This question relates to the recharacterization of Pre-Tax Deferrals to After-Tax Contributions to correct an ADP test violation. Please disregard catch-up contributions for purposes of this discussion. Treas. Reg. Section 1.401(k)-2(b)(3)(ii) states that recharacterized excess contributions will be includible in the HCE's taxable income "as if such amounts were distributed" under the regulations applicable to distributions of excess ADP amounts. When excess ADP amounts are distributed from the Plan to correct an ADP test failure, the employee is taxed on the net amount of the excess, after adjustment for earnings or losses.

Surely, these regulations cannot be saying that the same occurs upon recharacterization (note that the recharacterization regulation does not specifically refer to earnings or losses, although the regulation relating to the distribution of excess contributions does include a discussion of earnings and losses). If we truly were to recharacterize the full amount of what would otherwise be distributable, then the earnings on th excess contributions would be taxable to the employee and so would become after-tax in the plan, and the employee would have additional basis because of the earnings on the excess contribution. As you know, earnings on after-tax contributions are not taxable to an employee until distributed. So, why would recharacterization result in a different conclusion than if the amounts originally had been contributed as after-tax contributions? Therefore, I believe that this regulation must be interpreted to mean that the recharacterized amount (and so the taxable amount) must equal the amount of the actual excess contribution, as adjusted for losses but NOT adjusted for earnings (because if those contributions originally had been after-tax contributions, the earnings would have remained in a "pre-tax" source).

Any thoughts either way?

Can a US citizen working for a US employer and living abroad make a Roth 401(k) contribution if his income is excluded under section 911? Section 402A(a)(1) says Roth contributions shall not be excluded. Can the expatriate just make a partial election under 911 to include the Roth contribution in compensation?

A client of mine wants to establish an HRA for his single employee. The TPAs I've seen seem expensive for that small of an arrangement. Is anyone familiar with inexpensive ways of setting these up? Know of TPAs that can set up an inexpensive HRA for this situation?

We're trying to help a client obtain an ERISA fidelity bond for their qualified plan and have found a wide disparity in what insurance firms charge. He needs coverage for $2.5 million in non-qualifying assets and received quotes from two companies, one for $5,000 per year and the other for $300 per year. From your experiences, which one is closer to reality?

Am over 50; am employee of my own S-Corp. Want to contribute the max of $12,500 to my SIMPLE plan. Want to also contribute the max of $5,000 to my Roth IRA. What's the minimum income I could report on my own W-2 form?? Thanks in advance, Tmeltz

For a plan to test otherwise excludable employees separately in a 401(k) test, is it necessry for that to be stated in the plan document?

Thanks

A 401(k) Plan (no safe harbor) has a 1000 hours/last day rule for match contributions. There are 2 HCEs and that out of 10 NHCE participants, 2 terminate with more than 500 hours during the year. However, the employer makes no match contribution for the year.

Is the 410(b) test for the 401(m) contributions automatically satisfied since since no one received a contribution? Or, does the test still need to be performed, with an 80% result, because of the 2 terminees?

Thanks

Corbel just put out this release. What is people's take on the new distribution notice rules? Sounds like there will no longer be a "Safe harbor" notice applicable to all plans. Rather, we need to let people know what investments are available to them? What a giant pain!!!

Has anyone seen an "implementing PPA" workshop announced anywhere?

http://www.relius.net/News/technicalupdate...?ID=354&T=P

Facts:

IRA account owner dies with an account balance and has named 3 beneficiaries.

Do to the nature of the assets in the account all three file a disclaimer however it is more than 9 months after the date of death and does not qualify under IRC 2518. All are over age 21 etc.

The terms of the plan document do not address non-qualified disclaimers.

If qualified, the Estate of the deceased would be the default beneficiary.

1. Does the trustee/custodian honor the disclaimer & pay to the estate.?

2. if so, does this create a reportable (deemed) distribution to the donor ( disclaiming) beneficiaries and is a 1099R issued to them?

3. If and when a distribution to the estate occurs, what are the reporting requiremeents.

4. If a deemed distribution has occurred, does this create basis and how would it be reported by the estate?

After 30 years plus in this business this is the first ine of these I've seen.

Does anyone out there honor non-qualified disclaimers?

Does the trustee/custodian just say NO?

We can't force a distribution of an IRA.

I am working on a DB plan design for a client.

It's Friday, I had to present to a medical society last night and they kept pouring wine, it's overcast out, and my brain just isn't working.

The client has many highly compensated employees. The make up is 1 owner, 9 other highly compensated employees, and 12 non highly compensated employees that have worked their year of service and have reached age 21.

The advisor has asked me to make the non owner highly compensated employees receive either no benefits or as little as possible.

If I include everyone in the plan, it will not be top heavy. If I exclude all of the highly compensated employees the plan would be top heavy. If I give the HCEs a top heavy minimum then it defeats the plan from a cost perspective.

I figure I am looking at going one of two ways.

