RayJJohnsonJr

Thanks, All ! Can anyone comment on the tax deductibility of the single deposit needed to terminate The Plan, regardless if the single deposit was more or less than $20,000,000? Thanks again.

Would the attached 5500 help? DB Plan 2015 5500.pdf

The CPA of the client asks me for my insight, which I have little of, in this case. The business owners have been wanting to terminate their DB Plan for some time. They say if they make a one-time contribution of about $20 million, the DB will be fully funded and then can be terminated. The business owners ask, what is the tax deductibility of the $20 million contribution? For example: in the current year? Thank you, Ray

Thanks David. I had read that about the pre-nup. I have told the attorney the only 2 ways to avoid his new wife being the beneficiary is to either have her sign a release or rollover the PS assets to an IRA. two interesting twists are 1) the PS Plan holds a joint life policy on the participant and his 1st wife. In their divorce decree, the ex-spouse is to recieve the policy should the participant die 1st, which is almost certain, since he is 15 years older and in very poor health. My guess is that that would be voided by the second marriage. and 2) the PS Plan holds some raw land. To roll that to an IRA we'll need one of those self-directed IRA Custodians that administer IRA's that can hold just about anything that an IRA can legally hold.

Well, regarding the eligibility, he's 73, been retired for about 2 years, and certainly eligible to rollover to an IRA. As to the issues with the new spouse, I think I'll leave that to him, and whatever input his attorney has to add. Bottom Line: if he doesn't want her to be 100% beneficiary, he can ask her to sign a release, or roll to IRA now, or roll some to IRA and she gets what stays in the Plan. Thanks everybody, I think I have my answer.

I do very much appreciate all of y'alls thoughtful replies. It seems clear the soon to be new wife automatically is the beneficiary by rule of law. No way out of that. The only remaining question is: If the participant, currently single, and retired and is beyond normal retirement age, and anticipating a wedding date about 6 months away, is there any reason he could not transfer his PS Account to an IRA, and name any beneficiary he chooses? Regarding moral judgements, you would have to know all the peripheral circumstances to judge the man's motivation. I did not think this to be a forum for that. Keep in mind, every other asset they bring into the marriage is separate property, not subject to division in a divorce. The fact this is a PS Account invalidates the doctrine of separate property. I agree with the protection Ronald Reagan implemented for spouses protection. If a couple are married for a long time, and one or both build a significant Qual Plan account, fine, they did that together. They each deserve to share. But this case amounts to a big gift that the new spouse who had no involvement or sacrifice in it's accumulation. She has no need for it, she is significantly financially independent. To those who read the second paragraph and realized it has nothing to do with the search for the what the rules are, I apologize if I wasted your time. For some unnecessary reason I found myself defending my client's honor. Thanks everyone, Ray

Is a husband required to make a new 2nd wife his profit sharing beneficiary? I have been researching this all over, including BenefitsLink, and cannot find a definitive answer. I'm finding dramatically different answers. I'm working with the client's attorney who is doing the client's estate planning before the marriage takes place, and this the one loose end we cannot conclude. Does anyone know and can point to the authority (ERISA, DOL, etc.) with which we can confirm the requirement and the client can not worry? He want's to leave his PS account to his kids, who he named as PS Plan beneficiary after his divorce. Or, he's willing to give his new wife 1/4th. He's opposed to asking her for a release since she blew up when he asked for a pre-nup. Also, as I understand it, IRA's are not required to make spouses beneficiaries. This gentleman is retired and would have no problem transferring all his PS Plan assets to an IRA, if it would work.

Great, because this is a JH case and that's what we're going to do. Participant writes check to ER. ER remits. Bodda-bing-bodda-boom. We concluded that Wall St. Journal Prime Rate + 1% is an appropriate interest rate. Thanks everybody, your experience and wisdom is greatly appreciated.

