In 1998, I began a Roth IRA and contributed annually the maximum amount allowed, however, at the end of 2003, the value of my Roth had greatly been decimated and I closed my Roth. All in all, I contributed $8,000 and its current value when I closed the Roth was roughly $5200. I had the 10% withdrawal penalty since I was younger than 59 1/2 at the time and filed my taxes as such with my tax preparer. Today I received a letter from the IRS stating that on my 2003 taxes, an omission of the $5200 was not claimed as income nor was the $520 penalty, resulting in my owing the IRS an additional $1800 (includes $94 in interest). I have a meeting with my tax preparer tomorrow but I would like anyone's input regarding my situation. I was under the impression that I could withdraw my contributions at any time tax and penalty-free and that I would only be taxed on the "earnings" portion of my Roth which I had none. To say I was caught off-guard would be an understatement. Any thoughts would be appreciated.

I'm reviewing assets for an end-of-year valuation and have discovered that part of last year's contribution was made by transferring shares of stock (nothing privately held-all on the market) into the plan. The funding deadline was several months ago.

This is of course a prohibited transaction, but does this also constitute an invalid contribution? In other words, can the contribution of the stock count toward satisfying the minimum funding, or is there a funding deficiency because of the fact that it's a prohibited transaction?

Has anyone heard anything further on when the IRS might be released the updated model 402(f) notice? I had seen things from seminars and articles that the IRS was working on a revised model 402(f) notice for the automatic rollover rules. Thanks.

Given the scenario that the corporation over last 3 years is no longer making even enough money to pay salaries and that it does not see it getting out of this recession, what can be done ? The money that was in the trust account already funded the VUL policies for employees.

So somehow can the plan be amended or terminated so that the cash values be rolled over to individual annuities or irrevocable life insurance policy trusts to avoid tax consequences for the employees and shareholders who will now work elsewhere or even retire ?

Goal is to avoid tax for the employees, leave/convert VUL insurance policies in place, & not having to pay any ongoing administration overhead.

The plan is set up for multiple employer trust (Master Trust)

The corporation has its own trust, part of the master trust.

Established in 1997 & funded thru 2001.

Seeking advice on what to do.

Can you exclude military pay for elective deferral and match? Or does that go against USERRA?

My client is an incorporated dental practice with a 10%! Safe Harbor NEC 401(k). The are two other dentists sharing office space, receptionists, billing clerk etc.

All employees are paid W-2 from the corporation. The two other dentists (being treated as sole-properietors) reimburse the corp for a pro-rata share of rent, insurance and pension contribution. There is no written partnership agreement.

One sole prop has a SEP and a part time employee he considers his (I guess he pays her directly). He wants to contribute for 2004. Any issues?

I don't have all the details but can get as much as necessary.

New client with 2 partners.... each partner filed for the SS4 for the new plan. Anyone dealt with this situation? Do you simply not use the extra SS4 ? do you notify Uncle Sam?

Plan Year 2004

Participant 401k = $13,000

He's over 50

Add'l PS = $31,000

Total limit = $44,000

Can that work based on taking $3,000 out of the $13,000 and classifying it as catch up...therefore $10,000 401k, $3,000 catch up, $31,000 PS???

After the merger of two non-profits, there is now both a 403(b) plan and a 401(k) plan. Both have matching employer contributions subject to ACP testing.

Each plan satisfies coverage under 410(b).

Is there permissive aggregation for purposes of ACP testing?

Participant makes $13,000 in catch up contributions, he is over 50 for 2004. Can't he still receive $44,000 total, because any $3,000 of his 401k can be reclassified as catch-up?

401k = $13,000

PS = $41,000

Reclassify $3,000 as catch up, therefore 401k test only on $10,000???

For a total of $44,000

Any truth to this?

The spouse of an incarcerated participant, with power of attorney, wants to direct a lump-sum distribution. Can the 401k plan allow this? If allowed, what's the tax implication?

This is a new one on me. Any ideas much appreciated.

