Bird

If I wanted a plan to be "gone" by a certain date, I'd ignore residual earnings, but in this case I'd have selective interpretation and treat the plan as alive until then (October).

I believe you've described a total distribution, unless the transfer is something that's going to happen without the participant's consent, as in a merger. No matter, you can generally take out pre-87 after-tax contributions on a FIFO basis. IRS Pub 575 might help; here's the link (scroll down for Pubs). EP Forms/Publications/Products See page 16.

Yes, you can pay after terminating the plan but before getting a DL. The risk is that some kind of reallocation might be requested and if the money is already paid out that makes it "difficult."

I agree and stand corrected. Not being an accountant, I should have added "or whatever" or something to my suggestion. And FWIW, I agree that there should be no discrimination concerns wrt making up the forfeiture outside of the plan.

I think that rule of thumb is too conservative. It has some positive attributes; certainly it's easy, and it probably serves to help make some folks who are actually too conservative become more aggressive, to their benefit, but I just don't agree that a (typical) 40 year old who is saving to retire at 65 or so should be 30% in bonds (presumably the "not stocks" part is bonds). More like 0% (i.e. close to 100% stocks). (I'm just talking about the long-term retirement fund; you certainly need some liquid assets.) And if you're hoping to retire at 40, the answer is different (although not as much as you might think). But I think your mix is fine, assuming you have typical goals and assets on hand at your age.

I just saw this - might help if/when you want to get a second opinion: ASPPA member search tool ASPPA = American Society of Pension Professionals and Actuaries

I've gone from always recommending and generally insisting on a 5310 submission to "officially" recommending but not often insisting on a 5310 submission. The bottom line is, it's (now) expensive insurance and it doesn't buy all that much, IMO. On the other hand, with a million bucks at stake, maybe it's not that expensive. But unless something is obvious, it's highly unlikely that the IRS would come back later and audit and find something wrong and actually try to DQ the plan. And it's a long wait; at this point you might not get a favorable letter before the end of the year; then you have to decide if you process the payout or let it spill over into another year and file another return. I do remember that they won't go back 40 years; I think, at least the last time around, that if you had a TRA 86 document that was good enough. I do also know that if you submit, it doesn't mean they won't come back and do a "routine" audit. And despite comments a few years back that they were going to target plans terminating without a DL, I don't believe there is any increased risk of that (an audit). Sorry if those thoughts are kind of random.

I don't think it matters - the plan doesn't care where the money came from. The "fair" thing to do, well, to have done, would be to pay out the vested amount and then increase his capital account to make it up.

Yes, my mistake. Thanks for posting all of the details.

I didn't mean to imply that you were wrong to post the Q here; it just seemed unusual that you wouldn't be asking this of someone who was familiar with your situation - and whom you trusted (maybe that's the problem). The bottom line is, your premise of using a SEP-IRA instead of a qualified plan isn't so bad, if you are indeed maximizing contributions for the employees, and want to keep doing that, and also get away from all the recordkeeping involved with the existing investments. I think you might want to ask your existing people if they can tell you why you should not do it, and then come back here with those answers. Ultimately you might want a second opinion from a local pension consultant - just like getting a second opinion from an MD, you don't know if the second one is worth anything or not. I'd probably start by asking some other professionals who they use and if they are happy.

I assume you mean "...with personal assets [from] outside the plan?" That's one option; if he has outside assets and can buy the policy. Or just surrender it inside the plan and start a new one outside, in an irrevocable trust or owned by his kids. That's even easier, and from an estate planning standpoint, better, since it (the new policy) will be out of the estate from day 1. (Of course you want to reverse the order - secure the new coverage before surrendering the new policy.)

Stopped elective deferrals or withheld but did not submit elective deferrals? If the latter, then you're asking the right question. If the former, maybe nothing needs to be done?

TPA = Third Party Administrator. Usually the one doing calculations and allocating gains and losses and keeping track of things in general, and ultimately preparing the tax return, Form 5500. Maybe or maybe not doing document preparation. (If your accountant does all that stuff then you have problems that you don't know about.) Another thing to keep in mind is that those with loans can't roll them to IRAs if the plan is terminated, and will have to either repay them or be taxed on the balance at the time other assets are distributed. I'm not recommending you go one way or the other; we have a general idea of what is there but someone more familiar with your plan should be able to guide you in this process, hence the question about a third party administrator.

You want to change so you are NOT forcing out under $5,000, right? No, I don't think there's a problem.

I see it as a late deposit. Period. If it's not repaid then it goes deeper but I don't think it's relevant that the employer happened to pay off a debt in the same amount.

