My understanding of the upper cap on the maximum deductible limit is the greater of:

Funding Target (representing the BOY accrued benefit valued using the 430 assumptions), plus

Target Normal Cost (representing amount of benefit accruing during the year using 430 assumptions), plus

the "Cushion Amount", equal to 50% of Funding Target plus amount of increase in Funding Target if calculated using projected, rather than current, average salary; all reduced by fair value of assets, and

the 430 minimum deductible contribution.

Am I correct that if I have a new plan in 2008 w/ no past service benefit, that the minimum and maximum would be identical (since cushion amount does not reference the benefit accruing during the year).

This seems a little anomolous to me. What if I had a benefit formula wherein I had a past service benefit equal to 1/10th of the 415 limit which immediately credits on effective date. So Funding Target equals 1/10th of limit, Target Normal Cost is $0. So in effect I could have a maximum deductible contribution equal to 150% of the Funding Target. Contrast this with a benefit that just provides 1/10th of 415 limit during 1st year. Now my maximum deductible is just the Target Normal Cost (which equals the Funding Target). Do I have this straight?

Have seen the recent 430 proposed regs released on 12/31/2007, but don't see anything out yet on 404 based on the IRS PPA website dealing with the 404 calc (other than RR 2007-67). Anyone else know of guidance on the max deductible contribution in the works?

My understanding of Roth IRA's is as follows:

1. A husband and wife can each contribute up to $4000 per year (for a total of $8000) to a Roth IRA.

2. The contributions (but not the earnings) can be withdrawn at any time for any reason without any penalty.

3. We have until April 15, 2008 to make contributions for 2007.

Is this accurate? Also:

4. Can a husband and wife have a joint account? If so can they combine the accounts that they started before they were married?

5. How complicated is it to withdraw the contributions? Is it possible to keep some of the contributions in a standard savings account at a bank to allow easy access? My husband and I would like to max out our contributions for 2007 but doing so will deplete all of our savings leaving us with nothing to fall back on in case of an emergency so we want to make sure we'd be able to get the money back out quickly and without paying a penatly if we needed it.

6. Can you contribute to both a 401(k) plan through your employer and a Roth IRA?

Thanks in advance for your help.

I've seen other topics like this on this board, but I think they all dealt with deferrals permitted for the remainder of the calendar year. My circumstances are a little different.

11/30 Plan year end

No catch-up contributions for 2006 as of 11/30/06 or 12/31/06 (i.e. not over 402(g) or 415 limits, and no reclassed ADP refunds at 11/30/06).

Participant defers $692 in December 2006.

Participant defers $19,847 between 1/1/07 and 11/30/07.

Total deferrals of $20,539, of which $4,347 is reclassified as 2007 catch-up (402(g)).

Plan fails ADP Testing for 11/30/07.

Required refund for this participant is $1,148.

Remaining catch-up for 2007 is $653, leaving a refund amount of $495.

Can I reclassify $495 of the $692 deferred in 12/06 as catch-up as a result of the failed ADP Test at 11/30/07?

NEVER MIND!!!!

The IRS has provided written confirmation that taxpayers who are requesting a waiver of the excess accumulation penalty, should not pay the penalty upfront. The following statement was included in a Special Edition issue of their Employee Plan news :

"The recently-released 2007 Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts, reflects a change in IRS policy for taxpayers who miss taking their required minimum distribution from an IRA because of a reasonable error. Taxpayers who feel they meet the reasonable cause criteria set out in IRC §4974(d) are now allowed to not pay the 50% excise tax when they file their Form 1040. The Instructions for Form 5329, under Waiver of Tax on page six, instruct taxpayers to attach a statement of explanation, complete Part VIII of the form, make the appropriate "RC" annotation, and enter the amount they want waived on line 52."

The IRS has provided written confirmation that taxpayers who are requesting a waiver of the excess accumulation penalty, should not pay the penalty upfront. The following statement was included in a Special Edition issue of their Employee Plan news :

"The recently-released 2007 Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts, reflects a change in IRS policy for taxpayers who miss taking their required minimum distribution from an IRA because of a reasonable error. Taxpayers who feel they meet the reasonable cause criteria set out in IRC §4974(d) are now allowed to not pay the 50% excise tax when they file their Form 1040. The Instructions for Form 5329, under Waiver of Tax on page six, instruct taxpayers to attach a statement of explanation, complete Part VIII of the form, make the appropriate "RC" annotation, and enter the amount they want waived on line 52."

I understand that after tax contributions have to be tested under ACP. In a small 401k plan w/ no testing problems but tight margins on ADP / ACP (safe harbor not an option for this client) - can anyone see any benefit to permitting after tax contributions? I have a situation where certain HCE(s) are interested in this feature but I believe it would create an automatic ACP failure (eg so what's the point of making the contribution).

I have not seen after tax deposits in practice before. The majority of what I come up w/ in trying to research the issue pertains to Roth (using the search term "after tax") which is not what I'm looking for. I would like to do some research, if anyone has any comments on the scenario or can point me to possible code / reg cites I would greatly appreciate.

Thank you in advance for any assistance.

Hello,

I know there are some restrictions into what you can invest in for a IRA or a Roth. I read somewhere a long time ago about not being able to invest in trusts for IRAs but can't really find that I can't and then read on one of the links in rothira.com that I possibly can. Basically I think the problem lies in pass through entities like partnerships where taxes aren't paid by the actual partnership and are supposed to be paid by the partners themselves. Can I invest in a trust that makes money off of the land through the leasing of the land or the sale of say timber or oil from the property that passes all the income to the unit holders in a Roth is my question? And while I am asking this question can I invest in a Master Limited Partnership like KMP in a Roth? I realize the answers are opinions on the matter and greatly appreciate any help given. I find there are some decent income investments if we are able to in the short term at least.

