Hi Everyone,

EGTRRA provisions now permit IRA's to accept after-tax money residing in workplace retirement plans to be rolled over into Traditional IRA's. Apparently these monies do have to be "separately accounted" within the IRA that accepts them.

While not an everyday event, it is potentially quite common.

When such after-tax monies are subsequently distributed from the IRA which receives them, has any official guidance been forthcoming on how these funds are to be recovered?

First out? Pro-rated with other taxable IRA funds? (I was unoffically told to expect pro-rated treatment.)

Looking for a citable source.

Insight would be appreciated.

Cordially,

David Hammond

I must be having a brain freeze. I am looking at the ASPA Journal, July/Aug 2002 edition, at the article titled "Single-Participant 401(k) Plan Sales Strategies for Third Party Administrators". They have a table on Page 16, and I just can't seem to come up with their numbers. For example, I would think that a SP with Net Profits of $10K would have a max contribution of $9,235. If someone could take the time to show me what I am missing, I would appreciate it.

General rule for salary deferral to 457(B) is deferral election must be in place before compensation is earned (unless its a new plan or new participant).

What about a 457(B) funded with an employer contribution only?

Can an employer decide to bonus an executive on December 31, 2002, and have the bonus be contributed in its entirety to the 457(B) plan? In such an instance, wouldn't the organization have until December 31, 2002 to adopt the plan document?

Is it too late to establish a 401(k) plan (not utilizing the Safe Harbor provisions, but rather the 3% assumed deferral rate for prior year) on 12/10/02 for the 2002 plan year AND be a Safe Harbor for 2003?

Would your answer change if the establishment date was 12/1/02 (thus meeting the 30-day Notice requirement for existing CODA's)?

There is a DB plan that was terminated 12/31/2000. Because of illiquid assets and administrative delay, the assets of the plan have not yet been paid out. Now the corporation is having a fine year in 2002.

Can the DB plan be unterminated? I realize certain document updates may be needed, but what other issues are there? How would the funding standard account be resurrected?

For a plan with a 1/1 entry date, do the members have to be enrolled ON 1/1 or can they enroll at any time during that month?

An individual is an active participant in a 401(k) plan and turned age 70 1?2 in 2002. He is not a 5% or more owner. The individual also maintains IRAs outside the plan. May the individual take his minimum distributions from the IRAs and roll the remaining amounts to the plan, thereby avoiding future minimum distributions until he terminates employment with his employer. (The plan accepts rollovers from IRAs.)

A client had a sarsep that has been rolled into their new 401k plan during 2002. As this is from an ira type plan is this considered a related rollover? Its not from a qualified 401a plan, but is technically from the employer. I'm thinking about having to include this rollover $ in the test for top heavy, correct?

A participant has single coverage and the premiums are paid through our cafeteria plan. Participant has outside coverage for her children (cheaper than our plan) and wants to know if these premiums can be reimbursed under our Health Care FSA. I don't think so, but cannot find anything to prove me right. Can anyone point me in the right direction.

Also, I assume this would fall under the same rule as above, a new employee has COBRA coverage with a prior employer --- can these payments be reimbursed under the FSA?

Thanks for any help.

No longer a 401k worker my Pension knowledge is rusty ! I have the option of defaulting on a 401k loan. If I pay the loan back, it is with after tax money that will be taxed again when I retire and withdraw? so doesn't it make sense to default and take the 10% penalty?

Hi. I have a new job involving 401(k) administration for a single employer.

The plan was in existence prior to 2002 under one prototype and will be amended this year to move to another provider's prototype. I have been asked to review the new adoption agreement (compare it to the old to make sure it is consistent, etc.) and I have been working on that.

However, I need straight answer re the GUST and EGTRRA amendment time frames and what must be included. I did find checklists offered from the Groom Law Group, but is there anything else I should be looking for/worrying about?

Also, does anyone know of a good educational course I could use to get up to speed on these issues?

Any help is greatly appreciated! Thanks.

Plan currently has 1 yr and age 21 eligibilty for participation. Client is suggesting changing eligibility for deferrals to immediate but leaving 1 yr wait on match. Doesn't this change the match to non-safe harbor?

Thanks!

Is there any limit to the number of IRA to Roth IRA conversions that an individual can make in one tax year?

Currently I have a 501©(9) VEBA that provides minimal benefits (i.e. death benefits, disaster benefits, life insurance, etc...). The Fund has over $600,000 in it, however the Trustees do not want to administer the Plan any longer. Individual participants have credit accounts with anywhere from $50 to $10,000. Is it possible to convert this plan to a Defined Contribution Pension Plan and then allow individual participants to roll there money over into another tax deferred arrangement? If so, what should I be concerned about?

Currently I have a 501©(9) VEBA that provides minimal benefits (i.e. death benefits, disaster benefits, life insurance, etc...). The Fund has over $600,000 in it, however the Trustees do not want to administer the Plan any longer. Individual participants have credit accounts with anywhere from $50 to $10,000. Is it possible to convert this plan to a Defined Contribution Pension Plan and then allow individual participants to roll there money over into another tax deferred arrangement? If so, what should I be concerned about?

A client of ours has a participant in Chapter 13. The US Bankruptcy Court "order" calls for the loan payments to stop and the client stopped the payments in early 2002. However, the order also states that the loan shall "survive the Plan, and shall be paid by the Debtors after the entry of an Order of Discharge". Does this mean that the loan is not to be deemed defaulted and treated as a taxable distribution? The participant believes that the loan will just remain in suspense for 3 years.

Does anyone know where I might find a simple checklist or questionnaire that I can send out with my census requests for an employer to complete to determine if they may be considered a controlled group or ASG? Thank you.

Does anyone have the definitions of compensation in layman's terms (415, 6051, & 3401(a))? I am trying to give this to some clients and everything I can find is so long and technical that I am finding it hard to communicate the definition even though I have a good understanding of the subject.

We have heard that a qualified plan distribution may not be rolled into an IRA that was established to hold assets contributed through a SARSEP (and vise versa). One of our clients would like to terminate its SARSEP (simply by ceasing to make future contributions to the IRAs) and roll the SARSEP assets (held in IRAs) into a newly-established qualified retirement plan (a defined contribution plan). The bank currently sponsoring the SARSEP (and holding the IRAs) claims that such a rollover is not authorized by EGTRRA's liberalized rollover rules. Is the bank's opinion correct? We think the bank is wrong and that such a rollover (from an IRA initially established to hold SARSEP contributions to a qualified retirement plan) is permissible. Your thoughts are appreciated!

This plan has nonresident aliens who live and work in the U.S. while participating in the plan. If the participant terminates employment and the individual is residing in the U.S., the normal U.S. withholding rules apply.

If the participant has contributions and earnings that are all effectively connected income (worked and contributed to the plan after 12/31/86) and moves back to their resident country can the individual claim a lower treaty rate on effectively conntected income? How does the payor withhold?

1. Normal U.S. withholding only;

2. 30% withholding only;

3. 30% withholding unless there is a lower treaty rate. For the individual to request a lower treaty rate what form does the individual provide the payor ... Form 8233??;

4. 30% withholding and can request a lower U.S. graduated rate by providing payor with Form W-8ECI; or

5. 30% withholding unless there is a lower treaty rate (same as #3. above). If there is no lower treaty rate, the individual can request the lower U.S. rate (using Form W-8ECI).

Help! Thanks