Newco buys Oldco's facilities and will employ a large percentage of Oldco's employees. Newco will set up a 401(k) plan, but because of time pressure it would rather not draft an actual document until after the closing date (the time pressure is significant and unavoidable). Instead, Newco proposes to establish a trust and to simply "carry over" employee salary deferral elections--made under Oldco's 401(k) plan--to Newco's "planless" 401(k). Newco would then draft a plan document before the end of the plan year; but, for significant period, employee money would be contributed to the trust without a plan document.

This makes me a little nervous. § 401(k) and the regs all presume a plan document; but is one required before a qualified cash-or-deferred election can take place? I know people rely sometimes on a "general rule" that you're OK if you get a plan document in place before the end of the first plan year--is there any support for that? If so, does it apply to cash or deferred elections?

I have an existing calendar year 401(k) plan. The Company was

thinking about maybe electing Safe Harbor (3%) for 2005, so they

distributed the "wait-and-see" notice in Nov 2004. Let's suppose

that in Nov 2005 they decide to elect the Safe Harbor and they distribute the

supplemental notice notifying the participants that the plan will be

Safe Harbor for 2005. My question is....When does the plan need to be amended? Does it need to be amended by Nov 30, 2005 or Dec 31, 2005?

plan wants to, effective 1/1/05, eliminate a class of employees (union) from the plan due to the union now collective bargaining. They have not in the past which is why they were in the plan in the first place. The elimination will reduce the number of participants by more than 20%. Does this qualify for a partial termination in which the former union employee's will be 100% vested? Thanks.

I have two employers that each have a 401k with my firm. The owners of each company are husband and wife (wife owns one, husband owns the other), thus a controlled group. This relationship was not known originally and each company's plan was setup on a standardized plan document that does not (and would not be able to) exclude the other company within the control group from participation.

We are going to move each company to a non-standardized document that excludes the other employer from participating going forward.

What would be the proper correction for the time the company's were on the standardized documents? Mostly concerned about the documents not excluding the other employer from participating in plan.

I know the proper correction method for a single, non-control group plan that excludes an eligible employee. I just feel those correction methods don't make a lot of sense for a controlled group of plans. For a single non-control group plan, an improperly excluded employee was denied the opportunity to participate. For a controlled group of plans, though an employee was technically improperly excluded from participating in one plan, he/she was able to participate in another plan.

A partnership failed the adp/acp test for 2004. I am in the process of having the deferrals refunded back to the one partner. Does the 10% excise tax apply to them if the money is refunded back prior to April 15(their tax filing deadline) or do they have to have the refund done by March 15 as in the case of a corp?

Normally, this calculation is performed using actuarial equivalent assumptions (at least that is the way that I was taught) to detemine the ILP normal cost. This is then multiplied by some number less than 2/3 to arrive at the maximum premium. So, for example, the projected benefit (without salary scale) would be multiplied by the AE APR and level funding from attained age would produce the initial ILP normal cost.

A client is now attempting to introduce a similar concept into a 412i plan (I know this is one everyone loves <GGG>). My initial reaction was to produce the same calculations from the first paragraph using the definition in the document for AE. They would prefer to use the settlement rates of the annuity and the funding assumptions in it because it produces MUCH larger ILP normal cost and therefore more insurance.

The argument is that RR 74-307 looks at 2/3 of the uninsured cost. Therefore, if an annuity was bought (using the settlement rates and accumulations in the annuity) - it would represent the uninsured cost.

Any feelings?? (The RR never really referenced how to do the calculations for a DB plan from my experience. The method outlined above was derived based on the principles set forth in the RR)

Thanks for any and all comments.

How long does an IRA have to be in effect? Here is why I ask....

- Cleint sponsors a 401(K) plan and maxes out

- Client makes an IRA contribution

- Client now wants to roll the IRA into the K plan

What is to prevent the client from doing this every year ... is there a rule that does just that?

Whatb is

Does anyone have any thoughts on how to "fix" the following problem? A governmental agency adopted a 401(k) plan for the first time in 1996 and has been maintaining it ever since.