Lori Friedman

erisafried - 403(b) investment vehicles (both annuity contracts and custodial accounts) belong to individual participants and are highly portable. Did TIAA-CREF actually use the words "credit prior participation"? I'm wondering if TIAA-CREF was merely saying that an individual can use the same underlying investment assets even though he changes jobs and employers.

jaemmons, I respectfully disagree. The federal withholding tax rules for the four types of corrective distributions are described in the instructions to the 2004 Form 1099-R, pages R-3 and R-4. I summarized those rules in my previous message.

FMK didn't steal money from her employer or hatch a plan to raid and abscond with the tuition plan's assets. The employer made a mistake. FMK acted in good faith, followed her company's policies and procedures, and was unaware that she'd been overpaid. When I read FMK's original message, I got a picture of someone who's distraught because of some very recent bad news. FMK had been told that she owes money to her employer (possibly thousands of dollars?). Because she's a student and works part-time, she may not have the financial means to pay the debt. I also wonder whether FMK relied on bad information when she made her decision to enroll in classes -- would she have chosen a less expensive school, or taken fewer courses, if she'd known that her tuition wouldn't be 100% reimbursed? To FMK - You ask us, several times, "is this legal?" This message board (or any website) isn't the place to find legal opinions, interpretations, or advice. You really do need to rely on an attorney for resolution of a legal problem. I sincerely hope things work out for you.

The answer depends on both the type and timing of the corrective distribution. Excess deferrals (exceed the 402(g) limit) - No withholding requirement Excess contributions (ADP failure) - No withholding requirement if distributed within 2-1/2 months. I.R.C. Sec. 3405 applies after 2-1/2 months. Excess aggregate contributions (ACP failure) - No withholding requirement if distributed within 2-1/2 months. I.R.C. Sec. 3405 applies after 2-1/2 months. Sec. 415 annual additions - Subject to the rules of I.R.C. Sec. 3405.

AlaskanAtHeart, First, I send my best thoughts for your husband's safety and well-being. If he's overseas right now, I hope he'll be back with you and your family very soon. Second, let's hear it for homemakers, who do one of society's most demanding and important jobs. Concerning your question about your husband's nontaxable compensation... As you mention, military pay for service in a combat zone or qualified hazardous duty area is excluded from taxable income [i.R.C. Sec. 112]. The nontaxable compensation doesn't "count" for the purposes of figuring an IRA contribution. There's a helpful discussion and example at Notice 2003-21, Q&A 35, 2003-17 IRB 817.

Firefly, No, the income isn't subject to FICA taxation, SE or otherwise. For the amounts deferred in excess of the Sec. 402(g) limit, FICA taxes have already been withheld -- at the time of deferral. As for the allocated plan income, there's no FICA taxation applicable. The taxpayer simply reports the total amount as ordinary taxable income.

He Who Blinks, Why did you put little "hats" within your equations? Is this something for real, or did you make it up just to confuse us? And, how come nobody warned me that there'd be any math in this class? Would someone please give me the Cliff Notes?

SCA, I have to agree with Tom. The I.R.C. Sec. 4979(a) excise tax is paid by an employer, not by a plan participant. In this situation, neither employer has any reason to file Form 5330 or pay a tax. For the individual participant, the excess deferral (and allocated income) is ordinary taxable income. Also, as I mentioned previously, the individual gets $0 tax basis in what is, in effect, an after-tax plan contribution.

I just received a brochure for a SunGard Corbel "Nonqualified Deferred Compensation Plan Workshop". Given the recent changes in this area, including the new I.R.C. Sec. 409A, I'm very interested in the program. Is anyone planning to attend this workshop? Do you have any thoughts or suggestions? If you and I both attend, will you have lunch with me?

Have you considered whether the individual is at least 50 years old and if either plan allows catch-up contributions? If yes and yes, the individual has some "wiggle room" and, depending on the actual amounts involved, might not have an excess deferral after all. If that approach doesn't work, the individual should get her excess deferral (along with allocated income) distributed no later than 04/15/05. Otherwise, (1) the amount is 2004 taxable income, (2) the money has to stay in the plan until there's a qualifying event, and (3) the individual gets $0 basis in the money, even though she's already paid tax on it. Distributions are treated as elective deferrals and included in taxable gross income. For all the grisly details, please see Reg. Sec. 1.402(g)-1(e)(8)(iii). As you mention, neither plan is responsible for identifying and correcting the employee's situation. She has to work with one or both of her employers to fix the problem.

The taxable amount involved in a converting a traditional IRA to a Roth IRA is disregarded for determining MAGI. In other words, a taxable conversion doesn't defeat itself by pushing the taxpayer's MAGI over the prescribed limit. You might want to take a look at Reg. Sec. 1.408A-4, Q&A 9. Norman, I just gave you the brief and simple answer. I hope I've answered your question, but I know that I haven't given you any tax advice. The calculations for MAGI can get very complicated, depending on the specific character of a taxpayer's other income, gains, and losses. Please consult with a tax advisor for more information.