1) Owner is group 1, NHCE employees are group 2, non owner HCEs are group 3. Group 1 gets an accrual, group 2 gets an accrual that will cause the plan to pass discrimination tests, group 3 gets a top heavy minimum accrual if the plan is top heavy.

or

2) Owner is group 1, everyone else is group 2. The elgibility section of the document is worded so that it excludes all non owner HCEs from being eligible in the plan.

I am struggling with the concept of eligible and not benefitting compared to ineligible. Can I exclude them via eligibilty and therefore they would not qualify for a top heavy minimum accrual? I can't find anything wrong with it, but yet it seems like I have done something to exclude some non key employees from receiving a benefit. They just happen to all be highly compensated.

Am I still drunk, or is this ok?

I have stumbled across a problem that I need help answering. Medical practice sponsors a qualified retirement plan under Section 401(a). Hospital sponsors a 403(b). Both plans permit loans.

Hospital purchases medical practice and assumes sponsorship of the medical practice's plan. Hospital wants to terminate the medical practice's plan. A number of participants in the medical practice plan have outstanding loans.

If hospital terminates the medical practice's plan, can the loan notes from that plan be directly rolled into the hospital's 403(b) plan?

The only guidance I have found on this issue is contained in PLR 9617046 which provides, in relevant part, that a loan note may be transferred from one 401(a) plan to another 401(a) plan. Of course, the hospital's plan is not a 401(a) plan, it is a 403(b) plan.

In addition, I found the following statement in Treas. Reg. Sec. 1.401(a)(31)-1, Q&A-16: A plan administrator is permitted to allow a direct rollover of a participant note for a plan loan to a qualified trust described in section 401(a) or a qualified annuity plan described in section 403(a). Of course, the hospital's plan is neither a 401(a) plan or a 403(a) plan, it is a 403(b) plan.

Any help or direction is greatly appreciated.

Client's 401k plan is under examination. IRS agent correctly identifies an error previously unknown to the employer; namely due to a problem attributable to the transmission of payroll data, TPA did not count certain non-contributing employees in the ADP and ACP tests. Obviously, this throws the annual testing out of whack.

Does anyone have a sense of how receptive the agent should be/will be to the notion that this is an "insignificant" operational violation that can be corrected via SCP (and, therefore, not subject to any audit CAP sanctions)? Rev. Proc. 2006-27 seems to leave this kind of determination wide open.

Can PBGC Form 500 be filed before the proposed plan termination date.

Example; Proposed termination date of 3/31/2007.

Notice of intent to terminate is given to participants on 1/15/2007

Form 500 filed on 1/31/2007.

Thanks.

Participant in profit sharing plan dies at age 60, with suviving spouse as primary beneficiary.

Suriving spouse is 58. Surviving spouse elects to leave funds in the plan so that she will not be subject to the 10% penalty for early withdrawal. she anticipants needing to make some withdrawals, but does not want to be required to begin MRD based on her life expectancy.

By not rolling over the funds into an IRA in her own name, does she give up the ability to defer distributions until age 70 1/2?

If the plan administrator "sets up an account" in spouse's name, is there any danger that these funds will be considered "rolled-over."

thanks for your input . . . .

Husband is the former owner of the company that sponsors the HSA, he is ineligible acocording to § 223©(1). His wife is eligible. I have read IRC Notice 2004-50 Q&A which states that a family member to make contributions on behalf of an eligible individual. Can he make pre-tax payroll deduction contributions to her HSA account?

Your response is appreciated.

An accountant that we are working on an issue involving excess contributions to qualified plans and the 10% excise tax is referencing Committee Report 5102. The accountant is referencing an exception that says that excess contributions, while they are not deductible, are not subject to the 10% excise tax if they are an "employer matching contribution." I am familiar with Joint Committee Reports, but cannot find one with this number or citation format. Can anyone point me in the right direction?

IRS Rev. Proc 2005-66, http://www.irs.gov/pub/irs-irbs/irb05-37.pdf (dealing with the new staggered remedical amendment cycle), includes subsection 10.07, permitting the use of the parent corporation's EIN/cycle when there is more than one plan in the controlled group.

Can one determine, if there is only one 401(a) plan, that use of the parent's EIN/cycle is not permitted? Have I overlooked something?

Can an expatriate US citizen whose income is excluded under 911 make a Roth 403(b) contribution? Section 402A(a)(1) seems to say "no" because the contribution cannot be excludable from income.

Take a scenario where a 401(k) matches 50% of up to the first 6% of base salary 401(K) contribution and also allows a total of 18% annual earnings. If an executive earned say $600,000 could they elect to contibute only $13,500 to their pre-tax account (to comply with 401(a)(17) and then fund the after-tax account with the remainder of $22,500 (which would be matched).

I know that the $22,500 would still be taxed as ordinary income, and that any growth would also be classified as ordinary income when withdrawn (and also potential early withdrawl penalties), but would this be a way to get the full company match? Also would any other limits come into play?

Can a frozen defined benefit plan be amended to require a distribution at age 65, notwithstanding the fact the participant continues to work past age 65?