Lori Friedman

Taxpayer made a $5,500 IRA contribution for 2016 but withdrew the funds, along with the related investment earnings, before the Form 1040 due date (extended). So far, so good. The $5,500 has no tax consequences, but the earnings are taxable in 2016. I can't find any guidance about the mechanics. IRS Publication 590-A has some nice language about the general tax treatment, but it doesn't say where/how to report the numbers. -- I'm guessing the earnings get reported on Form 1040, Line 15b as a taxable IRA distribution? -- Taxpayer is under age 59-1/2. Are the earnings subject to the 10% penalty for an early withdrawal? (We're talking about 10% of $30, so this isn't material whether "yes" or "no." I'd like to get things right, though.) -- I don't believe the IRA custodian will issue a 2016 Form 1099-R? The money was withdrawn during 2017; as far as the custodian's concerned, isn't this a 2017 distribution?

Thank you for setting me straight.

A self-employed individual (Schedule C) has both a SEP and a traditional IRA. The person can make full, deductible contributions to both arrangements, right? In other words, the SEP isn't considered to be coverage under an employer-sponsored plan, and the 20% SEP contribution won't "taint" a deductible $6,000 IRA contribution. Please forgive me if my question is simple and obvious. After two solid months in the Tax Trenches, I'm not longer capable of rational thought.

Sec. 3121(w) exempts church employees from Sec. 457(f), but don't they still fall into the Sec. 409A trap?

A couple of years ago, the IRS pulled this same stunt with Form 990 extensions. The IRS sent letters confirming that automatic extensions had been granted -- a ridiculous waste of effort, paper, and tax dollars. The letter also instructed each organization to attach a copy of the letter to its Form 990. Some clients forwarded their letters to me; some didn't. That meant that some of the Form 990's included the letter, while other Form 990's were filed without it. Also, it's impossible to attach any extension documents to an e-filed Form 990, so the whole issue was moot for any organization that filed electronically. There were absolutely no bad results or fallout from this matter. The bottom line -- I didn't lose any sleep worrying about the Form 990 letter, and I'm not concerned about this new Form 5558 letter.

401(k) is a qualified plan; it's governed by I.R.C. Sec. 401(a) and its related Code sections, including the trust requirement. 403(b) isn't a qualified plan, and its assets are held in annuity contracts and/or custodial accounts and deemed to be owned by participants. Although the two arrangements often walk/talk/seem/look the same, they're two very different "animals." You don't want to make a leap of faith and erroneously impose a 401(k) rule on a 403(b) plan, or vice versa.

I'm not a financial advisor or an economist, and I don't even play one on TV. I can't give any investment advice. I can only tell you what I'm doing personally. I'll max-out all of my retirement options for 2008. I've shifted most of my recent deposits to more conservative choices -- short-term and long-term bond funds, money market accounts, and certificates of deposits -- because interest rates are fairly attractive these days. I'm still buying some equity investments, too, because I like the idea of buying at the bottom of the market (let's hope we've reached the bottom). As mentioned earlier in this thread, the financial markets haven't ultimately performed like the Titanic.

You're absolutely right. I read "SPD", and my mind jumped to "SAR." As the kids like to say, "Duh, Lori."

I agree 100% with GMK and JSimmons. The SPD is distributed in lieu of a copy of the entire Form 5500, with a format that's prescribed by Dept. of Labor regulations. A newsletter might be an excellent supplement to an SPD, but it doesn't take the place of the basic document (or any of its sections).

2. Since about 1978, Sec. 457(f) arrangements ("ineligible" plans) have been subject to substantial risk of forfeiture (SROF) requirements. The Sec. 457(f) version of SROF is very easy to satisfy. Sec. 457(f) plans are very much subject to the provisions of Sec. I.R.C. Sec. 409A, however, which impose significantly stricter SROF rules. As for Sec. 457(b) plans ("eligible" plans), SROF isn't an issue.

Matthew, I think you could be "mixing apples and oranges." An I.R.C. Sec. 125 plan, or cafeteria plan, is a sort of umbrella that permits employees to make pre-tax contributions for permitted benefits. The Sec. 125 plan might work in tandem with a number of welfare benefit plans, including a medical or insurance plan. Sec. 125 and Sec. 105 isn't an either/or arrangement; they're complementary.

Agreed. All you need to do is use the plan's new name on Line 1a. If the plan's name is relatively short, and if you have enough room, you can describe the change parenthetically: XYZ Plan (Formerly ABC Plan) This isn't mandatory, however.

