masteff

IRS Pub 575 page 28: "Rollover by surviving spouse. You may be able to roll over tax free all or part of a distribution from a qualified retirement plan you receive as the surviving spouse of a deceased employee. The rollover rules apply to you as if you were the employee. You can roll over the distribution into a qualified retirement plan or a traditional or Roth IRA." (emphasis added) As to the 5-year rule, yes, the rollover satisfies that but best to do it by year 4. See this thread for discussion about year 4 vs year 5: http://benefitslink.com/boards/index.php?s...47057&st=15 As to rolling it to her regular EE account in the same plan: I'm not aware of any problem. Her regular EE account is separate and distinct from her account as a beneficiary. But I'd welcome if anyone knows of any rule I'm missing on that one. @ETK - thanks to a lively discussion two years ago, I can state that the spouse CAN elect the 5-year rule. http://benefitslink.com/boards/index.php?s...47057&st=15 However this would likely only be beneficial if a) the spouse was older than the EE and the EE was close to 70 1/2 or b) in the case of a poorly written document that excluded the spousal exception.

I agree. The employee is most likely a cash basis taxpayer. If repaid in 2012 then reporting, if any, will be for 2012. This does mean the EE will pay taxes on the income in 2011 and then have reduced taxable income in 2012. The EE should be suggested to consult a competent professional tax adviser.

I agree. Correct the IRA's designation. Might have to show a few years of tax returns to the local institution to prove it was being treated as Roth. If that can't be accomplished then your CPA friend needs to stop and think thru what the consequences are otherwise... namely that instead of Roth contributions these would be non-deductible traditional contributions (keep in mind that I can elect to make non-deductible traditional IRA contributions even if I'm below the phase out limits). Second, the 3 year limit pertains to claiming credits and refunds. It does not preclude amending all 10 years. Since the taxpayer did not deduct the contributions then he has zero tax effect. All he'd be doing is fixing a paperwork error (ie Form 8606) that has relevance because it would establish basis in the non-deductible contributions. Only two problems, one: he'll want to attach a letter explaining that he mistakenly thought the money was going in as Roth rather than non-deductible to try to avoid the penalty for not filing the old 8606s, and two: there's a slight but real audit risk. But first and foremost is to try getting the IRA correctly designated as Roth.

Seems that it's a wide spread question: http://boston.cbslocal.com/2012/02/14/angr...ait-and-switch/ I'm totally confused by the concept that finding something during a "preventative" procedure makes it no longer preventative. Isn't the purpose of a preventative procedure to find something before it gets out of hand?

I think you also need to consider the intent of the provisions in EGTRRA which greatly broadened rollovers between various types of plans. The IRS has a fairly clear mandate from Congress to facilitate the movement of monies from plan to plan and account to account. The worst case scenario under the 2nd part of Q&A-14 is that the receiving plan has to boot out any rollover that ultimately is determined invalid. The receiving plan has no risk of disqualification so it has no reason to be a hard case about screening incoming money. Granted, you are the one who has to be satisified with respect to the plans you administer. Just be careful that you're not overstating the actual risk or what that risk is. As to the people who say "but what about Fidelity/Schwab etc", the IRS is a great scapegoat. "that's between them and IRS, I just know that if the IRS ever knocks on my door that I'll have to show that I checked whether it was a valid rollover." As to getting a statement from the former plan, if you're not doing so, I would advise having your own fill-in-the-blank form that can be easily signed and faxed back to you. It goes over much better than "you need to ask them for a letter".

This older thread: http://benefitslink.com/boards/index.php?showtopic=28856 matches what I was taught to use: does the school or trade program qualify for financial aid programs from the Dept of Ed? But that's not to say an alternative standard might not be acceptible.

The stated standard is "the plan administrator of the receiving plan reasonably concludes that the contribution is a valid rollover contribution". Since some employees don't consult before bringing in a check, my first place to look was the check and accompanying documentation. If I could satisfy myself from that then I would stop there (eg, name of disbursing plan, indications of taxable nature of the money, the words "rollover distribution", 1099-R codes, "special tax notice", etc). Sometimes, if you ask, the participant received a statement with the check that has all the evidence you need. But if I wasn't satified, then we had a simple form for the other plan to sign off on (basically the statement from former plan that the original post mentioned).

