Bird

I think you're going in the right direction, but I still have an issue with your statement that the formula is 5% to twb + 20% of excess. It's not impossible to have a fixed formula like that in a 401(k) plan but I'm guessing that it's really 20% of excess plus anything left over is allocated pro rata (and they're shooting for 5% for the anyone under the twb); is that correct? Yes, partners who haven't maxed out on 401(k) can wind up with more than $29,000 PS. Here are the steps you should be going through (from a Larry Starr outline): Start with each partner's total self-employment income before any plan contributions (including non-partners'). Subtract the partner's share of employee allocations (you immediately have an interdependency problem with profit sharing calcs at this point, because the partners' ultimate plan income for allocation purposes is dependent upon the non-partners' contributions - but if you have a money-purchase formula or are trying to get to a fixed formula as you seem to be doing, you can calc the non-partner contributions and subtract them). Subtract Sec. 179 expenses claimed, if applicable, and any unreimbursed partnership expenses claimed. Take the resulting number and subtract 1/2 of social security and medicare taxes. Calc and subtract the partners' own plan contribution. (again, a circular calc but this one can be solved algebraicly (sp?) or in a spreadsheet without too much difficulty). As noted, for partners who will have $220,000 or more after this reduction, just use $220K. The resulting number is "net earned income" i.e. compensation for plan purposes. If you run your calcs again using this number you should get the same contribution amount.

Those two phrases seem to be contradictory, but I guess we'll assume it's not a corp. You've just described a money purchase formula. 401(k) contributions don't reduce their income for profit sharing allocation purposes. If their income is going to be over $220,000 after subtracting contributions, then just use $220,000 in your calcs. If not...you really need a spreadsheet or program to do all of the interconnected calcs, including taking non-partners' contributions into consideration, if it really is a profit sharing plan. It appears that you're trying to take maximum plan comp and then subtract contributions to determine allocation compensation and that's wrong.

Can't roll Roth IRA to Roth 401(k). My recollection is that there is nothing in the Code that permits it (not that any specific cite prohibits it).

"Sorry, but 'periodic' payments not subject to mandatory withholding are defined narrowly and we don't believe these are 'periodic' payments." Then solve the problem by suggesting he roll over to an IRA and then take distributions from the IRA - or send money directly to the charity from the IRA, as you noted earlier.

My experience is not with big plans such as this one, but I am still skeptical about that 90 day deadline. I'd ask for a copy of the Summary Plan Description, and then if necessary you can ask for a copy of the plan itself. And I still doubt that they have made a policy decison to permit or not permit direct transfers to inherited IRAs, given that the IRS guidance is only a few days old. Up until this year, they were not permitted to transfer money to an IRA for a non-spouse beneficiary under any circumstance, so it's not surprising that in Jan 2007 they're (still) saying it can't be done. (More on the 90 day thing - prior to 2007, a plan had 90 days to complete a distribution after giving a "Special Tax Notice." As of 2007, the 90 days is now 180. I've seen this misinterpreted that the plan has to "do something" within 90/180 days, but it really means that if the distribution isn't completed within that time frame, another notice simply has to be given before the distribution is completed. A plan may have its own "cashout" rules but I still think it unlikely that a death distribution must commence within 90 days of death. It's not hard to imagine that the plan wouldn't even know about the death of a retired participant for more than 90 days.)

It is subject to 20% withholding. The distribution will be taxed at ordinary income rates when he does his taxes at the end of the year.

From above: Why a plan would not do this is beyond me but it's not required. But the first thing I would do is challenge the (what appears to be arbitrary) Feb 15 deadline. The regs require that systematic RMDs start by Dec 31 of the year following the year of death, or total distribution within 5 years. The plan can set its own rules within these parameters but I seriously doubt that the plan requires the money to be paid out by 2/15/07 for a death occuring in Nov 2006. Buy yourself some time and they might change their mind about allowing the inherited IRA rollover. Heck, the notice just came out a couple of days ago so it's hard to imagine that the plan administrator has made a final decision on this issue.

Good luck and do NOT give up on this. There are several things in your post that are red flags to those of us in the business: "...the accountant write off the profit sharing plan..." "...accountant was filing the 5500 tax form..." In the letter, I would ask for the most recent participant's statement, summary annual report, and summary plan description.

