Bird

I agree. This can be rolled and systematic distributions continued from the IRA.

J Simmons- Catch-ups are determined as a result of exceeding a limitation - couid be 402(g), could be 415, could be a percentage limit from ADP testing. So if an HCE deferred $5,000, and the ADP limit is 0 since no NCHEs deferred, the $5,000 becomes a catch-up.

Neil- Depending on what you mean by "We do not expect the company to make alot of money in the first couple years..." you might want to consider a SIMPLE IRA instead of a 401(k). Your wife can defer up to $10,500 if under age 50 ($13,000 if over) as an employee contribution, and the company would match 3%. The 401(k) limits are higher but then you need to maintain a plan document and eventually do annual reporting.

You're overthinking this, and have probably confused your plan administrator. I know I couldn't begin to understand this: If your gross is $2000, and if your plan permits you to elect whatever percentage you want from your commissions, which it almost certainly does, and you have elected 10% for regular 401(k) deferrals and 5% for Roth, it's simply: 401(k): 2000*10%=200 Roth: 2000*5%=100

Thanks!

I know next to nothing about nonQ plans, but an accountant just called me with a question and I'm interested to know the correct answer. An insurance agent worked for an insurance company and deferred compensation back in the 1980s. He elected a 10 year payout of the deferred comp 9 years ago, and received a 1099-R with code 7 for the first 8 years. He got another 1099-R for the 9th year, but it had code 1. (He's 55 now.) Insurance co. insists code 1 is correct. My meager knowledge indicates that he should be getting paid on a W-2, not a 1099-R. (The 1099-R instructions say to use a 1099-R only if it is a commercial annuity...I guess it could be, but what's the correct code in that situation?) Any thoughts?

J Simmons, Thanks for the feedback. As noted earlier, you have a good point and I hope it stands up. I am still skeptical that "account" means "segregated account" (understanding that clause (iii) becomes moot if it doesn't). I'm trying some alternate avenues for clarification and will share anything I learn.

Alan. You have the same understanding that I do and it is crazy. As noted, we're just not going to try to comply with the safe harbor...it's a safe harbor, not a law.

J Simmons, I don't think others have interpreted the new PPA language as you have but you might have a point. Here's the language: (1) REQUIREMENTS.— (A) INDIVIDUAL ACCOUNT PLAN.—The administrator of an individual account plan (other than a one-participant retirement plan described in section 101(i)(8)(B)) shall furnish a pension benefit statement— (i) at least once each calendar quar8 er to a participant or beneficiary who has the right to direct the investment of assets in his or her account under the plan, (ii) at least once each calendar year to a participant or beneficiary who has his or her own account under the plan but does not have the right to direct the invest ment of assets in that account, and (iii) upon written request to a plan beneficiary not described in clause (i) or (ii). If "account" means a physical account that is segregated but not self-directed, then you're right. But I'm not familiar with any such accounts, except for a handful of accounts that might be segregated for beneficiaries. And then you have to wonder why they used "beneficiary" in clause (iii) and not "participant or beneficiary" but then again, you have to wonder who clause (iii) covers if (ii) covers everyone not in (i). The DOL in their FAB 2006-03 flat-out states that annual statements are required for non-self directed investments: "Plans that do not provide participants or beneficiaries a right to direct their investments are required, pursuant to section 105(a)(1)(A)(ii), to furnish pension benefit statements at least once each calendar year. Whether on a calendar year or fiscal year basis, the first pension benefit statement for such plans that is required to comply with the new requirements would be required to be furnished for the calendar year ending December 31, 2007." I think you're on thin ice arguing that "account" litererally means "segregated account." Any other thoughts?

We're talking about, or at least I think we're talking about, trustee-directed, aka pooled accounts that are valued once per year. Those accounts are virtually all valued on an accrual basis (that is, including accrued contributions). I'm not doing a cash basis report by Feb 15 and another accrual basis report later. Even if I wanted to I couldn't.

A vacuum, apparently. Or maybe it's the other way around where everything goes out but nothing comes in. Anyway, yes, ASPPA and others are fighting this. But keep in mind that it's a safe harbor and not binding. We will NOT go through some silly exercise of re-issuing prior year's statements, or pushing through a val with gains only and no accrued contributions, just to meet this safe harbor.

The other option is to calculate and deposit the match for terminees after they leave but before they take their money. For the reasons mentioned, I prefer to make participants wait until after the end of the year to get paid. But if the plan already permits immediate payouts you are stuck.

We get an SS-4 signed before going online (and this version doesn't have "not required" on it). Never had it questioned. We use an 8821.

Your approach seems to comply with the narrow definition of using the "latest available" information, and I know I've heard this suggested more than once - just (re)give old statements until the new ones are done. I don't think that's what Congress or the DOL intended, but then again they probably didn't know what they intended so we're left with silly results such as this.

I think a lot of people here will tell you that if you beg long enough and hard enough that you can get EZ penalties waived. But...I thought EZs were processed by the IRS, not the DOL.

(Not a dumb question.) Maybe by reducing benefits or contributions for older participants. This might be a dumb question... Can a participant waive ERISA or ADEA rights, such as the right to sue?

It depends on what the document says. It might generally not permit distributions before age 59 1/2, but there could be an exception for rollovers. And if the document was restated as part of the takeover, then I think you need to review the old document too, because if withdrawal of rollovers was previously permitted, it can't be taken away...at least I think that's protected benefit.

I don't have a straight answer, but here are my thoughts- First, the plan may have an RMD amendment that supersedes the plan language saying "lump sum only." That is, there are a lot of plans saying "lump sum" at death, but then when you read the final RMD amendment, it has language permitting lifetime distributions. Second, even if you can't find relief as above, I think you can use N 2007-7, Q&A 17©(2), which references the cite you mentioned in the final regs and says you can use the lifetime method, as long as the distribution is made in the year following death. Bottom line: I don't think the 5-year rule is implicit just because the plan says "lump sum."

No. A lifetime RMD is required in the year of death. Death RMD rules apply in the following year. Ask the client for a cite if they don't believe you.

I think your game plan to transfer ownership to yourself and then withdraw is sound. And you definitely can't roll this to an IRA.

I agree with jevd. The RMD part of the account should not have been rolled over, but it was in fact distributed from the plan so there's no excise tax. The participant just takes the excess out and everyone is happy.

Yes, the IRS gave you a technically correct answer. Yes, your written decision to terminate should have occured before any assets were distributed, otherwise, on what basis were they distributed? You can terminate a plan in year 1 and still have a plan in existence in year 2 if assets still exist. But it doesn't affect your ability to have a SEP.

It happens all the time. I think the plan technically had assets as of 12/31/06 but for $29 I don't think anyone will argue if you use a $0 ending balance for your 2006 5500-EZ and don't file in 2007.

Expanding on the above response, which is accurate, I'd add that the HR department appears to have one thing right (limit of 25%, which was raised from 15% effective in 2002), but another thing wrong - 401(k) deferrals don't count against the limit, again effective in 2002. In other words, the law used to limit combined company and employee contributions to 15%, but effective in 2002, not only was the limit raised to 25% but it only applied to company contributions. So...there's no justification (at least as would apply to maximum contributions) for limiting employee deferrals to 15%. That doesn't mean that the plan doesn't have such a limit, just that there's no (good) reason for it. As suggested, get the latest SPD, and if it does limit you to 15%, check the date (pre 2002 or post 2001), and if it's from before 2002 ask where the newer one is, and also ask for a copy of the relevant page(s) of the actual plan document showing that limit.

Form 1040, Line 60. They call it an "additional tax" and not a "penalty." I don't think you can use 1040A if the penalty applies.