Company X maintains a US qualified 401(k) plan for tens of thousands US employees and less than a handful of Puerto Rico-resident employees. This plan has never been filed in Puerto Rico for a determination letter. What are the tax consequences to Puerto Rico residents under Perto Rico's tax law if the plan is not registered? Are the before-tax contributions treated as after-tax contributions? If the plan is subseuqently registered, do these employees obtain a basis in the after-tax contributions prior to registration and a separate source for pre-tax contributions post-registration? It is my understanding that unless a separate Puerto-Rico based plan is established, Puerto Rico residents will be subject to US tax to the extent they receive earnings on plan distribution. Even though the Puerto Rico law has not been amended to recognize Roth 401(k) contributions, if Puerto Rico residencts make future contributions as all Roth 401(k) contributions and receive qualified distributions, doesn't this effectively put an end run around being subject to US tax on distributions of earnings?

A participant is going to be on medical leave for six months for surgery, and is wondering if he can take a plan loan, but not start repaying it for six months. Is it allowable to make the first repayment date six months in the future?

Can a simple IRA participant roll their account to a 401(k) plan. i read in cch that simple distributions can not be rolled to other qualified plans but EGTRRA IRA's can be rolled to qualified plans. does that include simple distributions?

Must the HCE Participant elect to have excess contributions recharacterized as an after-tax contribution, or can the current Trustee make this determination prior to March 15th? We have an LLC client where the HCE / former owner/ former Trustee sold his share of the business on June 30, 2005, but took a compensation guaranteed payment of $50,000 instead of the $100,000 scheduled for the entire year. Since he salary deferred $9,000 prior to termination, his final deferral rate became 18% instead of the planned 9%. A failed ADP test has resulted. This same HCE participant, the only HCE, rolled his money out of the Plan prior to 12/31/05 and there are now no funds available to process a corrective distribution. Other than some type of recharacterization, the client will need to make a $28,000 QNEC. Any thougts would be appreciated.

I am 28 years and I currently have $16,000 in my 401k, and I am contributing enough to get my company matching funds, which in total will add another $3500 this year. I recently convinced my wife that we should both open ROTH IRAs. We've been contributing into our individual ROTH IRAs for about 5 months. Then I came to the realization that our AGI for 2006 will exceed $150,000.

So rather than continue to contribute to the ROTH IRA knowing that we can only contribute for 2005, i want to re-characterize the ROTH into a taxable account or non deductible IRA before april 15th since I hate to have just $4000 sitting in a ROTH IRA. It seems like a waste of effort to only contribute $4000.

I am currently investing in T. ROWE price retirement 2040 in my IRA. Would it be wise to move this into a taxable account? Will that be tax efficient? Or should I just focus on maximizing my 401k and forget about all these other accounts? Please help.

thank you

We have a company that is for profit, and sponsors a 401(k) Plan (Company A). The 100% owner of Company A has started a non-profit foundation that is hiring employees starting in 2006. This non-profit has the owner of Company A and 3 of his children as its trustees and directors. Neither the owner or his children work for company A. Does this constitute a control group? The CFO wants to keep the two entities separate plan-wise, but we're thinking keep it one plan for simplicity. Any suggestions or observations are appreciated. Thanks.

We took over a plan that specifically excludes the HCEs from the 3% safe harbor QNEC. What is the advantage to excluding them? (May not be an advantage to *include* them either, but I am just curious. Just seems like one more distinction to keep track of.) Thanks!

The plan is drafted on a prototype. A plan sponsor was given a form to request that their plan be amended to a safe harbor plan. At the top of the form is a title "Safe Harbor Amendment," but when you read the form it states that the form is used to request the plan to be amended to a safe harbor plan.

The plan sponsor elected the basic safe harbor match beginning 1/1/05, signed the election form before 1/1/05, and provided eligible employees with the 2005 and 2006 safe harbor notices on time. Can the employer rely on this election form as a plan amendment?

If no, what has been the forum's experience where the plan provided the notices on time, administered the plan as a safe harbor, but failed to amend the plan? If the plan sponsor files under VCP, do you think the IRS would allow the plan sponsor to treat the plan as a safe harbor beginning 1/1/05? I have heard they are tough on this issue.

An employee participating in a DCAP must pay in advance (now) for the summer care of her children. Am I correct that she cannot be reimbursed until the care has actually been provided (meaning the end of the summer)?

If a Plan switches from the current year method of ADP testing to the prior year method, (after having been on the current year method for at least 5 years), can it resume current year tesing effective with the following year?

I only seem to find references that relate to how long a Plan has to be on the current year in order to switch, not the other way around.

The Plan I have states that it uses current year testing, "unless specified below", and then lists the 1996 and 1997 Plan Years as exeptions, when prior year testing was used. Therefore, all years from 1998 on have been tested on the current year. Would it be possible to amend the section to list the present year as an exception, and so the Plan would revert to current year after that?

