A law firm client has asked to raise the cap from $15,000 (they do pass their discrimination tests) to $75,000. I have told them no, based on the fact that they have many employees who do not earn at least $75,000. Therefore, that benefit would not be available to those employees. The law firm is not buying it. Any help or ideas here? Thank you.

Hi,

I would appreciate any comments on a question on IRA/ROTH strategy.

I have about 900K in my traditional IRA.

And, for the past two years, I have been making ROTH conversions.

Today, I redid some calculations, and ROTHs seem much less desireable

than before due to the 15% cap gain and 15% qualified dividend fed taxes.

And, there is a chance that when I retire I would move from Calif to

Nevada (a no income tax state). Assuming the rates stay the same, that would

reduce my effective overall tax rate from:

.25 - .25 x .093 + .093 = .32

to:

.25

That is a 7% decrease in overall taxes!

As a result, I am considering no more ROTH conversions, which would save

me some money now that would otherwise be used for taxes on ROTH

conversions.

If I knew for certain that I would be moving, it would make sense to

keep the traditional IRA intact (no conversion), right?

I probably will not need the money for 20 years or so.

But the calculations I have done indicate that the 7% tax penalty

is more than the ROTH conversion benefit.

regards,

gordon

The circumstances are this:

Non-profit organization has had a 403(b) plan arrangement since about 1998. It provides for elective deferrals, 100% match on the first 5% of deferrals and a 10% “basic” contribution to all non-excludable employees.

The organization wants to set up a new defined benefit plan qualified under 401(a) retroactively effective to 1/1/04. The plan is designed to be a non-safe harbor floor offset arrangement (the benefit formula is not uniform for all employees). The offset would be for benefits attributable to 403(b) basic contributions made on or after 1/1/04.

The question: Is it clearly permissible to aggregate the 403(b) plan and the 401(a) DB plan for purposes of satisfying 401(a)(4)? If so, can you provide any citations supporting this position?

The 401(a)(4) regs do not exclude 403(b) plans in the definition of plans to which it applies.

403(b)(12) indicates that such plans with employer contributions are subject to the requirements of 401(a)(4).

IRS Notice 89-23 V. (Definitions) B. (Aggregated 403(b) Annuity Programs) provides that

“In addition, an employer may decide, in testing its aggregated 403(b) annuity program to include any one or more of the employer's plans described in section 401(a), annuity plans described in 403(a), governmental plans described in section 414(d) and church plans described in section 414(e) to which the employer contributes, to the extent that any such plan covers the employer's employees, so long as each plan that the employer decides to include in the program satisfies sections 410(b) and 401(a)(4). A plan that satisfies sections 410(b) and 401(a)(4) only when considered together with one or more comparable plans may be included in an employer's aggregated 403(b) annuity program only if the employer also includes the comparable plans such plan relied on in satisfying sections 410(b) and 401(a)(4) in the aggregated 403(b) annuity program.”

This seems to indicate that if the TSA plan is not passing the non-discrimination requirements, it may be permissibly aggregated with one (or more) 401(a) plans to pass providing that the 401(a) plan(s) pass 401(a)(4) and 410(b) on their own.

Extending this logic in reverse, it seems logical that a 401(a) plan could be permissibly aggregated with a 403(b) program provided the 403(b) program would pass the non-discriminatory coverage and benefits/contributions tests on its own.

If an employer has a SARSEP that they defer money to during 2004 - can a Safe Harbor 401(k) plan be established for them for the short plan year 10/1/04 to 12/31/04? It was erroneously already established effective 1/1/04 but now they want that changed to 10/1/04.

I should add that the sole prop is the only participant in his plan, and that this plan is paired with a profit sharing plan, where he is also the only participant. He says he thought that EGTRRA would let him contribute to the profit sharing plan alone.

Is he still bound by the minimum funding requirement? His plans are not Title I plans - would that have a bearing?

Thanks!

A DB plan does not provide for the use of a retroactive annuity starting date (RASD) and requires that distributions begin at normal retirement date (65). Plan also requires that participants apply for benefits. If a "missing" participant shows up at age 67, the plan currently calculates the amount of the participant's benefit by using the first day of the month following his 65th birthday as the annuity starting date and pays the participant the missed payments. The plan does not pay interest on the back/missed payments.

Does this practice constitute use of a RASD under the Section 417 regulations? (If so, I know what to do.) If not, should the plan be paying interest on the back amounts?

Thanks.

I have a plan using hours for eligibility and vesting. They would like to change their eligibility of 1-yr of service requirement to 3 months. With regards to plan entry, what is the minimum hours of service that can be used for the 3 months period of time?

I have a calendar year PS 401k with a Basic Safe Harbor Match. The plan was effective 1/1/02. They have a 6 year graded vesting schedule. Up through 2003, the Safe Harbor Match was the only employer contribution deposited. They plan to have an Discretionary Employer Contribution for 2004 which will make the plan top heavy for the 2005 plan year.

