masteff

I would redirect you to Notice 2008-1: "In order for the 2-pecent shareholder-employee to deduct the amount of the accident and health insurance premiums, the S corporation must report the accident and health insurance premiums paid or reimbursed as wages on the 2-percent shareholder-employees Form W-2 in that same year. In addition, the shareholder must report the premium payments or reimbursements from the S corporation as gross income on his or her Form 1040, U.S. Individual Income Tax Return." Per this, the S-corp is required to pay it post-tax which is completely allowed by Notice 2013-54. You might also consider Rev Proc 2014-41 and Reg 1.162(l)-1T which discuss the interaction of 162(l) and the premium tax credit. http://www.irs.gov/pub/irs-drop/rp-14-41.pdf https://www.federalregister.gov/articles/2014/07/28/2014-17695/rules-regarding-the-health-insurance-premium-tax-credit Edit: Here's the part from 2013-54 which says after-tax is okay... "An employer payment plan, as the term is used in this notice, does not include an employer-sponsored arrangement under which an employee may choose either cash or an after-tax amount to be applied toward health coverage. Individual employers may establish payroll practices of forwarding post-tax employee wages to a health insurance issuer at the direction of an employee without establishing a group health plan, if the standards of the DOL’s regulation at 29 C.F.R. §2510.3-1(j) are met."

I agree w/ J Simmons. The prohibition on pre-tax payments for employee's individual health insurance policies results from rules specifically addressing group health plans. See Notice 2013-54. As J Simmons notes and as discussed in Notice 2008-1, the S-corp 2% shareholder deduction is by virtue of it being a business expense for a self-employed person. Technically speaking, it is deducted from AGI, rather than excluded from AGI (pre-tax payroll deductions are excluded from AGI which is why you don't deduct them on your tax return).

From Reg 1.408A-6: "Q-7. Is the 5-taxable-year period described in A-1 of this section redetermined when a Roth IRA owner dies? A-7. (a) No. The beginning of the 5-taxable-year period described in A-1 of this section is not redetermined when the Roth IRA owner dies. Thus, in determining the 5-taxable-year period, the period the Roth IRA is held in the name of a beneficiary, or in the name of a surviving spouse who treats the decedent's Roth IRA as his or her own, includes the period it was held by the decedent. (b) The 5-taxable-year period for a Roth IRA held by an individual as a beneficiary of a deceased Roth IRA owner is determined independently of the 5-taxable-year period for the beneficiary's own Roth IRA. However, if a surviving spouse treats the Roth IRA as his or her own, the 5-taxable-year period with respect to any of the surviving spouse's Roth IRAs (including the one that the surviving spouse treats as his or her own) ends at the earlier of the end of either the 5-taxable-year period for the decedent or the 5-taxable-year period applicable to the spouse's own Roth IRAs."

Speaking solely to this bit: It could be that the employer did it deliberately but it just as easily could be that they simply didn't turn off the deduction in their payroll software. Don't presume it was correct, but on the other hand, it was done so take it into account when reaching your conclusion.

Does the plan document address breaks in service? My gut reaction is that where the person had a 12-month break then they should not be counted until their return date, but I could be applying my personal experience with a plan that had a definite break in service rule. That might also be something to check in your program, whether you're missing a setting for a break in service rule.

Be careful when you say "fix" because one of the worst things you could do would be something that might reopen a closed tax year to audit risk.

The grey line to be wary of is taking general information and applying it to someone's personal tax situation. Anything including the words "best option" should generally be avoided. Given the person is in TnCare, I did a google search and found this link: http://www.tn.gov/sos/rules_all/2010/1240-03-03.20101029.pdf Based on page 14, it sounds like someone might have advised her to put the money in a "Miller trust" aka "qualified income trust or QIT" (not to be confused with a trust associated with a qualified plan). If this is the type of trust being referred to, then because it is not a qualified plan or an IRA, it is not eligible to receive a rollover and therefore any distribution made to it will be taxable income (which is just repeating what the tax notice says). That is where you hit the grey line. Analysis beyond that point is likely to be tax advice. The participant will need to consult with other competent advisors to determine whether that is an appropriate choice for her to make. And the fact that it potentially impacts her eligibility for TnCare certainly puts it outside of what you should be willing to comment on.

I concur w/ all of My2Cents' post. Who, if not Gloria, and why? What change would they make that differs from the relevant intestate succession (perhaps to include a "step" relation)?

What if it was simply a payroll error? So they pay it on the next paycheck plus interest? The money was deducted prior to the plan effective date, so I think it technically was not a valid deferral, and the money never went into the plan.

"(3) Safe harbor alternative definition. Under the safe harbor alternative definition in this paragraph ©(3), compensation is compensation as defined in paragraph ©(2) of this section, reduced by all of the following items (even if includible in gross income): reimbursements or other expense allowances, fringe benefits (cash and noncash), moving expenses, deferred compensation, and welfare benefits." My opinion is that a car allowance would fall under either "other expense allowances" or "fringe benefits". It's not based on being included in W-2 income because of the words "even if includible in gross income".

