A distribution to a non-resident alien is subject to 30 percent withholding unless the withholding agent has documents by which the participant certifies each portion of the distribution entitled to a different treatment.

The participant may certify each portion of the distribution that is

· effectively connected with a US trade or business

· foreign source income

· exempt under a treaty.

A participant uses IRS Form W-8 to certify her exemption from the 30 percent withholding tax.

A distribution to a non-resident alien may be comprised of up to three different kinds of income. A different withholding rule applies to each kind of income.

1) The portion of a distribution allocable to contributions for services performed in the US is subject to tax as income effectively connected with the conduct of a US trade or business ["ECI"]. Generally, ECI is subject to the regular pension withholding rules. However, periodic payment distributions that are effectively connected may be subject to either the normal pension withholding rules or the special 30 percent withholding.

2) The portion of a distribution allocable to contributions for services performed outside the US is not subject to US tax because it is not income derived from US sources. Also, such income is exempt from withholding.

3) The investment earnings portion of a distribution is US source income that is not effectively connected with the conduct of a US trade or business. The portion of a distribution to a non-resident alien that is US source income and not ECI is subject to 30 percent withholding rather than pension withholding.

A non-resident alien makes her withholding certificate on IRS Form W-8. Generally, this certificate is valid only for three years.

A non-resident alien must obtain an IRS taxpayer identifying number if she claims an exclusion for pension income or her withholding certificate claims the benefit of a treaty. Because for most citizens the Social Security Number is the taxpayer identifying number, the IRS has a procedure for issuing an individual taxpayer identifying number to an alien or other individual who is not entitled to Social Security benefits.

Don't do anything special unless you get the completed Form W-8 with a valid ITIN.

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I have an elderly client who cannot convert an IRA to a Roth because the RMD with the other income excedes the 100,000 threshold.

What to you think of this continual strategy?

1) Each year at the beginning of the year convert the IRA to a Roth IRA delaying the withdrawal of the RMD,

2) At the end of the year (if the client is still living) recharacterize the Roth back to a traditonal IRA and take out the RMD,

3) Continue this strategy until the year of death. As long as death occurs before the last half of December, the Roth conversion could stand since the RMD would not be included on the final return.

Does anyone see any problems with this strategy? (I realize that the RMD in the year of 70.5 cannot be delayed for purposes of meeting the 100,000 threshold, but this strategy is different.)

Will a safe harbor 401(k) plan automatically pass the ACP test if it provides the basic matching formula (100% on first 3%, 50% on next 2%), plus a discretionary match that does not exceed an extra 2% -- so that the overall match does not exceed 6% of pay?

My reading of Notice 98-52 (Sec. VI.B.1. and 2.) says that the discretionary match will take the plan out of the ACP test safe harbor.

Does anyone see any downsides to converting 100% of a $5,000,000 IRA to a Roth IRA on January 1, 2000 and then recharaterizing 60% of it by April 15, 2001. My client only has enough non-IRA funds to pay the tax on $2,000,000 of the account. But would convert 100% in order to pick and choose the best performing stocks to leave in the Roth IRA. Any thoughts would be appreciated!

If a Plan has an age & service requirement less than the statutory minimum can it still use 21 & one year of service for the exclusion under 410(B)? Any cites?

Any comments on adapting a self-funded medical expense reimbursement plan (Code 105(h)) to permit reimbursement of retiree medigap insurance premiums, only (not medical expenses themselves)? If you are aware of any other documentation options please comment.

Note: this message also posted in Health Plans Bulletin Board

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Retirement Plan Distributions Q&A 194 seems to indicate that, if the plan document allows for it, a non-5% owner who reaches age 70 1/2 while actively employed could make an annual election of whether to take the amount that would be an RMD for a 5% owner, or to defer receiving a benefit to a later date. It also seems to indicate that a participant in this situation could choose to take the distribution one year, defer the next year, and then start distributions again the third year.

In practice, does anyone send elections to take a distribution or defer annually? Or does everyone have participants complete a one-time, irrevocable election to either commence distributions or to defer distributions until termination of employment?

A person reaches 70 1/2 in 1999 and is required to take a minimum distribution. He has several IRAs and has an account in his employer 401(k) Profit Sharing Plan (with match). He's still working but wants to take his minimum distributions. The IRS Prop Reg §1.401(a)(9)-1, Q&A H-1, requires that each plan to separately satisfy IRC §401(a)(9), but Notice 88-38, 1988-1 C.B. 524, allows IRAs to be aggregated for purposes of determining his RMD. I can't find a rule the prevents the distribution from the 401(k) from satisfying the IRA RMD rules. It seems clear the distribution has to come out of the 401(k) but less clear that a distribution from the 401(k) wouldn't satisfy the RMD for the IRAs. Any thoughts, or more specifically, sites why the participant couldn't do this?