I'm not an actuary, so I can't specifically address Schedule B, but I do know that Schedule H amounts can't be rounded to any number above a dollar. Although it's unusual, audited financial statements sometimes round to thousands. You can't use those rounded numbers; you need to trace back to the actual G/L account balances.

The actual event occurs when an employee doesn't reach his weight-loss goal and forfeits his entry fee. When the employer uses the entry fee to pay for that individual's nutritional counseling and counseling, the money's no longer on deposit. The money's been indirectly spent by the employee for certain services. The question is whether HSA funds can cover that expense. I agree with the general answer of "No". HSA disbursements are allowed for: 1. Expenses that would otherwise be tax-deductible within the meaning of I.R.C. Sec. 213. Such expenses are limited to costs that are medically necessary for "the diagnosis, cure, mitigation, or treatment of disease." 2. Over-the-counter medicines, but only if medically necessary. "Medically necessary" doesn't include expenses for an individual's general well-being. Vitamins and other nutritional supplements can't be purchased through an HSA (unless the supplements are for preventing or treating an illness). The same rule applies to health club fees (unless the membership is directly related to some sort of exercise or activity, as prescribed by a health care professional, that alleviates a medical condition). Unless someone's weight constitutes an actual illness (i.e. morbid obesity), or if weight is causing or exacerbating another medical condition, weight-loss programs don't meet the HSA test. Weight-loss promotes general fitness and physical well-being, but the resulting costs aren't medical expenses.

If I'm reading your message correctly: 1. An individual pays an entry fee to his employer. The entry fee is held among the employer's general assets, presumably as a small liability on the employer's G/L. 2. When an individual meets his weight goal, the employer refunds that person's entry fee, thus eliminating the liability. The employer recognizes an expense for that individual's medical/nutritional consulting. 3. If an individual falls short of his goal, his entry fee is used to cover the costs of his own medical/nutionional counseling. 4. The "Biggest Loser" gets a prize, paid from the employer's assets. Is that an accurate description of the arrangement?

We've touched on a matter of differing perspectives. I work entirely in the multiemployer universe, where it's not unusual for a trust to be created months (sometimes, even a year or more) before the plan is effective. I always learn something interesting from you, whether it's benefit plans or roller coasters.

Hi Janet, I'm curious why you recommend scrapping the trust. It's not unusual for the tax-exempt organization to be created long before the plan takes effect and becomes operational, or for it to retain legal existence after the plan has terminated. Please understand that I'm not disagreeing with you. You might have some information that I lack, and I'll benefit by learning from you. Best regards, Lori

For your consideration, here's a very concise and helpful excerpt from the PPC 5500 Deskbook: The bond isn't required to exceed $500K (unless the Dept. of Labor mandates a greater amount), but a plan administrator isn't prohibited from buying more coverage. Even though the law sets the bond maximum at $500K, fiduciary duty and the amount of plan assets might necessitate greater coverage.

Multiple IRA's will usually cost you multiple annual fees. If you spread small balances among several accounts, and if your investment returns are modest, the fees could negate or exceed your earnings.

In general, I believe the answer is "no". 403(b) contributions are used to purchase annuity contracts and/or mutual fund shares of a "regulated investment company" through a qualified custodial account [i.R.C. Sec. 403(b)(7)(A)(i)]. If the individual can take an eligible rollover distribution from the plan, however, he/she could move assets to an IRA and then purchase a CD.

A plan merges into another existing plan. Transferor terminates by transferring 100% of its assets, obligations, and participants to Transferee. Transferee is the surviving plan. Who signs Transferors's final Form 5500? I can't find any guidance, so I'm relying on (what I hope is) common sense. It seems to me that Transferor's trustees are responsible for filing the plan's final return and, therefore, that Transferor's trustees must sign the Form 5500. I'm disagreeing with a TPA who's telling the Transferee trustees to sign. Does anyone have an opinion? How have you handled this matter with your own clients?

Editorial comment on a dreary Friday afternoon -- He should quit his job and seek employment elsewhere.

The health FSA can't reimburse employees for insurance premium payments [Prop. Reg. Sec. 1.125-5(k)(4)]. But, the cafeteria plan sponsor can add a plan provision to have the premium amounts withheld on a pre-tax basis. This type of provision is often called a POP ("premium only plan" or "premium only provision").

Why, thank you for your kind words, George! But, I believe that we haven't resolved this extremely convoluted matter and are still working on it. I haven't had a chance to respond to Don's most recent message, because I need to dig more deeply into my research. I'll say this much for now -- I'm learning a great deal as we go along.

Are you asking about a paper filing or an electronic filing?