Not likely - 1) that question was 2 years old when the new question was added to the thread - since old threads aren't locked, keep an eye on the posting date to know what's old vs new activity - and 2) the HSA/HRA landscape has changed with new rules going into effect on 1/1/14 so the original poster would be better served to start a new thread based on current facts http://www.dol.gov/ebsa/newsroom/tr13-03.html

Some of the 125 rules are in the proposed regs which are harder to find because they are not listed in normal places like the eCFR. I believe but am not certain that this is the latest: http://www.irs.gov/irb/2007-39_IRB/ar14.html From the preamble at that link: "The new proposed regulations retain the rule that the maximum amount of reimbursement from a health FSA must be available at all times during the period of coverage (properly reduced as of any particular time for prior reimbursements). The uniform coverage rule does not apply to FSAs for dependent care assistance or adoption assistance."

Send him this link and point him to the first bullet point under #4. http://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Topics---Prohibited-Transactions

I missed the entry date bit of that when I answered. - I personally dislike the use of entry dates. It seems unnecessary and bureaucratic. My question would be whether participants who previously participated but dropped to a zero percentage (for reasons other than hardship) are allowed to make a change in deferral percentage at times other than the entry dates. And less specifically, whether other participants are allowed to change their % between entry dates. I would then be consistent in applying that practice to someone returning from hardship suspension.

Concur w/ John. Prior discussion: http://benefitslink.com/boards/index.php?/topic/54786-401a9-ownership-change-after-year-of-70-12/

My first answer is: what does the plan document say? My second answer it: is this administrative procedure applied consistently to all employees at the end of a suspension or are any HCEs treated differently? I have no problem w/ their chosen administrative procedure unless it contradicts the plan. These prior threads may be of some insight... http://benefitslink.com/boards/index.php?/topic/38830-hardship-and-resumption-of-contributions/ http://benefitslink.com/boards/index.php?/topic/35787-hardship-distribution-suspension-period/ http://benefitslink.com/boards/index.php?/topic/15637-hardship-distribution-suspension/

I didn't address the 2nd question in your original post because while it may have seemed valid at the time you asked it, when the definition of the word "year" is applied to the Code, the question becomes moot for the exact reason you state. You would have to screw up the effective date of the plan (such as by making it effective 8/31/2014, rather than 9/1/2014, with a 9/1-8/31 plan year) for the terminated employee in question to receive a benefit.

The code citation is 408(p)(2)(D), which cross-references 219(g)(5)(A) & (B) which is a list that includes 408(k). SIMPLE IRA is 408(p), SEP IRA is 408(k).

I think the parenthetical is speaking more towards the calculation of the amount distributed, such as applicable vesting or a restriction on a specific source (such as an in-service of deferrals which should have been subject to the hardship rules) or even allowing an in-service when such didn't exist in the terms of the plan. I'd think it could also be the form of distribution, such as a lump sum in a plan with a QJSA. Anything that is outside what the plan otherwise allows. From what you describe, the distribution was done before the determination date but was otherwise, such as the amount and form, in accordance with the terms of the plan.

Code 408(k)(7)©: "© Year The term “year” means— (i) the calendar year, or (ii) if the employer elects, subject to such terms and conditions as the Secretary may prescribe, to maintain the simplified employee pension on the basis of the employer's taxable year." But as noted above, only if you don't use the IRS model as it explicitly says calendar year.

I think it's appropriate because I think your situation qualifies for the special rule in paragraph F on page 96: http://www.irs.gov/pub/irs-drop/rp-13-12.pdf

You don't specify what part of EPCRS you're looking at... I assume it's 6.06? Note the sentence I've underlined: "(b) Make-whole contribution. To the extent the amount of an Overpayment adjusted for Earnings at the plan’s earnings rate is not repaid to the plan, the employer or another person must contribute the difference to the plan. The preceding sentence does not apply when the failure arose solely because a payment was made from the plan to a participant or beneficiary in the absence of a distributable event (but was otherwise determined in accordance with the terms of the plan (e.g. an impermissible in-service distribution))." My opinion is you can self-correct under SCP which at this point basically means documenting the new procedures you've put in place to ensure it doesn't happen again.

Has the individual inquired into the withdrawal liability of the withdrawn employers? I have no idea if the 5500 would reflect this liability but I would presume the plan's audited financials (at the very least in the footnotes) would report about it. Combine that info with Effen's analysis above. http://www.wickenslaw.com/wp-content/uploads/2012/01/Multi-Employer-Pension-Plan-Withdrawal-Liability.pdf

Oh, and review the results in the payroll system to make sure you're happy with how it handles it if the employee has any other payroll deductions. For example, if it takes the deferral and doesn't take, for example, pre-tax medical then you have a potential problem for your 125 plan. More sophisticated payroll software let's the user define their deduction hierarchy. It can get complicated deciding how to rank the multitude of deductions they end up w/ in larger corporations.

See "voluntary wage assignment" here: http://www.twc.state.tx.us/news/efte/allowable_deductions.html