I have a problem where I added $20 extra to last year's Roth IRA contribution (2002) that I now need to push onto this year's contribution(2003). I have Form 5329 that I plan to send next week to pay there 6% penalty, but I'm not sure how to finalize the "moving" of the $20.

If I happen to not make any other contributions for this tax year, does the excess $20 just seem like a contribution I made during this tax year or are there other forms I need to fill out also to make this mistake fixed?

I also do not want to go through my broker since they want to charge me more than the amount I'm moving over to do this.

Thanks for any help.

Jim

A participant in a 401(k) plan is filing Chapter 13. He wants to know if he is still able to contribute to the plan. He also wants to know if he must still pay back his 401(k) loan.

He is still an active employee at the company and is still getting paid the same as before. Let me know your thoughts

Won't condoms now be considered a reimburseable expense? According to the regs, "medical care" is defined to include amounts paid for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body. So, by definition, condoms are for the prevention of disease so they'd be reimburseable, right? Makes sense to me. But aren't they taxable (sales tax) in most places? Would the state taxability change in any way due to this new development?

And what about feminine products??? I've always wondered why they're taxable. I mean, women only buy them because they have to, they're a necessity. But I can't figure out where that would fit in the definition as medical care so I'm guessing not - doesn't seem fair but who am I to argue what's fair. Wait, maybe because if they weren't used it could possibly spread disease, so in a way it's a preventable?

How about Dr. Shoals (or whatever brand) shoe inserts? They affect a structure of the body.

While this post is my pitiful attempt to be lighthearted about this, I just fear so much trouble on the administration side (as most of us are probably feeling). I believe most plan sponsors will wind up with something near an "anything goes" plan.

I resigned from a company 4 years ago but kept my 401k there. Today I received a letter and a check for my entire account balance less taxes. I was shocked because I had received no letters or calls that my plan would be cashed out. The letter that came with the check said I had a balance under 5,000 so I could be cashed out - actually my balance was over 5000 but it was all rollover money so they said that was the same thing since I had not contributed to the plan enough money to reach the 5,000 minimum. My question is, is this legal, and can I get the entire balance transferred somewhere else without having all those taxes taken out?

Can anyone cite for me where to find instructions for requesting the blessing of a specific plan provision when submitting the plan for a favorable determination letter? We have a client who would like their favorable letter to give the nod to one provision in particular. Will the IRS include a thumbs-up to this provision if we ask for it pointedly in our submission cover letter? I think that I read some time ago that this was the case, but am unable to document it. Any assistance from anyone who has done, or has tried to do this, would be very appreciated.

Top Heavy Plan w/ last day clause for contribution is terminating 9/30, do they have to put in a contribution for plan year, Plan Year is 1/1 - 12/31

We assisted a client in terminating their PBGC covered defined benefit plan. They filed with the PBGC and received a favorable dletter from the IRS. All participants were paid their full lump sums after the employer made the plan sufficient by contributing $100,000+. All participants were paid out by the end of 2002 and a final 5500 and PBGC Form 501 were filed.

Now the client has received a check, payable to the Plan Trustees, for $30,000+ in demutualization proceeds. The transaction that generated the proceeds happened well before the plan termination but we weren't aware of it at that time.

The question now is should this money go back to the Employer to offset the $100,000+ they deposited (and not consider it a reversion)? Or should it be considered excess assets and allocated back to the participants as provided for in the plan document?

Has anyone had experience with this type of situation? Thanks!

Employer took a deduction for a $25,000 profit sharing contribution for the 2001 plan year. $25,000 was not deposited by the filing deadline of 10/15/02 (sole proprietor). From what I understand, the 2001 tax return needs to be amended. If the client deposits the $25,000 by 10/15/03 and takes a deduction on the 2002 tax return, can we leave the 2001 allocation report as is or should we revise the 2001 allocation report and take away the $25,000 allocation for 2001 and allocate the contribution as a 2002 allocation? What else would need to be done to correct the late deposit?

Are there legislative or regulatory changes that you would like to see made with regard to QDRO administration? And, if so, who in Congress or the IRS would you contact to plead for these?

This was on the BenefitsLink nondiscrimination Q&A column at http://benefitslink.com/perl/qa.cgi?db=qa_...rimination&id=5 -- Aren't the examples at the end of the Q&A just inaccurate? Am I missing something?

Q&A: Nondiscrimination Issues for Tax-Qualified Retirement Plans

Answers are provided by Milliman USA's Employee Benefits Research Group

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Minimum Contributions to a Top Heavy Plan

(Posted August 28, 2001)

Question 5: A plan is top heavy for its 2000 plan year. The key employees in this very small company must return part of their 401k deferrals for 2000 due to the ADP test, so that their average deferral percentage becomes less than 3% after their refunds. (It was 3% or more before the refunds.) The 401k deferrals are the only contributions into the plan; no other company contributions will be made other than a required top heavy contribution for the non-key employees. The company wishes to make the lowest possible top heavy contribution. Must the company contribute 3% for all non-highly compensated employees, or can it instead contribute the original amount the key employees deferred less the required refunds, which would result in a contribution of less than 3%?