Hi All. What is a good standard today to establish a fixed interest rate for 401(k) loans? The Plan is just now adding loan availability. Prime rate + x? 5 year Treasury + X? And, If employees are on straight commission, and sometimes receive no paycheck, how would we handle loan payback? Thanks, all, Ray

A small closely held Corp put in a SERP 10 yrs ago. It's a defined benefit type where the retirement benefit is a fixed amount. Now the Exec is retiring. The CPA had additional Social Security tax withheld from the Execs salary every year since inception, but I'm not sure how he arrived at the amount. In research, I'm reading it should have been charged on a discount of what the ultimate benefit would be. Is that correct? I have read that since this compensation is considered to have been earned during the Execs working years, the Exec can defer some of the retirement benefit into the co. 401k, if the 401k permits it. Is that correct? Lastly, IRS Pub 957 suggests the retirement income is reported on a W-2 in boxes 1 and 11. and no Social Security or medicare tax is withheld. Is that correct? Thanks so much for any input Ray

Conclusion: The CPA says to have the IRA payout to the Trust with no tax withholding, then payout the proceeds to the sole Trust beneficiary and let it be taxed to him. Sounds strange, but I'll let the CPA make the call.

Yes, the IRA depositor is recently deceased. The Trust provides the son virtually unlimited access to the trust assets. What I would like to find out is if the IRA proceeds will be taxed on the decedent's final 1040, since the Living Trust is just a pass through Trust and carries the tax ID which is his (the decedent's) Social Security number. It seems like the IRA Custodian is going to 1099-R the beneficiary, the Trust. Could this be a blessing in disguise? The decedent's tax bracket will be much lower than the son's, the son is a successful physician probably in the maximum tax bracket.

I'm concerned about the taxation of this beneficiary designation. I don't know why, but the IRA owner named his Living Trust as his IRA beneficiary. There is no language in the Trust addressing the receipt of IRA money or discussing the creation of an Inherited IRA or giving the Trustee the right for the Trust to disclaim the IRA proceeds. The Trustee of the Living Trust is the son of the decedent, he son is age 50, the decedents only child, and he is the sole beneficiary of the Trust. What happens when these IRA proceeds are paid to the living Trust? Will the Trust owe the income taxes? It's a traditional IRA and is fully taxable. Thanks.

So, assuming the above, that is, he maxed out plan year 2015 in early 2015, then added more contributions in Aug. 2015, Oct. 2015, and March 2016. What can be done to rectify this or what must be done?

Thank you, you explained that perfectly. The second 2013 contribution was made in early 2014, se we can count that as 2014, the 2014 contribution was made in early 2015, we count that as 2015. What happened next is, for 2015, he put some money in in Aug. 15, some money in Oct. 15, and the rest in March 16.

Fortunately, I have verified that there have been no excess tax deductions taken on any tax returns. I can make the excess contribution appear to have occurred in 2015.

In Plan Year 2013 the owner contributed the max, $51,000, twice, and we just caught it. What is the best course of action? Thank you.

I'm not giving up on this easily. Suppose the executive continues to be employed (so no SERP payments can be made without adverse tax consequences) and the employer makes a loan to the executive approximately equal to what the 1st SERP payment would have been. A second loan is made at the beginning of year 2. After 2 years, the Executive separates from service. He receives SERP payment #1 to pay off loan #1 and SERP Payment #2 to pay of loan #2.

I was afraid of that.

OH! You doesn't have to call me Johnson, now you can call me Ray, or you can call me J., ........... but you doesn't have to call me Johnson. Good ole SNL.

Thanks DanO' I'll see if that is a possibility.

DanO, can you expand on that, I'm not following you?

The SERP does require "separation from service as that term is defined in Treasury Regulation Section 1.409A-1(h)" to be considered retirement and therefore benefits to commence.

The business owner and the executive will not give up in their pursuit of achieving their objective. The objective is to pay the executive his 1st annual SERP instalment ($75,000) and continue to employ the executive for 2 years, and there be no adverse tax consequences. We know that cannot be done under 409A. The client has discussed this with several attorneys who cannot come up with a solution. Maybe they aren't imaginative enough. What if the executive separated from service, collected his SERP, and was then retained by the employer as a consultant? The SERP guarantees 10 annual benefit payments. What if the business owner and executive renegotiated the SERP to provide 8 payments of $75,000, commencing 2 years from now. Then the business retains the executive's employment for the next 2 years and pays him a salary that is $75,000 per year higher than what he would have been paid? It seems there must be a creative solution that doesn't run afoul of 409A. Anyone have any ideas?

Thank you XTitan and Belgarath for the valuable info. It is greatly appreciated.