OVER 25 YEARS OF SERVICE WILL RECEIVE A BONUS EQUAL TO . . . [and then lists the benefit].

The only references to this plan are the board minutes approving it, and this sentence in the Employee Handbook. The company now wants to eliminate this benefit, but I am afraid that they have created a vested benefit for employees with three years of service by putting it on the same page of the handbook as the vesting language.

Thoughts? Disagreements?

Folks:

We had a discussion a while back regarding UBIT and tax-exempt income.

I did discover a Revenue Ruling, 76-337, in which a social club did not have to include in gross income interest on obligations of a State.

I have not found a revenue ruling regarding like insurance income as not being included in gross income.

Could this revenue ruling be used as a precedent?

Don Levit

A not-for-profit organization receives donations in December that are meant to be disbursed to employees as a holiday benefit. In the past these dollars have been going through payroll, but it seems like there should be another way to pass this money around without incurring payroll taxes. Most of these employees are in the lowest tax bracket, so income tax isn't the issue -- it's payroll tax we're trying to avoid. Is there a VEBA or Welfare Benefit Plan that would support this type of arrangement?