The owner is trying to do what she can to keep the vesting % down on HCE 2. HCE 2 was employed 7/1/03. Vesting is measured over the plan year, so at the end of 2004 HCE 2 will have 2 years of vesting service (20% vested).

The owner's financial planner is telling her she should go on a 5-year cliff vesting schedule. That would not work for 2005 when the plan becomes top heavy. If they implement a 3-year cliff effective 2005, HCE 2 will have 3 years of vesting service at the end of 2005 (100% vested) compared to 40% if they stay on the same vesting schedule. The owner thinks that since she has never made an Employer Discretionary contribution that she can retroactively change the vesting schedule. Am I correct that the vesting schedule cannot be amended back to the beginning of 2004?

Also the financial planner is telling the owner that she should start measuring service for vesting based on the 12-month period ending on each employee's anniversary date instead of using the plan year. This is an option in the plan document. I think this would be a nightmare to keep up with. And how in the world would you change midstream? Would you have an overlapping vesting period?

I'm about ready to jerk a knot in this financial planner's tail!

We have a client that had late deposits in 2003. This was reported on the 5500 and the appropriate 5330 filed and excise taxes paid. They have now received a letter from the DOL suggesting that they should submit an application under VFCP. Anyone else seen this happen? What might be the consequences of not filing under VFCP? Audit?

Is it correct to assume if a 1099R is issued in error, but mailed out, an amended 1099R would be sent with zero dollars? The investment company(ING) refuses to withdraw the 1099R from their system even after us informing them the distribution(failed adp) was done in error. They are accepting the check back and reinvesting in the participant's account. Thank you.

(previouisly had posted this in the wrong category)

Lets say Joe is over age 21 and is 100% owner of a building. Joe and his father decide to use the building to make widgets. Joe and his father form an s-corp with Joe a 51% owner and Father a 41% owner for their widget business. The widget business pays rent to Joe for use of his building. Joe incorporates as a 100% owner of a business that recieves rental income. Joe makes his father an employee of his rental income business, they both receive w-2 income from the rental income business. Joe wants to start a pension plan for his rental income business which cover him and his father (the only employees).

Is there any rule or reason the pension plan would have to also cover employees of the widget business?

Lets say Joe is over age 21 and is 100% owner of a building. Joe and his father decide to use the building to make widgets. Joe and his father form an s-corp with Joe a 51% owner and Father a 41% owner for their widget business. The widget business pays rent to Joe for use of his building. Joe incorporates as a 100% owner of a business that recieves rental income. Joe makes his father an employee of his rental income business, they both receive w-2 income from the rental income business. Joe wants to start a pension plan for his rental income business which cover him and his father (the only employees).

Is there any rule or reason the pension plan would have to also cover employees of the widget business?

Are SEP IRAs subject to the 20% mandatory tax withholding, as in 401(k) plans? It's my understanding that because these are IRAs, a participant could withdraw the employer contributions from the account (payable to the participant), and direct that no federal taxes be withheld. This distribution of course would be taxable to the participant.

Am I understanding this correctly? Thanks for your help!

I'm sure this has been brought up before, but what is the normal procedure for handling a loss on a forfeiture account after plan year end and the plan doc says to reallocate forfeitures? Should I process an asset based charge (as a loss) to all participants for the following plan year?

Are there any attribution rules for the determination of whether the benefits for a family member who is also an employee will be discriminatory?

We are to the point in a major plan termination that we have exhausted all possible means to locate 6 remaining participants and are ready to escheat their money to the state of their last known address. Just wondering if anyone has actually done this and how they found the process to be. I understand it could be different depending on the state. Also, how would the 1099-R be handled?

Just want to make sure I understand the proper coding for distributions due to a failed ADP/ACP test. If the distribution is taxable in 2003 do I use 2P and if taxable in 2004 do I use 28? Also when reporting a defaulted loan do I shown 1L if the participant is under age 59 1/2? Thanks.

its not the greatest copy, but the object is to identify the songs

the example given is OCAYF which of course you realize immediately (yeh, right) as

O

Come

All

Ye

Faithful

good luck, Merry Christmas and give some people a chance to solve before posting the answers!

I am on the board of a nonprofit organization, and we have spoken with a company about the possibility of having any unused FSA funds at plan year-end be given to us by the company. I know other companies do something like this with leftover funds, so I assume this is ok. The question I am trying to answer, however, is this: can employees

intentionally overfund their FSAs, knowing that any unused funds will come to my organization at the end of the plan year? This would allow them, in effect, to make a gift to us on a pretax basis.

Of course, the employee(s) would not receive a tax receipt from us (though the company, as the donor, would). And the company would not be legally bound to make the gift to us at year-end, though the employee would have a reasonable expectation that this would occur.

I wonder, has anyone ever heard of such a thing happening before? Do you think the IRS would frown on such a practice?

can someone withdraw from a 401k to buy a house as a first time home buyer. please define first time home buyer.