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?

Small 401k plan is terminating and its plan sponsor company is dissolving. One participant died recently and the participant's account was used to purchase annuity contracts from an insurance company for the participant's 2 children. The beneficiary designated by participant is a named custodian/trustee and the beneficiary designation specifies that the benefits be used by the custodian/trustee 50/50 for his two kids. The purchase of the annuities is consistent with the plan terms and the beneficiaries wishes, HOWEVER--the insurance company would only issue them to the PLAN and the insurance company does'nt want to transfer them to the custodian for the benefit of the children.

How do we handle the annuities if the plan is terminating and the sponsor dissolving?? Can or Why can't an insurance company allow transfer from the plan to the trustee/custodian?

Going crazy...short trip, I know...please help!

I have been researching RMD's for non-spouse's and almost everything I read is about IRA's. Do the same rules apply to 401(k) Plans?

There was a participant in our plan who was receiving his RMD. He passed away at the end of 2005. He was never married. He has several beneficiaries listed (nephews, neices, great nephews, neices). I know that they cannot rollover his account, however can they continue to receive his RMD?

If so, is it based on the oldest beneficiary (for the life expectancy factor)? Does the 5 year rule apply?

This also made me wonder about another question...how would it work if the beneficiary was a Trust?

Any help you can give me would be greatly appreciated.

HI,

We falied the TOP Heavy Test and we are required to pay the 3% non-elective contribution to the non-key employees.

Does the Company have to make the contribution? Are there other options?

Also, we failed the ADP/ACP test and the HCE were refunded the contribution. After the refunds, this would make the Top Heavy Test pass. Can the TOP heavy test be recalculated after the refunds?

How is TOP Heavy Test calculated before ACP refunds and after ACP refunds?

Sorry for so many questions. I am new to this and our TPA is not much of help.

Thanks in advance!

We failed ADP/ACP testing the the HCE's received their refunds. What is the next procesdure in terms of amending w-2's and amending DE6, 940, 941, and DE7?

Thanks in Advance!

Am I correct that an ERISA 403b is subject to ACP testing?

A single employee who waived medical at open enrollment got married

He now wants to enroll himself and his wife

can he do so before next open enrollment?

Hi,

We failed the top heavy tests and we are required to make the 3% non-elective contributions to the non-key employees.

This is for year 2005

Do wee need to amend w-2's for 2005 for all employees? if so how? oyr payroll vendor does not support this.

what do we need to do on our end?

the TPA is no help. This is what i received from them. "The top heavy money must be sent to us before the company files their taxes because it is to be included in the company and the individual 2005 tax return because it is income to the participants and was payable by the employer for 2005.

Thanks in advance!

Please bear with me -- I'm a newbie to this area, and not even sure this question will make a lot of sense!

I have a client with about 95% hourly workers. Of those hourly workers, the majority work a regular 9-5 shift (that is, 40 hours per week, OT is very rare.) A small minority of workers, however, have recently begun working 12 hour shifts and are scheduled on 3-4 days in a row, then off 3-4 days, then on 3-4 days, then off . . . Because of the way they are scheduled, these employees routinely receive some OT, even though at the end of the year they will have worked the exact same number of hours as the employees with regular shifts. For example, everyone works 2000 hours per year, for those employees working 9-5, all 2000 hours are regular hours; for those employees working 12 hour shifts, 1875 are regular hours and 125 are OT. Additionally, the employer anticipates that due to budget restrictions they will soon have a portion of the workforce working between 32-35 hours per week -- enough to still be considered full-time, but scheduled less than 2000 hours per year.

The plan as it is currently written defines compensation to be the base compensation paid to an employee, excluding bonuses, OT, or other extra remunerations. Obviously, the employees who are now working the 12 hour shifts don't want to get short-changed by having a portion of their hours worked excluded because they are OT hours. (employees with regular schedules would get credit for the full 2000 hours while they would only get credit for 1875 hours). The employer still wants to exclude "real" OT -- that is, any hours over 2,000 per year. Could we use a definition like this: "Compensation shall mean the base compensation paid to an employee, excluding bonuses, OT, or other extra remunerations. Base compensation shall be the equivalent of 2,000 hours per year times the employee’s regular hourly rate for all employees working as full-time regular employees scheduled for 2,000 hours per year. For employees scheduled less than 2,000 hours per year but at least 32 hours per week, base compensation shall be the equivalent of the actual number of hours worked by the employee times the employee’s regular hourly rate. Base compensation for salaried employees shall mean the employee's annual salary excluding bonuses, overtime or other remunerations."

I realize that as long as there is an exclusion for bonuses, OT, etc. the definition does not fall into a safe harbor definition, but think this would work under 1.414-1(d). How does 1.414 -1(e) affect this defintion? Does anyone see any problems with this definition that I may be missing?

I suggest that the discussion of tax opinion letters, marketing materials, and plan designs, be moved to this thread as it has nothing to do with case studies of traditional 412(i) plans.

For those who do not know the "bloody history" of illegal 412(i), it started when promoters of 419(a)(f)(6) plans were under attack by the IRS. They had traditionally used a surpressed cash value product to remove assets from their plans. Needing to find another code section,(which was not tainted) the Insurance Gurus discovered 412(i). They took this to several law firms who issued opinions that they were not "springing cash value" products as techincally defined. Next, they wrapped the policy with marketing materials that stated you could purchase 100% life insurance, put $500,000 into the plan and deduct it and then buy the policy out at $87,000. The policy would grow quickly to $500,000 which you could withdraw tax free. Hence, tax deductible insurance going in-tax free coming out. Only creative insurance minds would of thought of this not the green eye-shaded actuaries- While the actuaries on this board were answering hypertechincal questions, the insurance industry sold (by some estimates) $250 million of premium into these plans. In 5 years over one billion will be collected. The insurance gurus claim the actuaries just are not creative, the actuaries stated foul play and we await the IRS (and plaintiffs attorneys maybe if the IRS is sucessful). Who will end up on the short end of this? Probably the taxpayer who purchased the scam/plan. If you look at it from the taxpayers viewpoint-Major Brokerage firm sold it-respected large law firm wrote opinion-large insurnce company issued the product-and major actuairal firm administered it-How could they know it was a scam? Do the insurance companies have any liability? What about the law firms? Will the taxpayers have any money left to fight after the IRS is done with them?

An S Corp owner has married one of his employees.

1. Can the employee continue to have medical premiums run through the 125 plan? and if so,

2. Can the employee pick up family coverage and have the whole premium run through her plan?

I need some guidance on this issue. We have a client with a 401(k) plan with a match. They just acquired another company and they want to set up a separate plan for that group and give them a different match formula. I know I need to do 410(b) testing for each plan using all participants in the denominator of the equation for each test. However, it seems like there should be more testing than just this (?). The 410(b) test is really only looking to see that someone received a contribution and isn't taking into consideration the fact that the employees got different formulas. Shouldn't that be taken into consideration?

Can I switch from a SEP to a 401k at anytime during the year?

If they made a contribution this year?

If they have not made a contribution this year?

Can SEP be rolled into the 401K?

participant must start receiving 4/1

is that the actuarial equivalnce of whatever the benefit was as of that date

and if one chooses to make annual payments, is it simply 12 * the monthly amount, in which case the particpant would seem to come out ahead?