When a retirement plan (defers compensation; subject to a vesting schedule) changes its name, I.R.C. Sec. 6057 and its regulations provide some very clear rules about reporting the change. The plan administrator attaches an explanation to Form 5500 filed for the year of the change, and a failure to notify may result in a penalty. What about a welfare benefit plan that's required to file Form 5500? I can't find any similar rule for reporting a welare benefit plan's name change. Has anyone ever encountered this situation? I'm guessing that a welfare plan isn't required to report a name change, but that it's probably a really good idea to do so. Would you follow the same procedure as for a retirement plan? Example: the "Schlomo Brothers Health Plan" becomes the "Al & Greg Schlomo Health Plan"; would you attach a statement to Form 5500? (NOTE. The plan sponsor's name hasn't changed, so Form 5500, Line 4 isn't used.)

A message to He Who Has Fins, How have you been lately?

Maac3, Right now, there's a helpful discussion about this same issue at the "Distributions and Loans from Ret Plans" forum. I'd give you a link to the ongoing discussion, but I'm just not that computer savvy. Sorry!

Here's the pattern of IRS holdings and rulings: Health club dues and fees aren't deductible medical expenses if the expenses are for general health, weight loss, or well-being. This is true even if the individual is following a physician's advice. If the membership is prescribed as necessary to treat or alleviate a specific illness, disease, or condition, however, the costs are generally deductible. See Rev. Rul. 2002-19 for a discussion of how obesity is considered to be a disease in and of itself; a diagnosis of obesity is usually sufficient to allow the deduction. So, it's irrevelant whether a physician has "prescribed" or otherwise recommended a health club membership. What matters is the reason for the advice -- "get off your couch and lose some weight" vs. "swimming is good therapy for your arthritis pain". There's some helpful language in IRS Pub. 502.

Aw, gee, Andy, I was all ready to apply to Bartenders Academy.

Can an employer do a safe harbor match if it didn't distribute a notice to participants?

nlmc18, The bottom line is still the same -- no Form 5500. Your employer must limit the benefit to job-related training and education? This would be a "working condition fringe" -- the employer deducts its costs as ordinary and necessary business expenses under I.R.C. Sec. 162, and the benefits are excluded from the employee's gross taxable compensation under I.R.C. Sec. 132(d). Working condition fringe benefits aren't classified under the "fringe benefit plan" umbrella and aren't subject to Form 5500 filing requirements.

In general, the permitted disparity rules apply to SEP contributions. See I.R.C. Sec. 408(k)(3)(D). I believe that both SAR-SEPs and model-SEPs (Form 5305-SEP) can't be integrated.

Usually, compensation and earnings increase as a career progresses. At age 27, you're probably earning much less now than you can expect to be earning in 10 or 20 years, when you'll have an extensive professional background and very marketable job skills. You can make a contribution to a Roth IRA if your modified adjusted gross income (MAGI) doesn't exceed certain levels. For a single taxpayer, the annual Roth IRA contribution phases out between $95,000 - $110,000 MAGI. This can be a very compelling reason to contribute to a Roth IRA now, while you're still eligible, rather than waiting until you're older. By the time you're otherwise ready to contribute, your income levels could prevent you from doing so.

Effective 01/01/04,an employer adopted a regional prototype PSP with a 401(k) provision. Employer accidently checked a box to state that HCEs aren't eligible to participate. This is wrong wrong wrong and certainly wasn't the employer's intention. The HCEs enrolled in the plan last year and made elective deferrals contributions throughout 2004. How can this problem be fixed? Can the employer make a retroactive change to the adoption agreement? Does the employer need to use a correction program and pay a user fee? Thank you in advance. I slipped on some ice yesterday and broke my arm and wrist. Today, I'm trying to get some work done and am reaching out for whatever help I can find.

Dave, your comment caught my attention. Does the VEBA forum tend to have ruder or nastier postings than the message board in general?

Kirk, your clarification is noted. A VEBA is an I.R.C. Sec. 501©(9) exempt organization that accumulates resources for the payment of certain welfare benefits. As a tax-exempt organization, a VEBA is subject to the Form 990 filing rules. A VEBA isn't necessarily a trust. VEBAs are often formed as corporations or unincorporated associations. Because a VEBA may be subject to unrelated business income taxation on its non-exempt function income, it can be advantageous to use a form of entity other than a trust. Income is taxed at the corporate rates if the VEBA exists as a corporation or association, but at the higher trust rates in the case of a trust.

Too bad we can't keep statistics about the messages that annoy the greatest number of people. I'm sure that the New England sports fan posts would win, hands down and no contest. I'm very pleased and proud to contribute to that general level of aggravation.

An I.R.C. Sec. 127 educational asistance program is a "fringe benefit plan" within the meaning of I.R.C. Sec. 6039D(d)(1). A few years ago, the IRS suspended the Form 5500 filing requirement for fringe benefit plans. See IRS Notice 2002-24 for more information.