Bird

yep. That was a typo...I hope. I'm pretty sure I've got that 15% stuff out of my head by now!

I have no clue whatsoever about the $3,000. I've been wrong before but I don't think there is or ever was such a thing. Yes, SEPs can do 0-15%. Note that I was talking about SIMPLEs when I said there was a required contribution.

Have a designation that reads: My children or their issue per stirpes, otherwise ABC trust. There is one child, and he disclaims. My initial reading was that we skip the first line entirely and it goes to the trust, but I'm being told that a disclaimer is treated the same as a death, so it goes to the issue per stirpes. The more I think about it the more I think that's right. It's going to an attorney but I thought I'd throw it out here. The benes are the same under the trust so it's not such a big deal.

The regs (Reg § 1.401(a)(9)-2. ) talk about "retired from employment with the employer maintaining the plan." I don't think the new employer is maintaining the plan. I assume you're making distributions as a result of the termination and wondering whether to do RMDs before allowing a rollover? I think I'd do the RMDs.

Oh. I wouldn't have a problem doing as you suggest.

I remember it (somewhat vaguely), but I don't know how serious it was. I'm pretty sure ASPPA responded.

Prior to 1997, a small business could sponsor a SARSEP (SAlary Reduction SEP) which would allow employees to contribute pre-tax money. You can't start a new one now, although if you had one prior to 1997 you can continue it. SIMPLE IRAs more or less replaced them, but of course they have a required employer contribution of some sort.

The employer can elect to make the year preceding the effective year as the first credit year. Code Sec 45E(d)(3)(B)

If a distribution didn't really occur in the prior year, then it seems to me that that year's return should be amended. The check floating in space is an asset as of the end of the year.

Interesting scenario. I assume from your comments that you DO have $36,000 in other money to pay the taxes? If not then the whole thing blows up; that may appear obvious but I figured I say it anyway. My gut reaction is that I wouldn't do it. I think the fairmark comment is off-base; tax rates are very important in the analysis. I wouldn't be so anxious to pay 39% now. FWIW.

It works. You could simplify it by dropping the match and upping the PS to 25%, not that it matters much...unless you have other employees not shown and are trying to limit employer contributions.

I once answered the question "yes" and was asked about it; told them we might distribute securities in-kind. They said those are still considered cash distributions and told us to change the answer to "no." I'm not sure if it only "counts" when you have assets for which FMV is not readily determinable or what.

The full language about another plan existing is something like: ...the Employer may not maintain anyother qualified plan with respect to which contributions were made, or benefits were accrued...

dh003i, you have obviously researched this enough that whatever decision you make will be well-informed; one option might prove better in hindsight but it seems you have narrowed it down to "good" options by yourself. A quick comment - I thought Coverdells counted as the student's assets for aid purposes; I could be wrong and I will assume so, but at the same time, if they are in fact "your" assets I don't think they count at all unless you're a parent. I think the financial aid considerations are VERY important; a lot of people probably saved money in UGMA/UTMA accounts, saved a couple of bucks in taxes but lost thousands in aid because of the ownership.

Just to clarify and pile on, I would strongly recommend that you find and pay someone to help you through the termination and final filing if that's what you decide to do. Look in the yellow pages under "pension and profit sharing." Make a couple of calls and explain that you want someone to do some hourly work on a one-man plan termination. Good points are made that you might want to put this off for a year, and also that you can borrow from a plan but not from an IRA. Sitting down with someone will help you sort it all out.

Bob, you need to terminate the plan and roll over the assets into an IRA. Could you "freeze" it? Maybe; as long as you are not accruing benefits then I don't think there are non-discrimination problems. But simply stopping contributions is NOT freezing! If you just stop contributing, you still have eligibility provisions that will allow other employees to become participants (they ARE participants even if they are not contributing!!!) and then you have to start filing tax returns. Freezing the plan would require an amendment that says "no one is eligible after xx/xx/xxxx." It sounds like you're frustrated and I don't blame you. Talk to the broker, mutual fund or CPA who told you this was easy.

I think it's coming in as other income on 2c and going out as benefits paid on 2e.

Belgarath, a Roth IRA could serve just as well from a tax standpoint if the uncle is old enough so that withdrawals are tax and penalty free. As with the 529, it's just a wrapper for an underlying investment. This also assumes the uncle isn't already funding a Roth IRA. We don't know how much money we're talking about but the 529 allows for greater deposits. And, the 529 will have the nieces' names on it/them, which I think has some emotional benefit, even thought the Roth could be used for their education and the 529 beneficiary could be changed, or could actually revert to the uncle. GBurns- Irrelevant? I used that because I didn't want to be accused of cherry-picking funds with good returns. So you want to use the actual returns for 529 funds, which have what, a 3 year track record in a down market? That's just plain stupid. I will not waste any more time on this discussion. As you noted, different arguments have been laid out and the original poster can make his own decision.