What does your plan say? Did the deceased have a beneficiary designation form on file with the plan? If so, then you follow that. Otherwise, what does the plan say about the default beneficiary? Follow that. You now have a death certificate which triggers your process to determine the proper beneficiary under that plan. You then payout to the proper beneficiary. If you ultimately determine that it's the estate, then you can proceed down that road. You might review this recent thread as well: http://benefitslink.com/boards/index.php?showtopic=50844

Don't get caught up in the example and miss the first sentence: "In general, no, a refinancing cannot qualify as a principal residence plan loan." More details are needed, especially when was the purchase of the house. The Code uses the phrase "used to acquire". There is a grey line that you cross over where a new plan loan is too far away from the purchase date to be considered an acquisition.

IRS Reg 1.72(p)-1 Q&A-8 "Q–8: Can a refinancing qualify as a principal residence plan loan? A–8: (a) Refinancings. In general, no, a refinancing cannot qualify as a principal residence plan loan. However, a loan from a qualified employer plan used to repay a loan from a third party will qualify as a principal residence plan loan if the plan loan qualifies as a principal residence plan loan without regard to the loan from the third party. (b) Example. The following example illustrates the rules in paragraph (a) of this Q&A–8 and is based upon the assumptions described in the introductory text of this section: Example. (i) On July 1, 2003, a participant requests a $50,000 plan loan to be repaid in level monthly installments over 15 years. On August 1, 2003, the participant acquires a principal residence and pays a portion of the purchase price with a $50,000 bank loan. On September 1, 2003, the plan loans $50,000 to the participant, which the participant uses to pay the bank loan. (ii) Because the plan loan satisfies the requirements to qualify as a principal residence plan loan (taking into account the tracing rules of section 163(h)(3)(B)), the plan loan qualifies for the exception in section 72(p)(2)(B)(ii)."

So this is a recordkeeping fee, right? In which case, I'm calling BS on their citations. From what I can find on 86-142, it dealt with brokerage commissions, which in another PLR the Service contrasts with "recurring administrative or overhead expenses incurred in connection with the maintenance of Plan B." http://www.unclefed.com/ForTaxProfs/irs-wd/2001/0127031.pdf And seach in this document: http://www.wickenslaw.com/wp-content/uploa.../Chapter-05.pdf for those PLR numbers.

http://www.irs.gov/retirement/article/0,,id=103045,00.html The last Q&A on this IRS page affirms my understanding... the reg says "age 59 1/2", not the year you reach age 59 1/2. Therefore it is to the exact day.

If he has any after-tax contributions, that'll make it slightly messier (refer to your special tax notice on which parts of after-tax monies can and cannot be rolled over to a QP via the 60-day rule).

My one thought: If you click the drop down by the person's name, one option is "forward PM". You could then send it to Dave Baker and ask him to review for possible spamage.

1) benesmart.org claims to have been in business since 1998 but their domain registration is dated 1/31/2012. And tools like the Internet Wayback Machine have no history on them. 2) BeneSmart is a trademarked product of a company calle BeneSyst in Minneapolis MN and appears to be totally unrelated to benesmart.org http://www.benesyst.net/Services/Enrollmen...enesmart50.aspx Draw your own conclusions.

So this must be a discretionary match? Otherwise, by what mechanism did they not match the common law employees for 1/2 the year? If they made a proper change in the match rates, what did the mid-year change actually say? Arguably, you need to read the exact wording of whatever action was taken to restart the match and interpret from that. You might be able to make the case for only using 1/2 of the K-1 comp. Next time it'd be nice if they'd use unambiguous words like "40% of deferral up to 10% of either: a) for partners, 1/2 of annual comp or b) for common law employees, the comp received after 7/1."

The benesmart website says that persons named Michael Purr and Chris Peck are principals in the company. A simple google search reveals that these two individuals have a history of being investigated for violation of insurance regulations. For example: http://www.floir.com/siteDocuments/ifogreencross.pdf Draw your own conclusion.