I think Appleby is on the right track, just use the SEP for the employER part of the contribution and make your deferral contribution to the 401(k). You'll have an excess in the SEP, but I don't think you'll know for sure what that excess is until after the end of 2008. Figure it out then, take it out then, and if you want, roll over the rest after that's done. I wouldn't roll from the SEP now because then you'll have an excess rollover to come out of the 401(k); it's not an impossible situation but I would limit the mess by letting the dust settle. To be clear, you can/should contribute $15,500 to the 401(k). Don't try to net the $2,000 overage; you need to make the full 401(k) contribution and separately take out the excess $2,000 from the SEP. They're different contributions types. It's bordering on trivial, but you can maintain both the SEP (for employer contributions) and the 401(k) (for employee contributions) indefinitely, and possibly postpone the reporting requirements (starting when you have $250,000 in assets) on the 401(k). (And for the record, if you are self-employed (sole prop or LLC), your max employer contribution is (roughly) 20% of your profits, before contribution (that will come to roughly 25% after the contribution). It's not quite that simple because there's an additional adjustment for self-employment taxes.)

There's no plan (qualification) reason not to make this change. But if he has a taxable estate, he might want to (re)consider whether it is appropriate to be increasing his insurance coverage in a vehicle that will ultimately expose it to estate taxation. Odds are that it's flat-out stupid.

No responses...mmm FYI, most participants on this board are third party administrators, and most (like myself) probably winced when reading your post...e.g. "my physician group..." [do you have a TPA and why aren't you asking them these questions?] "the lower paid employees support much of this cost through 12-b-1 fees to the plan advisor... (those with larger $ amounts go with self directed accounts and get lower fees..." [yikes! almost certainly a discrimination problem there] "...we have many terminated employees still in the plan, loans, insurance policies etc etc." [yikes, yikes, yikes - red flags on all for those of us with takeover experience] To answer your question - yes, a SEP should have lower administrative costs. No reporting, just calculate the contribution and deposit it and you're done. But the "right" plan for you is based on a lot of factors. If you simply want to maximize the employer's contributions on behalf of employees and minimize administrative costs, the SEP will do that. But if you want to offer a comprehensive retirement program, and maybe not maximize the employer contributions made for employees, then you should consider a safe harbor 401(k) (employer and employee contributions permitted). Be prepared for a (competent) TPA to give you some bad news about fixing problems in the existing plan.

It's not the same sponsor if it's a new entity. Assuming the new document with SH provisions shows the new corp as sponsor, it's usually appropriate to have the sole prop be an adopting employer so the full year is covered by both entities. But to answer your question, yes, just show the old ID on the 5500 as JanetM explained.

Nothing like a good rant now and then, is there?! Thanks Below Ground, I enjoyed that and couldn't have said it better myself.

I'm sorry, I missed the part in the original post about the end of year requirement. Yes, I believe it must be allocated. We just had a similar situation, an "over" deposit not due to termination but just because they threw too much money in, and we made them allocate it. It's a difficult conversation...

I'm in the camp that believes that if it was deposited, it must be allocated. Some questions about the allocation come to mind though: when you say it was deposited "for" this doctor, what does that mean? Was it deposited to an individual account, or was there a contemporaneous memorandum saying it was for this doctor? And does the plan (not) have a last day provision saying you have to be employed on the last day of the year in order to get a contribution?

It sounds like the rare case where real estate in a plan did not spawn a whole host of problems. It also sounds like the appraised values are in the ballpark, and if they can get a little more than the 12/31/07 appraised value now, I'd probably jump on it, even if it might mean stretching the payments over a couple of years. Of course my opinion is based solely on the facts you presented but it sounds pretty good to me. I don't think a plan, especially a small plan, should hold unimproved property forever, so if they're not going to take this offer, when do they think a better one would come along?

There is no "conservative" option - if you assume all of the money is SH, and it is not, then you have improperly eliminated an option for in-service withdrawals on the PS piece. And if you assume it is all PS, then you are improperly allowing in-service withdrawals on the SH piece. I would just maintain the prior sources as they were, and note the file that you had concerns but couldn't find anything better to go on.

As long as it's in the plan I think it's "ok" even though not very desirable, at least from the standpoint of not earning anything. I think I'd just use this knowledge as validation of the decision to move. Now, if you're saying you can't or won't do this, but the client wants to continue the practice, I guess you could 1) convince them to just get an extension, or 2) have them open an account in the plan's name at their bank. (I can think of some reasons why that's not a great solution...)