Hi. Quick point of clarification -

1. Assuming a 401k plan passes 410(b) minimum coverage requirements using all eligible employees for testing, as well as testing separately using Otherwise Excludable option,

2. And, the plan fails the ADP test using both methods (testing using all eligible employees, or testing under the IRC 401(k)(3)(F) Otherwise Excludable option),

3. and, assumimg the all eligible EE testing method produced significantly greater excess contributions for HCEs than the Otherwise Excludable method,

Can you use the smaller excess contributions calculated using the Otherwise Excludable method as the basis for calculating the HCE's refundable amount. In other words, if HCE #1 has a refundable Excess Contribution of $5,000 under method 1, and an Excess Contribution of $500 under method 2, we can use $500 as the basis for calculating his Excess Deferral refund - ie: $500 plus earnings.

Is this correct?

Thanks.

Can a safe harbor nonelective contribution eligibility coincide with pretax eligibility or does it have to coincide with profit sharing eligibility?

Example:

Pretax eligibility: 6 months

Discretionary profit sharing eligibility: 1 year

Safe harbor nonelective: can this be 6 months or does it have to coincide with profit sharing?

I am aware that safe harbor matching must coincide with pretax eligibility.

Thank you

The existing 415© regs indicate that the deadline for treating a contribution to a plan as an annual addition for a limitation year generally is no later than 30 days following the end of the period in Section 404(a)(6) (which if I understand correctly is basically the tax return deadline relating to such limitation year, including any extensions, for the contributing employer). How does this work for a multiemployer plan? In other words, must the plan know what deadline applies to each employer, or does it use its 5500 filing date as the deadline?

In April 2005 my wife and I each contributed $3000 to our Roth IRAs at Scottrade. We thought we had contributed for the 2005 tax year, so didn't think about it until February 2006. Now we see that it got applied to the 2004 tax year (most likely due to our filling out the form wrong), and it turns out we weren't eligible in to fully contribute in 2004, due to finally getting some back pay due us.

I called the IRS help line, and they said that since we haven't contributed to 2005, Scottrade could change the year of designation on it. The guy at the IRS said "This is completely legal, and we are totally fine with it." A guy at USAA (with whom I also have an account) said that they do that sort of correction all the time, and it just requires submitting a 5498 with the "corrected" box checked.

Scottrade, however, keeps saying that it's an excess contribution, which apparently requires filling out a 5329, and paying all sorts of penalties, though I keep getting different stories on even that part of it. It's especially frustrating because the guy at the local office isn't able to actually fix the problem, and nobody will let me talk to anyone except those at the local office.

The sense I am getting is that Scottrade does not have to make the change, but that they could if they were willing to.

If I end up having to do this the painful and expensive way, I'm very confused about what penalties I have to pay and what hoops I have to jump through.

I have an 80 y/o participant that retired 12/31/2005 from his employer that was sponsoring a 401(k) profit sharing plan. He was not an owner and therefore was not taking RMDs. He wants to roll his money into an IRA. In mid-Feb 2006 we processed a 12/31/2005 RMD for him, well in advance of the April 1, 2006 date for his first RMD. Do we need to process another RMD for him prior to the rollover?

I was handed a small MP plan that started in 1997. Document was properly established and the accountant has been doing annual 5% contibution requirement, correctly I hope (will be checking that, as well as distribution, vesting, etc.). But, 5500's were never filed. I want to file all of these now, using the small plan filer program - $1,500 for 2+ old filings. But, how to remedy the fact that they never had a fidelity bond to meet the small plan audit waiver from 2002 - 2005? Do they simply have to now have these audits done en masse with the filing? Any way around this since the filings and audits are now way late?

I'm drawing a blank but I'm thinking I read somewhere that compensation for allocation purposes cannot be limited by the plan document. For example, allocations will not be made on compensation over $50,000. Is this correct? If so, what is the cite. Thank you.

I have a client who has his first RMD coming up 4/1/06. The plan is scheduled to terminate in July 2006.

Under the DB plan, he has the option of starting a monthly annuity for the RMD or taking an annual annuity each 4/1.

If he decides that a monthly annuity is the best choice for him, and the plan terminates in July, he has only taken 4 monthly installments from the DB. At this point, if he rolls his remaining lump sum into an IRA, how is his rest of his RMD calculated?

Thanks!

Dennis

I have a client who has his first RMD coming up 4/1/06. The plan is scheduled to terminate in July 2006.

Under the DB plan, he has the option of starting a monthly annuity for the RMD or taking an annual annuity each 4/1.

If he decides that a monthly annuity is the best choice for him, and the plan terminates in July, he has only taken 4 monthly installments from the DB. At this point, if he rolls his remaining lump sum into an IRA, how is his rest of his RMD calculated?

Thanks!

Dennis

My question is two fold. First, is there a cut off for AGI of $100,000 for conversion of a traditional IRA to a Roth IRA? And, can I do an ammended return for say 2004 and add income from my trad. IRA in order to convert to Roth IRA?