I left my employer in 2004. I elected for a total distribution of my 401k and rollover into individual IRA. The actual total distribution occured in 2005. Received notice of excess contribution. I have requested the excess be removed from my current account and returned to me. I am showing the excess as additional income for 2004.

Former holder is to issue 1099R for 2005 reflecting excess contribution and earnings, which would be taxable to me in 2004?? Earnings would be subject to 6% penalty?.

Question: Other than reporting excess as "other income" on 2004 return, are any penalties or taxes due on excess contribution. 10% penalty ??

TIA

Has anyone created a report that looks more like the internal actuarial data report from Pentabs they wouldn't mind sharing? I would really like to be able to print data for more than one person on a page. Thanks in advance, Sue

Family Coverage Won't Disqualify Spouse From HSA, IRS Rules

A married individual who is eligible to contribute to a health savings account (HSA) does not lose eligibility when his or her spouse has low-deductible family health coverage, provided the spouse's plan does not cover the individual, the IRS ruled on April 13.

According to Rev. Rul. 2005-25, the special rule in the Internal Revenue Code treating both spouses as having only family coverage when either one has family coverage does not apply when the other spouse's low-deductible coverage excludes his or her spouse. It also does not affect the eligible spouse's eligibility to make HSA contributions up to his or her annual contribution limit.

The maximum amount that an eligible individual may contribute to an HSA is based on whether the individual has self-only or family high-deductible health plan (HDHP) coverage, the IRS said. For 2005, the contribution limit is the lesser of the annual deductible under the HDHP (minimum of $1,000 for self-only coverage and $2,000 for family coverage) or $2,650 for self-only coverage and $5,250 for family coverage.

A married individual who is eligible to contribute to a health savings account (HSA) does not lose eligibility when his or her spouse has low-deductible family health coverage, provided the spouse's plan does not cover the individual, the IRS ruled on April 13.

According to Rev. Rul. 2005-25, the special rule in the Internal Revenue Code treating both spouses as having only family coverage when either one has family coverage does not apply when the other spouse's low-deductible coverage excludes his or her spouse. It also does not affect the eligible spouse's eligibility to make HSA contributions up to his or her annual contribution limit.

The maximum amount that an eligible individual may contribute to an HSA is based on whether the individual has self-only or family high-deductible health plan (HDHP) coverage, the IRS said. For 2005, the contribution limit is the lesser of the annual deductible under the HDHP (minimum of $1,000 for self-only coverage and $2,000 for family coverage) or $2,650 for self-only coverage and $5,250 for family coverage.

Rev. Rul. 2005-25 is available online at

Hi,

I'm doing my wife's taxes for 2004 (we live in New York City) and she worked part-time through the year earning roughly $38,000. She contributed the max to her ROTH IRA which she opened on January 1, 2004.

Turbo Tax is telling us over and over that we have "overcontributed" to the ROTH and must take out the entire $3,000. I cannot for the life of me figure out why.

I am self-employed and itemize deductions. Therefore, my wife must itemize her deductions also even though we file separately. Her only income was this part-time income and we ahve a full W2 and everything.

Any thoughts?

Plan documents call for comp only while a participant. Two entered the plan at start of 4th quarter. They are included with others in an allocation group. Plan passes test based on Ratio Percentage Test using a 6% allocation and I have only including their 4th quarter comp.

Because Plan is Top Heavy, they are entitled to the top heavy minimum. 3% of full year comp is more than the 6% of the eligible 4th quarter comp.

Do I simply give them the larger of the two amounts without further testing? Or do I run the cross-test using a 3% allocation and their full year comp?

If I have to do the latter, the cross-test fails at 3%. I have to raise the allocation back to the 6% rate to again pass the cross test--an amount that is twice the THM.

Your comments are as always greatly appreciated.

Is there any problem with the sale of qualified employer securities from a plan to the employer in exchange for a 5 year promissory note rather than a single payment in full? The note would bear interest at the applicable federal rate.

I understand that due to the recent changes with the VCP that the participant notification requirement was elimintated. However I have a client that would like to send a participant notification anyway. I have searched various website's and tried a "google" search and I can not find a sample. Does anyone have one or could you suggest a website that may have one or be helpful.

Thanks!!!

Am looking for contact information of a Health Reimbursement Arrangment or Section 105 Medical Reimbursement Plan administrator. About 90% of the employer's workforce is Hispanic, so having written materials in Spanish and bi-lingual representatives are important. Employer and broker are located in Southern California. Please provide business name, contact name, phone number, and e-mail if available. Thanks

A company I represent has several pension checks that were sent to participants but remain uncashed. I'm not sure how to deal with these funds. After a certain period of time can they revert to the trust?

