Bird

We will also be submitting them, since they have to be done anyway. Perhaps if they had never been required, our approach might be different, but it just seems easiest to prepare them and send them in, just as we've always done.

tas1, thanks for confirming - and commisserating. We do exactly the same thing - send a blank page 3 - and have the same issues. We'll just have to start doing it for $1,000 and up instead of $5,000 and up.

No, we have our own forms and the participant has signed them, electing a lump sum. Now we are just trying to get Hancock to complete the payout; in the past they would follow our instructions with our signature for amounts under $5,000. It has nothing, and everything, to do with automatic rollovers. That is, they probably DID change their signature requirements to assure that the participant signs off on a lump sum over $1,000, but IMO that's our job, not theirs.

John Hancock used to process distributions with our (TPA) signature, or the sponsor's signature, but without the participant's signature, for up to $5,000. Now I'm being told that we need the participant's signature if over $1,000. The (new) rep was quoting something that referenced the direct rollover rules, eff 3/28/05, and I'm not sure if she was confusing the new law with John Hancock's requirements. Can anyone confirm that Hancock changed their policy and dropped the max paid w/o participant sig to $1,000?

Yes, just pay the taxes with the 1040 filing.

I wouldn't worry about the failure to withhold at this point. I think the liability for failure to WH comes back to the trustee, and it sounds like that's him anyway. That is, I don't believe there are any IRS penalties for failure to withhold. BTW, MP plans can only do in-service after NRD, hence the suggestion to amend the plan's NRD to 60.

That's exactly what a safe harbor is used for, to avoid ADP testing. I'm a little confused by your terminology: "cash or deferred PS contribution." A "cash or deferred" arrangement is a 401(k) arrangement, and "PS" is optional employer profit sharing - 2 different animals. If you meant that the company would give a bonus at the end of the year and employees would have the opportunity to defer them into the plan, that's fine.

SEP contributions are allocated on the basis of annual compensation. If the annual allocation is to be 10%, and you were putting in 10% as you went along, then you should be done. But you still need to do the calculation on an annual basis, and check the allocation against the deposits.

I'd say yes.

Eww. Well, it says enter the EIN of the payor, so that sounds like the employer, and I'd use that EIN. Yuck. "Profit Sharing plans...skip line 3" No HCEs benefitted; that's an exception, so yes, leave blank.

I don't think the employer can make up the surrender charges without it being considered a contribution....which may actually work. I've heard the argument that in certain circumstances, surrender charges could be reimbursed without it being a contribution, but thought that there had to be an actual fiduciary breach, not just a good intention. I'd think about merging the plans, and trying to keep the old GIC in place until the charges expire. Probably a nuisance at best for someone. For the record, when a successor investment company "makes up" surrender charges, they don't just have a surrender charge, they tack on an extra annual expense to recover the cost...there's no free lunch.

No, the "why not" theory is based on the fact that there is no cite preventing it. Just because an individual's "taxation for a tax year ends at death" as you put it, doesn't mean that a contribution can't be made. Plan contributions for cash basis taxpayers, of course, can be accrued. Change the facts slightly: Make it a money purchase plan, with contributions required if a participant dies during the year. Your reasoning would say that this owner doesn't get a contribution, and that's just wrong. I don't know where the deduction is taken - on the decedent's 1040, or the estate tax return. I'd guess the 1040, since (I think) that's where the business income would be reported.

An employer can't sponsor a SIMPLE and another plan during the same year, but as I understand it, your wife was an employee in a company that had a SIMPLE and she contributed to it. She can also contribute to a SEP if she has her own business...actually, it is her business that is making a contribution on her behalf.

I think a contribution is permitted...more on the basis of "why not" than anything else. Suppose there were employees in the plan, and he made contributions for them during the year (pick a number, say 5% was something he'd always done) but he was waiting until after the end of the year to determine his earned income and make the contribution. I see no reason why that contribution can't be made; if not, someone would have to somehow take the money out of the other accounts since you have to have a uniform allocation.

TBob, I think you have it backwards. Generally, if systematic distributions don't start within one year, then you have to do the lump sum within 5 years. Since the spouse is the bene, neither one applied yet; the surviving spouse has until the employee would have attained age 70.5, as noted by Everett Moreland. You don't have an RMD. You just have a death benefit payable to the spouse, and the spouse can roll it.

Required minimum distributions are just that, minimums, so as long as the plan permits, you can take more, or all.

It seems to me there are two issues- 1. Can she make a withdrawal? The plan says no, so no (unless there is special language, as suggested). 2. Taxation. If she could make a withdrawal, my understanding/recollection is that it is distributed tax-free in proportion to basis. I get the feeling that whoever told you "...it is acceptable if..." meant that the participant could withdraw the voluntarys on a FIFO basis.

So you think the IRS is going to make a policy change simply by changing the wording in Pub 560? Gimme a break. I'm done here.

The quote below is from a discussion with the American Bar Association and the IRS - the IRS - the IRS (question 11). Here's the link if you want to see the whole thing... aba link While looking for this, I found many sites supporting the argument that the comp limit is indexed for the lookback year; not one - zip, zippo, zilch, zero, zed, nada, none, nary a one, nil that supports mjb's position.

What exactly does this mean?

mjb, 2005-75 just says the HCE limit is $100,000 in 2006...which it is; 2006 is the look-back year for 2007. I don't see how you can cite that as authority for your position. Just do a google search on "highly compensated employee look-back year" and you should find lots of charts, with footnotes saying what the rest of us are saying. I don't think Pub 560 is "wrong" although it is terribly misleading, since the cover says it is for preparing 2005 tax returns. The text refers to "the preceding year" when it cites the $95,000 limit, but it doesn't say 2004. But seriously, that is the ONLY "cite" (if you can call it that) that supports your position.

Because it's a 2006 publication. I agree with Dan and Stephen.

Notice 2005-95 extended the deadline to the later of 12/31/05, the last day of the plan year that includes 3/28/05, or the due date of the employer's tax return for the year that includes 3/28/05, including extensions.

I agree that the allocation of forfeitures shouldn't affect earned income. I'd say "to reduce" or "in the same manner" will be a more challenging calculation than "pro rata" because of the interdependency of the calcs.

I agree that it's harsh. Your facts aren't even that bad; as you note, the regs say that a termination occurs "not later than" the end of the year following the last substantial contribution, you had a contribution in '99, so the termination could be as late as the end of 2000, after the payouts. I think I'd hammer that pretty hard, noting the expense of re-doing 5 years of vals that could be charged to the plan.