Answer: Under the tax code's "top heavy" provisions (section 416 and Treasury Regulations section 1.416-1, Q&A M-20), salary reduction contributions are in the unenviable position of being counted for determining whether a plan is top heavy but not in determining the minimum contribution to be made to a top heavy plan for non-key employees. An exception to this rule exists for salary reduction contributions for key employees. Salary reductions for key employees up to 3% of compensation are counted for purposes of determining the minimum non-key employee contribution. Section 416© of the tax code requires that an employer generally contribute a minimum contribution to a top heavy defined contribution plan equal to 3% of each non-key employee's compensation. However, the minimum contribution does not have to exceed the percentage at which contributions are made under the plan for the key employee(s) for whom the percentage is highest for the year.

Therefore, if a plan that only provides for contributions through salary reduction is top heavy and any key employee makes salary reduction contributions in an amount greater than 3% of compensation, any non-key employee who contributes less than 3% would be entitled to an additional employer contribution up to the 3% minimum. For example, if the non-key employee contributes 1.5% of compensation and the highest key employee percentage is 4%, the non-key employee would be entitled to an additional 1.5% contribution (3.0% - 1.5% = 1.5%). In this plan, if the highest key employee salary reduction percentage is 2%, the non-key employee would be entitled to an additional 0.5% contribution (2.0% - 1.5% = 0.5%).

Can an employer amend a profit sharing plan mid-way through a given plan year to add a last day of the year requirement as a condition for receiving a profit sharing contribution? In other words, can this be retroactively effective within a given year?

Ordinarily, I would assume the answer would be no, but what if the "employees" in a given setting are actually affiliated employers responsible for making their own profit sharing contributions, the employee is terminating service prior to the end of the year and does not want to make a contribution.

Any advice or cites on this?

What are the requirements for a TSA if there are employer and employee contributions.

i.e, Testing, 5500 filing, etc.

Thanks

Do irrevocable waivers of participation by the Amish rise to the level of a religious order, which then keeps them out of testing completely? Note that the Amish also do not participate in the Social Security program.

For 404 purposes when performing a valuation how would the following 2 scenarios be treated differently:

1. The client makes a contribution that he does not deduct on his tax return

2. The client makes a contribution that he deducts, but he was not allowed the deduction.

In other words, would you consider both nondeductible contributions or just the first one.

timeline:

12/31/99 - PYE min contribution for 412 is $78,000

04/15/00 - files for extension of time to file 1999 return

05/21/00 - Employer files his 1999 return with a $0 deduction

08/11/00 - Employer funds his $78,000 (timely for 412 min funding)

08/15/00 - 1999 Extension expires

12/31/00 - PYE min contribution for 412 is $27,000

04/15/01 - files 2000 return with $105,000 deduction

02/03/03 - IRS initiates an audit of 2000

05/21/03 - 1999 year closes (3 yrs from actual filing)

08/15/03 - IRS gives notice saying $78,000 is disallowed as a 2000 deduction

I point out 404(a)(1)(A)(i):"amount necessary to satisfy the minimum funding standard provided by section 412(a) for plan years ending within or with such taxable year (or for any prior year)" as basis for deducting the amount in 2000.

IRS says 404(a)(6): "a taxpayer shall be deemed to have made a payment on the last day of the preceding taxable year if the payment is on account of such taxable year and is made not later than the time prescribed by law for filing the return for such taxable year (including extensions thereof)."

So they say that since it was deposited before 8/15/00, the extended deadline, it was ONLY deductible in the prior year (1999).

Does this sound right? Thanks for wading through this and making any comments.

Have you seen situations where a CoC accelerated distribution provision in the NQ plan has paid the benefit and triggered or added to the 4999 excise tax under 280G? Have you seen other nasty CoC provision consequences?

I hear some companies haved paid the benefit, grossed up the executive for excise tax, take the limited deduction, and just move on...wow!

Prospective client who is age 72 and trains horses. His schedule c net income is $60,000. Accountant and myself are trying to determine best retirement vehicle for him. I understand he is limited to the TEFRA factor or 20%. Would that be his only available deduction($12,000)? Could he possibly put in more with a 401(k) which in this case i believe is called a Uni-K for 1 part. sole proprietor? What's to keep him from deferring $12,000 plus the $2000 catch up and then doing some sort of match/profit sharing? Could he do it and just not get a deduction? Also, he would be subject to the RMD's as well, correct? Did I provide enough information? Thanks

I have paired electing church pension and profit sharing plans for an association of churches who may choose to adopt (or not) the association plan. Must this plan be submitted for a determination letter for reliance or although it is electing, is submission not necessary.

Also, are there any good reference resources for this (or any other) type of church plan? I expect the group of adopting churches to grow significantly within the next year or so.

Thanks

Sponsor of a small defined benefit plan wants to amend the plan to allow retirees in pay status to elect another optional method of distribution, provided that all necessary spousal consents are obtained. Does anyone perceive any problems with this proposed change?

IRS and DOL announced today that people affected by Hurricane Isabel have been given an extension of time to file Form 5500. Does anyone know if the GUST restatement deadline was extended for similarly affected people?

Thanks.