I understand the point but have you (anyone) ever heard of them doing anything with this information?

It's probably true that cash is not a "security." I've probably reported it already though, since I just eyeball the assets and throw in the highest number (if it's greater than 20%), knowing (or at least thinking) that the answer is about as relevant as the color of my desk.

A formula has to be in the plan for purposes of allocating a discretionary matching contribution. It might be straight pro-rata, or pro-rata of the first "x" percent, but it has to be in there otherwise benefits are not definitely determinable. The discretion is over how much, not how it is allocated.

Not much to add but good luck going against Fidelity; I hate 'em too. There has to be some liability on their end, or if not them the Plan Administrator who delegated authority to them. I'd say your ex's behavior didn't verge on criminal, it was criminal.

It doesn't bother me. If he had simply not contributed $15,000 he could have received the extra PS contribution; it's not like he's getting something extra that was not otherwise attainable.

Appleby- I guess I was assuming the $10,000 distributions were RMDs based on life expectancy, but you're right, that's not necessarily so; they could be arbitrary amounts that the bene requested. I guess we won't know unless the original poster graces us with some feedback. KJohnson- I agree that your #3 is a likely result. Allowing #1 would be more generous than would have been allowed under old law (but it's possible because it's not such a huge gift) and I sure hope #4 isn't what we get...I've been setting the groundwork for several benes to get their ##%*&& money out of my plans in 2007!

Blinky, Sorry; I agree 100% with that comment.

I think it's questionable that the person is retired and must receive the RMD. The original poster said he "left" and "... is planning on coming back next summer for the busy season." If he dies, or doesn't come back for the busy season, then that's when he retired. As long as he had comp in 2006 I can't imagine the IRS trying to pinpoint a "retirement" date in 2006.

© EFFECTIVE DATES.— (1) IN GENERAL.—Except as provided in paragraphs (2) and (4), the amendments made by this section shall apply to contributions for plan years beginning after December 31, 2006. (paras 2 &4 are collective bargaining and ESOPs). Note that this is what the law says; the plan sponsor may decide to accelerate vesting on all contributions for simplicity.

As long as there's a payroll for everyone to take advantage of the 401(k) feature after the plan is adopted I don't see a problem with it.

I couldn't find it, but I get the vague sense that E-B Grain v. CIR [my emphasis, I don't think it's "IRS"], 81 TC 70 (1983) had something to do with a tax-free exchange. It's a stretch, at best, to try to apply this to signing a retirement plan document, and the cite provided by Everett Moreland couldn't be more on target: December 31 is the deadline, period.

The 8905 simply indicates "intent" to adopt the vendor's prototype and doesn't lock you in in any way. I believe it buys the extra time* whether you use that vendor or another one. It wouldn't surprise me if your new provider sent you one by Jan 31 07. In any event I'd sign it (keep a copy); there's no downside. *I should say it buys you the guarantee of extra time because the reality is that many or most of these will be unnecessary. In our shop we decided that it was easier to just prep the forms than think about it.

I don't think the testing method is relevant; you can definitely amend before the beginning of the year. The issue is that you've missed a safe harbor for the notice, and I think a lot of people would say "go for it" since the additiona of the 3% SHNE shouldn't be a significant factor for participants in deciding how much to defer (at least for NHCEs).

I don't dispute that it hasn't been challenged but I maintain that any deferrals deposited more than 15 days after the end of the year are "late" - that doesn't impact their tax status but means that lost earnings should be added.

...but no later than 15 days after the end of the month during which the amount was withheld. I don't think the "we can't figure it out" reason nullifies this clause. I tell our partners to elect a dollar amount and deposit it early in Jan. and avoid the whole issue that way.

That statement appears to be inconsistent; if the $10,000 distributions were systematic based on her life expectancy then the 5 year year doesn't apply. If that's the scenario then I believe the intent of the new non-spousal rollover provisions is to allow her to roll out to an IRA and continue systematic distributions from it. As noted, we're awaiting regs for clarification on exactly what can be done and when.

So the intent is to match each payroll while employed, and just make a true-up for those still employed at the end of the year? Maybe I'm sheltered, but I'd have to think that calls for some convoluted plan language. I don't see the point but oh well. I agree that you just test the contributions.