An employee became eligible to enter the plan 1/1/04. During 2004, he worked for 4 months and earned $11,500 with 650 hours of credited service. He needs to be included in the plan to pass the 410 (b) coverage test.

Benefits are based on Hi 3 average comp during participation. The average compensation is averaged over the actual number of months worked "if the completed Years of Participation" are less than 3.

Given the above, his benefits will be based on his monthly average of $2,875 (=11,500/4). His annualized comp would be $34,500 (11,500*12/4).

For the "current plan year" testing method, what is his annual Testing Comp - $11, 500, the comp actually earned during the year or $34,500, the annualized comp?

Section 1.401(a)(4)-3(e)(2)(ii)(A) reads: ".......... If the measurement period for determination of accrual rates is the current plan year or the plan is an accumulation plan....., then plan year compensation may be substituted for average annual compensation."

I am inclined to use $11,500, since it is irrelevant to testing how the benefits are determined - 1.401(a)(4)-3(e)(1).

An employer sponsors a medical plan and requires that a participant's spouse, who is eligible for coverage under his/her employer's plan, must be covered under that plan as primary coverage. The participant may also enroll a spouse under the participant's plan, but that will be secondary coverage. Any issues with this?

A hospital maintains a group health plan. Other than the administrative headaches, is there any issue/problem with each of the hospital's affiliated hospitals having different eligibility criteria for coverage at a certain level. That is, one hospital may require 32 scheduled hours per week to be eligible for full coverage whereas another may require 36 hours.

IRS just published changes in Circular 230, covering practice before the IRS.

By way of background, some promoters of tax shelters received opinion letters from law firms that a particular program would satisfy requirements for favorable tax treatment. These opinion letters are used in the marketing promotion materials.

The IRS has found that some of these programs did not work as contemplated by the law firm, or simply disagreed on the tax benefit. After declaring that the tax benefits did not exist, the IRS sought to impose penalties unpon the taxpayers for taking an unreasonable position. The taxpayers got penalties waived by reference to the original opinion letter.

The new IRS position is to force the originators of these opinion letters to issue more caveats about their use, or to hold the writers responsible for their action.

for more info: http://www.irs.gov/2005-04_IRB/ar10.html

I know this seems insignificant, yet I was wondering what others would do in a similar situation. An employee in a 401(k) plan who is over age 50 deferred $16,000.14 in 2004. Should I ignore it? Tell the Employer to refund $.14? Where do you draw the line? $.01? $.14? $.50 $1.00?

Are there any restrictions to the limits if you participate in both plans? I am assuming they the limits just offset each other? Is that correct? I know nothing about 403(b) Plans?

Thanks

If a participant had a corrective distribution and is under age 59 1/2, should the 1099r be coded as 2P to indicate that an early distribution exception applies? This exception is not listed as one of the options for code 2.

DOES ANYONE KNOW WHETHER THE IRS WILL BE ADDRESSING THESE ISSUES SOON AND WHETHER PAYMENT WILL BE PERMITTED AFTER TERMINATION OF SERVICE?

Is anyone aware of the status of the proposed regs which were issued late last year dealing with termination of 403(b) plans and whether any statutory changes have been made?

The stock of the employer sponsoring an ESOP will now be traded on the "pink sheets". It is my understanding that the employer is now confronted with an annual valuation and also a "put" of shares.

How is it best to deal with the timing of distributions? For example, if a participant terminates employment in June, with a Dec. 31 valuation, should the plan not do distributions until after the next valuation? If so, should the plan only accept distribution applications from Jan to March 31, and if none received make the person wait until the next year?

I guess my general question is is there a standard or best practice method of making distributions to participants in non publicly traded ESOPs?

Any other consequences of not being traded on the pink sheets?

Hey guys im currently filing my taxes and had some questions on the sarsep withdraw's I made last year.

I hit some financial hardship mid 2004 and had no choice but to pull a large amount out of my sarsep account in order to pay things off. At the time I was not fully aware of the penalties associated with the early withdraw and though the 10% penalty was the only money that had to be paid.

Well now that im filing I have finally learned that the entire amount I took out is counted as taxable income. Yuck... It ends up costing me about 1300 on my refund. My wife and I was counting on our return to keep us afloat as we keep drowning in debt. Anyhow since all the money was taken directly out of my paycheck over the years, and the employer matched it im guessing I wouldnt have a basis? Is there any loopholes or anything I can do to take some of the sting of my early withdraws? Or a way to defer all this until next tax season? Anything would help!