[This message has been edited by mfuentes (edited 12-06-1999).]

A single employer maintains 2 separate plans:

1) 401(k) with match

2) New Comparability Profit Sharing

Both plans pass 410(B) on their own. Both plans cover the same employee group.

Is it necessary to include deferrals and match in 401(a)(4) testing for the New Comp. plan?

Thanks.

Just curious if anyone knew of any court cases in which a plan sponsor tried to recover an overpayment to a participant in a defined contribution plan?

It is my understanding that plan documents can provide that profit sharing, nonqualified matching, and some (unrelated) rollover account balances can be part of a hardship distribution.

It also seems clear that there is no safe harbor for determining that the distribution is necessary to meet the hardship in this case, and so the plan sponsor would have to meet the facts-and-circumstances standard to determine if the amount was necessary to meet the need.

Could the plan document still use the safe harbor for determining that the participant has an immediate and heavy financial need (medical, residence, etc.?), or would this also need to use a facts-and-circumstances standard?

Are there any other considerations pertaining to hardship distributions from profit sharing, nonqualified matching and unrelated rollover accounts?

We have a 401(k)plan that has a 9/30 plan year. In December 1998, the employer sent a notice to all participants that it intended to terminate the plan effective December 31, 1998. For purposes of ADP/ACP testing, can the plan only count compensation for the period 10/1/98 through December 31, 1998, or must it count compensation from 10/1/98 through 9/30/99?

What is the policy regarding uncashed checks for missing participants. We have issues related to participants that we cannot locate. We have tried many search organizations with no luck. To make matters worse some of the missing participants were part of terminated plans. In some cases we can not even locate the plan sponsor. I have heard about escheating to the state? Is this viable? Any input would help.

Thanks!

Assume two 401(k) plans are being maintained by Company A and Company B which are in the same controlled group and that Company A's PY is 1-1 to 12-31 and Company B's PY is from 10-1 to 9-30. How is controlled group testing done for 410(B) purposes? Would a 410(B) test be run for Company B at 9-30-99 based on data on Company B at 9-30-99 and data on Company A at 9-30-99 and then a 401(B) test would be run for Company A at 12-31-99 based on data on Company A at 12-31-99 and Company B at 12-31-99?

Also, can anyone recommend a comprehensive book/resource that covers 401(k) testing issues in great detail (with examples, etc.)?

I would like something that goes beyond a citation of the regulations.

[This message has been edited by beth beaube (edited 12-07-1999).]

Is anyone using PCAnywhere with QT 4.3? 5.0?

We're still at 4.3 trying to work out a few hiccups. The biggest problem is with remote user locking up and host not resetting session.

We'd like to make this work to avoid going with terminal server and additional licensing $$$. We'll probably be going to 5.0 early next year.

Any input would be appreciated.

Meghan

What is the going rate to handle all aspects of amending and restating qualified plans for GUST???

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Any comments on adapting a self-funded medical expense reimbursement plan (Code 105(h)) to permit reimbursement of retiree medigap insurance premiums, only (not medical expenses themselves)? If you are aware of any other documentation options please comment.

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A client with a money purchase plan dislikes the wording on the "Notice of pre-retirement survi. annty" form. She specifically thinks the wording of "the Plan will use 50% of your Account Balance to purchase a pre-retirement annuity for your spouse" is misleading and particpants want to know what happens to the other 50% of the account balance and can that be wriiten into this notice. Any thoughts?

My employer will take vac.time i use if i leave before the end of the year.Ithink this is against the law.He said that what the ten people that are in the union agreed to.theres about 80 people working there.Is this not stealing.I am leaveing the first of the year. But i have worked there many years.Made many friends there.Iwas wondering is there anything i could tell them.Its like he steals one week of pay from you.Hardy nobody stays at one job for life.

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RyanBowlin

Greetings,

I have a client who wants to retire at age 55. He has pension benefits kicking in at age 60, and social security will kick in at age 66. Between age 55 and 60 he will need to dip substantially into his IRA capital. Can he take penalty-free distributions that are much greater than the three IRS approved methods (minimum distribution, amortization, or annuity)? In other words, as long as the payments are substantially equal, and last for 5 years and until he is 59 1/2, can the payments be much larger than specified by the three IRS approved methods?