We have a client who increased the life insurance benefit for its employees. An employee was on a leave of absence when this happened and pursuant to the plan administrator's interpretation was not entitled to the enhanced benefit because he was not actively employed. When (if) the employee resumes employment, the enhanced benefit will apply. The employee elected the cash-out option while on leave and is now claiming entitlement to the enhanced benefit. Our position is that he is not eligible for the enhanced benefit because he was not actively employed when he elected to receive his cash out of the life insurance proceeds. Unfortunately, payroll imputed income to him as though he was entitled to the enhanced benefit. Are there any cases out there and/or guidance that would bolster the argument that notwithstanding the administrative oversight - which has since been corrected - our interpretation is nonetheless not arbitrary and capricious?

Any insight will be greatly appreciated!

401(k) Plan fails 415 and does not correct in a timely manner. Submits SVP (as it was called back in the day) and gets Compliance Statement. Compliance Statement requires return of excess deferrals and forfeiture of match associated with those deferrals. Employer signs Compliance Statement and everyone is happy.

Recordkeeper ignores instructions to forfeit and returns the excess deferrals and matching contributions to the affected participants. Does not tell anyone and, when participants call to question amount, tell them that it is earnings. When Recordkeeper realizes that the forfeiture account is short, it goes into the accounts of the affected participants and deducts the amounts that should have been forfeited. Does this without any notice or consent.

When discovered on audit, recordkeeper is fired.

Because the terms of the Compliance Statement were not met, does the Employer need to do a VCP for failure to comply with the Compliance Statement?

Can a sole proprietor with a Keogh Plan make a contribution even though there is a loss in the business? Can he make a contribution for his employees?

Hello,

I am going through the CEBS coursework, and we have been looking at functional plan analyses. It seems to be a great way to thoroughly analyze the various plans and how they interact, but I was hoping someone might have a template that could be used and reused in order to facilitate this. Please let me know if you have something that might work!

Thanks!

Brent Adams

Clearwater, FL

Employer's fiscal year runs from May 1, 2004 through April 30, 2005. They sponsor a 401(k) plan on a calendar year basis. Plan requires a top heavy contribution. By when must the top heavy contribution be made in order to be deductible for the 2004 plan year? Thanks

We offer employees the option of declining group health insurance in exchange for a cash payment to them of a few hundred dollars, generally less than $1000, if they can certify that they are covered elsewhere, e.g. through a spouse's plan.

We require that employees make a conscious (re-)election of this "cash in lieu of" benefit each year during open enrollment. No annual election, no cash payment.

Do you do similarly, i.e. require a conscious annual reelection? Is this in fact a legal requirement? Thank you.

I've received a question, in essence:

Do carrier contracts over-ride employee handbooks related to policies surrounding leave of absence?

Must a group move an employee on a leave of absence from the group contract to to COBRA or Cal-COBRA at the end of a leave?

Where can I find any supporting documentation of what carriers are required to do in terms of employee leaves of absence?

Company X maintains a medical plan permitting dependent children to remain covered until age 19 or if the child is a full-time student in college until age 23. Company X buys the stock of Company L, a subsidiary of Company B. Company L's employees participate in Company B's medical plans which provides the children remain dependents until age 25. Upon the closing date, dependent children who are 34 or 25 lose their medical coverage under Company B's plan. Should Company B offer these dependents COBRA coverage or should Company X? The stock purchase agreement is silent on who is responsible for COBRA coverage.

I didn't see anywhere on the tax return where it was required to inform the IRS of contributions to a Roth IRA. Is that correct?

I'm confronted with this situation:

Sole proprietor established self-employed 401(k) in 2004, incorporated in 2005 (S-corporation). The 401(k) was established with Fidelity (prototype plan) with the TIN of the sole proprietorship as plan sponsor.

Questions:

* Keep the old 401(k) and contribute to it from the S-corp income?

* Let the old 401(k) sit there w/o new contributions and create a new 401(k)?

* Create a new 401(k) and roll over the old account to the new one?

What formalities have to be done, and what restrictions apply in each case?

I have been contributing to both my mom and dad's ROTH accounts since 2001. They in turn have me as the primary beneficiery. I don't know if that crosses a fine line in ethics etc. But it is sure nice to be moving around in stocks with no tax consequences. We have just a verbal agreement to send me a withdrawl when/if I want after 2006. ( The 5 year waiting period) I do have a brother and sister so my dad was concerned with potential conflicts with probate/withdrawls and so on.

I know it is probably late to ask if anyone knows if this is potentially a big headache. I have looked at this in different situations, and the only problem I see is mom and dad decide to "forget" about me. lol

Basically I saw this message board and was wondering if anyone else is doing this or was thinking of it.