If anyone can give me some advice I would really appreciate it!

Thanks so much,

Mark

Employer had only 1 key employee and has maintained a SEP for about 8 years. SEP was not funded in 2004 since a PS plan was adopted in 2004. All SEP participants rolled money from SEP into the PS plan in 2004. Key employee rolled over only a small portion of his money.

Should the SEP rollover money be counted towards determining top heavy for the new PS plan in 2004? If so, should the money not rolled over by the key employee be counted towards top heavy as well? For how many years?

If we count only the rollover money, the plan is not top heavy. If add in the key employees money not rolled over, then it is top heavy.

Thanks

I am having trouble with the 'new' match.

the example for calculating gap period income (1.401(k)-2(b)(2)(viii) example 4

(ok page 120 if you printed them and your page numbers come out the same as mine)

anyway the example says 8,000 multiplied by 3,800 divided by 110,000 is 266.65

I tried my calculator at work, home and the computer as well and I keep getting 276.36. What numbers am I suppose to arrive at? or maybe I am punching the numbers in wrong, how do you arrive at 266.65?

If it is wrong, who do we contact?

By the way, I also think they left out a section in the preamble - the last section on ACP safe harbor. It was in the proposed regs. And the clarification that was in the proposed regs made it to the final regs - you can not have an allocation condition on the discretionary match. I was working on a possible article on safe harbors when I discovered that apparent omission. For whatever reason, the article wont be used, so heck if anyone wants here it is.

I recently left my employer where I held a 401k plan. I was just wondering if when I roll over the $5,000 of 401k funds into a Roth IRA I will have to pay any penalties? Also, after the rollover, is that money considered my personal contribution, so that if I withdrew it at some point I would not be taxed? Thanks for your help.

Peter Gunn

New to this board - I meet all criteria for Roth withdrawals. Q.?- Can you withdraw funds and at a later date put some or all of these funds back into the Roth? I may need to use some of the funds for an urgent yet temporary purpose. Did not find info in IRS publications.

Prior to 2005, we adopted a new plan with 409A language. The Plan provides it will hold 2005 deferrals, and allows us to transfer to it the non-vested amounts from "old Plans." That gives us a grandfathered plan under pre-409A rules and a new plan under 409A rules.

I'm pretty comforthable that the transfer of non-vested amounts from the old plan to the new plan are not a material modification which would cause grandfather status to be lost. It seems like the most practical way to comply with this difficult grandfathering provision, which looks to vesting rather than year of deferral.

Any thoughts ?

If a 50% or more company owner is in a 401(k) Plan and also makes non-deductible IRA contributions, are the non-deductible IRA contributions included in his IRC 415 annual limit? That is, do they count towards his maximum $42,000 limit for 2005? This question was posed to me by a client who said he read this but I can't find anything on it.

I opened a roth ira in 2000 and contributed a total of $4000 since it opened. I withdrew the money in 04 and recieved $3932.00. I asked earlier if I was going to be taxed on it and the answer I received was no. The thing is I received a 1099R in the mail with gross distributions being $3932.00. Does this mean I am getting taxed because I did my taxed and now it is coming up that I owe $215.00. Why am I getting taxed? Can anyone please help me with an answer?

Ok, I'm glad I found this forum.

I'm 33 yrs old. I open a Roth (I don't have my paperwork on-hand right now) around 1999-2000 (I guess) I have close to 10K on the account right now.

I asked on my bank about taking some of that money out and they literally scared me about the 10% penalties + taxes to be paid, etc, etc. Same ppl. that asked me to wait to finish my auto lease to refinance my residual.. Ohh well..

Anyway, I already read that "down the road" after x amount of years I can take what I deposited.

My questions are:

How many years I have to wait to take some money out without penalties?

Can I rollover that Roth IRA to let's say Fidelity or Vanguard?

TIA,

GenPao

We periodically audit the dependency status of individuals enrolled as dependents by an employee. We request proof of dependency on two separate occassions. If we receive no response validating the individual's status of a dependent, we drop the individual from coverage. Is this a COBRA event? I say no because it isn't a "qualifying event" as defined in the regs, but it is just as simple as dropping them? Has anybody had experience with this or know where I can find more info (any cases?) Thanks