masteff

Code Section 408A(d)(2)(A)(iv) says a qualified distribution includes a "qualified special purpose distribution". 408A(d)(5) defines a "qualified special purpose distribution" by reference to 72(t)(2)(F) which is the first time home buyer exception. That then takes you to 72(t)(8)(D)(i) which is the basis for what you read in Pub 590 about the 2-year period of nonownership. "(D) First-time homebuyer; other definitions For purposes of this paragraph— (i) First-time homebuyer The term “first-time homebuyer” means any individual if—(I) such individual (and if married, such individual’s spouse) had no present ownership interest in a principal residence during the 2-year period ending on the date of acquisition of the principal residence to which this paragraph applies, and (II) subsection (h) or (k) of section 1034 (as in effect on the day before the date of the enactment of this paragraph) did not suspend the running of any period of time specified in section 1034 (as so in effect) with respect to such individual on the day before the date the distribution is applied pursuant to subparagraph (A)." (And for the purpose of (II), it's highly unlikely that section 1034 applies given it was repealed by TRA97 http://www.law.cornell.edu/uscode/text/26/1034 )

If they really did not have a check, then as said above, it was an error. But if they did have a check, which is possible with things like final pay and unused vacation, then the check and the deferral might be valid. You didn't specify the time difference between the term date and the date of the deferral. You might read thru the following thread: http://benefitslink.com/boards/index.php?/topic/39452-payroll-period-crosses-plan-years-participant-terms-mid-pay-period/

It does seem odd a system won't allow because it shouldn't matter the source or taxability of the funds if the participant requests it. Theoretically, participants should be able to elect 100% withholding and a system allow it. Perhaps you need to try a different withholding option if it has one (for example if it has a "20% mandatory" box versus an optional "other" percent in which you could enter 20%). If all else fails I'd contact the system provider and ask them how to process it because this participant can't be the only one who's ever wanted w/holding from this type of w/drwl. Who knows, might be some obscure setting you need to change.

Agree.

If you have it all in one account and if one of the 4 takes a taxable distribution, then by all means, I'd agree that you could count that as the MRD for the account.

I've only ever divided the account into individual accounts so that each bene has a separate calc. But they were truly separate accounts under each bene's SSN. If you don't split the account, then yes, use the oldest bene. Let's make it really messy... what if one bene wants a full distribution in the form of a nonspouse rollover? Applying the full MRD to that bene would significantly reduce the rollover eligible amount. So if you applied the full MRD to that one, what if another bene asked for the same two months later? Since you applied the MRD to the first bene, the 2nd would have no MRD requirement and could rollover a larger amount than the 1st was allowed. Individual accounts are the way to go.

Have you talked to the DOL? It's worth a phone call even if they end up saying you need to get your own expert. In which case I'd start w/ an actuary and depending on what they say, then talk to an atty who specializes in the ERISA and/or HR law. I will just warn you... your first sentence mentions "fairness". Nothing in the law requires fairness. It prevents discrimination in favor of the highly compensated, but nothing about being fair.

Assuming your intent is that participants can max PS at 6% regardless of comp like in your scenario, the easiest way to do it is to not apply the comp limit inside the calculation but at the result. Remember that while you can't use more than the comp limit in determining a benefit, you can control how and where it gets applied. All your payroll software need to is complete the calc and then apply an annual limit on the PS contribution itself. To apply this logic to your scenario above: Lesser of { 6% * ($504K-$104K) + 3% * $104K } or { 6% * $250K } which equals Lesser of { $24K + $3120 } or { $15K } Since the person received $13,500 in PS for January, then in February, they'd receive an additional $1,500. In March, you again do the calc, but the person's already maxed out so they get $0 additional PS. The PS benefit that the participant receives is in full compliance with the comp limit. Of course a lot of payroll software cannot handle a YTD calc so you'd still want to review at year end for possible true ups.

Am I missing how this is NOT a trick question? Last I understood the rule, a plan can't allocate contributions over the comp limit. So PS should cut off at the comp limit. When the OP is doing an annuallized calc, he has to cap the comp or the calc will always look short. If the company wants to give PS to HCE's above the comp limit, it has to be in non-qualified plan. Or have I missed a major change in the last couple of year? Larger companies often do this frequently. I had plans that had both match and PS, both were paid per payroll but the match had a true up. If your payroll system is properly programmed, PS should never need a true up.

You plan documents may also specify the proper manner to make a beneficiary designation. Ours stated that a beneficiary designation was only valid if completed on the proper form and if properly received by the plan administrator (ie the Benefits Department). We wouldn't have cared if a document was witnessed by the President and notarized by the Chief Justice; if it wasn't on the right form and properly submitted, we rejected it. And I wouldn't open the can of worms of accepting a will as a beneficary designation. You didn't receive it from the participant. What's to keep you from then having to accept every ad hoc beneficiary designation that an heir pulls out of the bottom of some drawer.