If the plan is written to permit the use of what we call a "maybe" notice ("we might make a 3% SH contribution next year") and the notice was issued 30 days before the beginning of this year, and the client now (before Dec 1) issues a notice saying "we are NOT making a 3% contribution," and depending on how the plan is written, they adopt some documentation, such as a resolution, that effectively amends the plan. Not all plans are written to provide this flexibility; that is, the SH contribution is hard-wired in and you can only change it by amendment before the beginning of the year to which it applies.

Since there has been talk of evading, I'm going to take GBurns' original list head on for discussion. First, let me clarify that a 529 plan is just a wrapper that gives certain tax benefits to the underlying investment; namely, gains become tax-free if used for college. Depending on the options in the plan, you could use anything from a money market fund to a foreign growth fund. I would suggest an equity fund of some sort for a 7 year old; 10 years is enough time to minimize downside risk. Probably a growth and income fund. Here goes: "Not just any Universal Life plan, but 1 that is structured with low death benefit and high cash accumulation. Might even need more than 1 policy so as to avoid MEC. This will need someone other than a run of the mill agent since not many companies have such a product." By its nature, any UL policy could be set up with a low death benefit and you can just throw a bunch of money in it, to the point of being a MEC, or rather just short of it. I can't imagine how using two policies would help and frankly can't make any sense of the paragraph above. "1. Death Benefit to ensure that the money is there from day 1 just in case there is premature death of this uncle." The uncle has indicated no desire to provide a death benefit so this is conjecture. If that's a stated goal, then that's a different story (probably best served by term insurance, since we're looking at a relatively short [10 year]) time period). "2. High cash accumulation. Might not be as good as some 529 plans might perform but better than many." "High" cash accumulation? By whose standards? This whole statement is meaningless. "3. Guaranteed cash value. Better than the 529s etc." After paying mortality and other expenses, you have a guarantee, true. Odds are that at the end of the day you'd get as much or more, guaranteed, with a CD. "Better" than 529s, etc? Youre making an invalid value judgment, IMO, that a guarantee of principal is better than an expected return of, say 10% or so (the average for large stocks over the 80 years) with a downside of maybe 4% (that's the greatest loss over ANY 10 year period in the last 80 years;) and an upside of 18% or so. (Returns cited are actually after-tax, so nominal returns were higher...that just happened to be the study that fell open...and it's actually a 1926-1994 study. I have no concerns that the last 10 years changed any cited returns for the worse.) "4. Tax free withdrawals to basis. 5. Loans." I'd say both of these are weak rebuttals to what is really a negative, that you can't get your money out as freely as you could with a 529 or a plain old after tax investment. "6. Possibly tax deductible." Huh? "Almost certainly not" tax deductible, maybe. "7. No limits as to eventual useage. 8. Ability to change purpose etc. The child might get a great scholarship and need the money for something else. Or decide not to go to college and need the money for something else" These are the same arguments so if you're going by the fallacy that the number of reasons given somehow proves a point, then they should be reduced to 1. But it's a weak argument anyway; the odds of not using the money for its intended purpose is unlikely, given the total cost of college. The owner can re-direct to different beneficiaries in a 529 plan without penalty, and the worst-case scenario is pulling money out for some other purpose and paying taxes and a 10% penalty, but only on the earnings. Sorry, but that doesn't equate to the end of the world. FWIW.

Generally speaking, you can't "terminate" and then not "liquidate." On what basis would you not "offer" enrollment to the newly eligible employees? Assuming your decision to go with a SIMPLE is a good one, and I make no comment on it, you are best served by getting rid of the 401(k). If not, you have to maintain the document, which means amending or restating it as needed, and you'd have to file a 5500 if and when those employees become participants, even if they have no money in the plan. And the IRS generally expects assets to be distributed ("liquidated" although I wouldn't ever use that term except that it's been injected here) within 12 months of termination, unless you're waiting for a favorable determination after filing a 5310. I'm probably missing something but that should be enough.

You might want to clarify what plan you are talking about - I assume it's your client's plan? Does the plan have participants other than your client? There's probably a PT in there somewhere, depending on who the beneficiaries are and attribution, but I don't hold myself out as an expert and am only commenting because you're begging. How is this investment going to be valued? That issue, and the costs involved, is usually enough to nip this kind of stuff in the bud for my clients.

We instruct our plan sponsors to distribute to each participant; that is, not just post it. We do not require any proof of delivery. We had an audit of a SH plan earlier this year and they barely looked at the notice. Have another one coming up next month and will report any new info.

I said probably, and remain open to other ideas. There might be reasons to use something else, but I haven't been convinced of anything that is much better, if better at all. Of course, there are probably some lousy 529 plans out there but from a generic standpoint of tax benefits, flexibility, and financial aid, I doubt that an investor would have cause to be disappointed. Especially this one, as I understood the scenario.

My search would probably begin and end with a 529 plan. if you're the owner, it won't affect their financial aid.