See below: special IRS news letter. see new 5329 . Request a waiver of underdistribution penalty for reasonable cause without attaching a check for the penalty.

IRS Special News Letter

It appears that the Service has made official what a lot of individuals are doing anyway.

Here are the facts:

Plan elig for deferrals immediately upon DOH.

Plan elig for match after three months on 1st day of month coin or following.

Plan calls for an annual match true-up

Plan states that annual compensation is used for contributions and ADP/ACP testing.

Are the contributions made to the plan prior to the match elig date taken into account when calculating the true-up.

NOTE: The document is silent on the issue. (I know bad document, but that is the situation.)

An employer sponsors a defined benefit plan under which the plan's benefit

accruals are frozen. The plan provisions do not allow an actively employed

participant who has attained normal retirement age (age 65) to commence

receiving benefits until such participant has terminated employment.

Furthermore, under the current plan provisions, the participant’s normal

retirement benefit payable upon late retirement is not actuarially

increased. Accordingly, the plan’s lack of an actuarial increase provision

for participants beyond normal retirement age in conjunction with the fact

the benefit accruals are frozen results in the decrease of the value of a

participant’s benefit as they continue employment beyond normal retirement

age.

An employee who is a participant under the plan has attained age 65 and is

continuing to work beyond age 65. Under the current plan provisions, this

participant cannot commence receiving benefits and will not receive an

actuarial increase. Are the current plan provisions in violation of any

IRS rules and regulations?

Must the plan be amended to either (1) allow for actuarial increases for

participants beyond normal retirement age or (2) allow actively employed

participants who have attained the plan’s normal retirement age to commence

receiving benefits from the plan prior to actual termination of employment?

My employer has agreed to match 25% of what I put into my Roth IRA but will not match anything beyond 12% of my salary and but I must go through the brokerage firm my employer has signed a contract with. Is it legal for my employer to chose the custodian of my Roth IRA account? I have a feeling the answer is going to be that if I want that extra 25% I have to go through that brokerage firm, therefore if I chose another brokerage firm I do not get that extra 25%.

As we know, compensation in excess of $1.0M for certain individuals is generally not deductible by a public corporation. One exception to this rule is performance based compensation. In order to maintain the exception, the company has to have preset performance goals that are objectively determinable. However, it is very common for plans to allow a compensation committee to adjust the preset performance goals when the corporation experiences an extraordinary event (e.g., the unexpected sale of a division when the productivity of that division was part of the compensation formula). I don't see anything in the Regulations that would specifically permit adjustments to performance goals after they've been set. Does anyone know if there is any specific authority that allows this kind of adjustment? Thanks.

Hello. My husband was laid off from his job on Monday. There were two payrolls processed for 2008, in which he had $250 withheld for health care reimbursement - we had chosen a high amount in anticipation of future bills. We have not yet incurred any expenses in 2008. Are there any exceptions to the "use it or lose it" rule for instances like this?

Thank you!

Reviewed the 1099-R instruction book and it states if death benefits are paid that are not part of a pension/profit sharing plan, etc. a 1099-R is required. My situation includes a death benefit paid, from a life ins. policy, as proceeds from a DB plan. Is my thinking correct that a 1099-R is not required for the life ins. proceeds? New situation for me...thanks in advance.

A 12-31-07 plan - deposits $120,000 into the plan for a 2007 profit sharing contribution on 12-28-2007. Because the plan uses participant direction on its contributions the $120k is not allocated to the participants until later in 2008 when the actual determination of who gets what is completed.

For the 2008 top-heavy determination - shouldn't this $120k be included as part of the participant balances as of the 12-31-2007 determination date for 2008 plan year? It is not a profit sharing receivable to the plan at 12-31-07 because it was deposited on 12-28-07.

If $100k of the that 120k is going to go to key employees I don't see how you can't count it as of 12-31-2007 determination date - just becuase you did not have the information to allocate it on that date.

Is this logic correct?

There is an item for Payer's name, address and federal ID number.

It appears to me that for distributions from a pension plan the payer should be the name of the pension plan, address of the plan sponsor and the ID number of the pension trust.

Does this make sense or should it be the employer or something else?

Thanks.

Perhaps I'm overly concerned that 'safe harbor' sometimes means give an allocation no matter what, but I was wondering what the consensus is on the following: If a plan uses the 3% QNEC safe harbor design, would the sponsor still be obligated to provide it to a participant who would prefer to waive their participation in the plan when they become eligible?

Also, I know that catch-up contributions can be in addition to the 402(g) limit and the dollar limit on annual additions, but could they also be in addition to the 100% of compensation limit on annual additions (e.g., when a profit sharing contribution added to a participant's deferrals exceed 100% of their compensation?

Thanks in advance for all help.

We have gotten serious interest in a Cash balance plan to be added to the DC plan for an existing client. My question is about software. We use Relius for our daily plans. I am interested in adding the DB function to administer Cash Balance plans. How well does Relius work on Cash Balance Plans? Are there any issues or limitations to look out for?

Thanks for any feedback.

On another board I am on someone posted that their recordkeeper said that starting this year, the refunds to HCEs due to failing non-discrim would be taxable in the year refunded instead of the plan year so the HCEs would not need to wait to file taxes. Is this true? Has anyone heard anything about this? Thanks