Isn't this what I pay an actuary for? I did actually give some minor thought when the news reported about a local "leap" baby.... In simple terms, being born or dying on a leap day is a 1 in 1461 event (365*3+366). Of course then I got to thinking about charts showing the seasonal fluctuation of birth and death rates... and that's when my brain switched back to the weather forecast. http://abcnews.go.com/Health/Science/story?id=990641

I'll redirect you to the regulation I quoted and permit you to reach your own conclusion. When you re-read the next to last sentence, keep in mind that "e.g." means "for example" and is not an exclusive list of possibilities. Of course the ability of an active employee to default on a loan is an entirely different discussion: http://benefitslink.com/boards/index.php?showtopic=39392

See your 402(f) (aka "Special Tax") notice. I'm not sure if it's the absolute latest version but from Notice 2009-68: "SPECIAL RULES AND OPTIONS If your payment includes after-tax contributions After-tax contributions included in a payment are not taxed. If a payment is only part of your benefit, an allocable portion of your after-tax contributions is generally included in the payment. If you have pre-1987 after-tax contributions maintained in a separate account, a special rule may apply to determine whether the after-tax contributions are included in a payment. You may roll over to an IRA a payment that includes after-tax contributions through either a direct rollover or a 60-day rollover. You must keep track of the aggregate amount of the after-tax contributions in all of your IRAs (in order to determine your taxable income for later payments from the IRAs). If you do a direct rollover of only a portion of the amount paid from the Plan and a portion is paid to you, each of the payments will include an allocable portion of the after-tax contributions. If you do a 60-day rollover to an IRA of only a portion of the payment made to you, the after-tax contributions are treated as rolled over last. For example, assume you are receiving a complete distribution of your benefit which totals $12,000, of which $2,000 is after-tax contributions. In this case, if you roll over $10,000 to an IRA in a 60-day rollover, no amount is taxable because the $2,000 amount not rolled over is treated as being after-tax contributions. You may roll over to an employer plan all of a payment that includes after-tax contributions, but only through a direct rollover (and only if the receiving plan separately accounts for after-tax contributions and is not a governmental section 457(b) plan). You can do a 60-day rollover to an employer plan of part of a payment that includes after-tax contributions, but only up to the amount of the payment that would be taxable if not rolled over."

You answer your own question... your plan says "other than an in-service distribution". In your scenario, you have no mechanism in your plan to cause a loan offset. The participant would have to do it in three steps: 1) distribution of available funds, 2) pay off the loan, 3) 2nd distribution of remaining balance. From Reg 1.402©-2 Q&A-9: "(b) Definition of plan loan offset amount. For purposes of section 402©, a distribution of a plan loan offset amount is a distribution that occurs when, under the plan terms governing a plan loan, the participant's accrued benefit is reduced (offset) in order to repay the loan (including the enforcement of the plan's security interest in a participant's accrued benefit). A distribution of a plan loan offset amount can occur in a variety of circumstances, e.g., where the terms governing a plan loan require that, in the event of the employee's termination of employment or request for a distribution, the loan be repaid immediately or treated as in default. A distribution of a plan loan offset amount also occurs when, under the terms governing the plan loan, the loan is cancelled, accelerated, or treated as if it were in default (e.g., where the plan treats a loan as in default upon an employee's termination of employment or within a specified period thereafter). A distribution of a plan loan offset amount is an actual distribution, not a deemed distribution under section 72(p)."

If you're concerned that your plan doc suggests the loan should be offset upon a complete distribution (regardless of whether the participant is active or terminated), then if the participant has the option to take less than a complete, then simply suggest that he leave, say, $500 in the account to avoid the tax consequences of the loan being offset. This keeps the account and the loan intact.

Did he also make the max contribution in prior years such that the pattern supports the intent?

Has the DOL ever provided guidance on the extent to which the deposit rule applies to the self-employed? This is one where we should make the IRS and the DOL get in a ring and fight it out. IRS Pub 560, page 15, says contributions are due by filing date of your tax return for the year. http://www.irs.gov/pub/irs-pdf/p560.pdf

A K-1 would be March 15th, if it's possibly that rather than a 1099. But the K-1 would belong to the IRA and not to the individual.