IRS Code Section 402©(4) in defining an "eligible rollover distribuiton" says in part: "except that such term shall not include— (A) any distribution which is one of a series of substantially equal periodic payments (not less frequently than annually) made— (i) for the life (or life expectancy) of the employee or the joint lives (or joint life expectancies) of the employee and the employee’s designated beneficiary, or (ii) for a specified period of 10 years or more," I'll throw this out for all the actuaries... could the plan offer a series of payments that was for less than 10 years (say, for example, 3 years) and achieve what the OP is asking?

1) Just my opinion but I think you underestimate the IRS' computers. Although I wonder how well it handles multiple year scenarios like this. 2) That's changed in recent years. See this notice and also Form 5498. http://www.irs.gov/pub/irs-drop/n-02-27.pdf But you may be correct w/ respect to inherited/beneficiary IRAs.

MJB, the fact pattern doesn't fit your solutions. - In April 2004, taxpayer made a contribution for 2003 but failed to mark a box indicating to the IRA company that it was a prior year contribution. - Later in 2004, taxpayer made a contribution for 2004 using a different IRA company. - In 2005, both IRA companies issued 5498's for 2004. This is a 5498 error at most. Also, under what authority would the IRS be able to go back and audit that tax year to even find it?

I agree with Bird. The Service will match the TIN to the plan, possibly check the 5500 to see that some form of earnings were noted there and that will be the end of it.

Speaking strictly from a personal point of view and not giving anything which should be considered any form of advice, I would have to ask myself whether that income tax year was still subject to IRS audit and if it was not then I would personally and only for myself conclude that it was better to leave it alone than to do anything that might reopen the IRS's authority to audit said tax year. But that's only my personal opinion and shouldn't be taken as anything more than that. After rereading your original post, you didn't double contribute for 2004. The recordkeeper made a simple notational error in 2004 on your 2003 contribution. It's insignificant and immaterial. No harm, no foul. I would personally ignore it and move on.

Ah! I thought it was more of a question and was agreeing w/ you.

I still stand by my previous statement. If you have sufficient knowledge to determine that they qualify as disabled (and hopefully have some sort of documentation for your files) then, yes, use code 3. I can't think of anyone that I ever paid out under code 3 who had not previously been terminated from employment (generally under long term disability but we had a few qualify under SSA definition). (For what it's worth, I saw a dozen or more disablities in 8 years at a large corporation in retirement plan administration with 4 DBs, 4 DCs, 4500 employees and 1500 terms/retirees.)

Agree. A default is simply a default, not a hardship. In previous threads about a participant's ability to stop payments on a loan, the board has come to mixed conclusions. Part of the argument centers on what the loan policy and agreement say about how payments are to be made. The argument then debated preemption of state law as it applies to 401(k) loans and payroll deduction agreements. My opinion is if you think the participant was simply trying to bypass in-service distributions rules, then you might make some hassle to stop the payroll loan deduction. But where the loan is taking nearly their entire net paycheck, I don't see valid reason to prevent the change.

IRS Publication 590, see the top of page 34 "Owner died before RBD". Also see bottom of same page, "Spouse as sole designated beneficiary". http://www.irs.gov/pub/irs-pdf/p590.pdf

Is the problem that you're uncertain about the words "capital or profit interest"? You might review Schedule K-1 Line J Form: http://www.irs.gov/pub/irs-pdf/f1065sk1.pdf Instructions: http://www.irs.gov/pub/irs-pdf/i1065sk1.pdf Also Rev Proc 93-27 http://pmstax.com/ftp/part/rp9327.pdf or http://www.tax-charts.com/charts/rev_proc_93_27_print.pdf Beyond that, do your best to do what's reasonable and err on the side of being conservative.. This article from 2007 discusses the fact that "profit interest" is lacking sufficient definition in the Code and Regs. http://www.kattenlaw.com/files/Publication/f8cac11d-17f7-45ba-9914-14b15c8f5772/Presentation/PublicationAttachment/e7ee46a8-dc9f-40c3-abbd-17882c37da78/Banoff_MAG_03-07.pdf

Assuming, as ETK questions, your plan says the default beneficiary is the surviving spouse, you'll want to review form W-8BEN. I think but am not positive that form will require that she get a TIN (tax id number).

http://www.census.gov/econ/smallbus.html See also: http://www.bls.gov/ and http://www.census.gov/econ/census/ But that still doesn't answer the employer group question.

It would certainly take some complex data mining for the IRS to figure it out. An easy cross-check is to run Mary's W-2 against payroll data for that employer and see if the number is reasonable. The wild and crazy cross-check would be to get the employer's EIN from the payroll data and then run it for K-1's and 1099-DIV's and look to see if any two reciepents of those had other K-1's or 1099-DIV's in common. I think the actual risk of discovery would be during an audit of the employer and the Service then doing the K-1/1099-DIV search. But I have no idea if that's part of their audit protocol.

I have no personal experience with Penchecks, which Bird suggested above, but I do know it gets recommended a lot on here by a variety of people. Certainly worth the time for the plan sponsor to get pricing.

The question on the 5500 is about whether deposits were transmitted timely, not posted to the trust. You need to review how and when the employer sent the deposit. If it's being sent by mail, that accounts for 2-5 days and if it's ACH, that can account for 1-3 days.