masteff

In your experience, has this been successful? Oooh, I sense a challenge! Just remember in 8.635 years when the Service changes the forms to Courier that it will have been my doing!

Thanks for catching that, Mary!!!

The custodian is correct. The only option available now is for the participant to get a refund on their income tax return. See "Income tax withholding adjustments" and "Refunding amounts incorrectly withheld from employees" on page 28 of IRS Publication 15. Edit: keep in mind that the participant has an affirmative duty to review their check stubs, which includes reviewing whether their withholding is either too high or too low.

Someone needs to write a letter to the Service pointing out politely that the forms on the IRS website which contain the "fill-in" feature do not use the Courier font, thus making the Service's "fill-in" forms useless. By "fill-in", I mean it has boxes in the proper places in the electronic version and you can type in them and print the completed form. Such as this one: http://www.irs.gov/pub/irs-pdf/f5300.pdf Courier is a fixed width font. This means that 5 upper case W's should take the same amount of line space as 5 lower case i's. You can see for yourself that the form I linked does not meet this simple test. (By the way, being a fixed width font makes Courier easier for OCR (optical character recognition) scanning.)

It's in the instructions but easy to not catch... "The tax is due for the tax year that includes the last day by which the minimum required distribution is required to be taken." What this means is: if the MRD was due by 12/31/2008, then the tax is due for the 2008 tax year. So, the 2008 tax return would need to be amended. As to the 1099-Rs... the 1099-R instructions have no provision for retro-reporting, so I'd say issue based on the year actually distributed.

Don't have Sal's book so I can't try to guess what terminology is tripping your coworker up, but you are correct. The preable to the regs explicitly states: "A refinancing can also satisfy the repayment requirements of section 72(p)(2)(B) and © if the refinanced loan is repaid within the original term remaining on the prior loan." http://www.irs.gov/pub/irs-irbs/irb02-51.pdf Edit: guess I should ask... what part of this scenario is your coworker saying violates the rules?

Just thinking this thru again... looking back at your posts, you're asking the wrong question. We don't have a proper mechanism for him to put some amount into his Roth account after a correction is made BECAUSE the correction should not involve taking money out of the plan. The question you should be asking is how can they fix the withholding without taking money from the plan... and that is by them accepting a check from him for the amount needed.

The only impact on payroll of regular vs Roth is income tax withholding. Payroll taxes like FICA, FUTA, etc. apply both ways. So a year-end reclassification only impacts withholding; it has no effect on payroll taxes. So... your friend's employer doesn't need to rerun a bunch of prior period payrolls to fix this. It can simply be done via plan recordkeeping and a W-2 adjustment. If the employer won't let him write a check for the withholding (instead of taking it out of the plan), then simply ask the employer to not adjust the withholding at this point. This lets them reclassify the entire amount of deferrals from regular to Roth. And then your friend can take his available cash and mail an estimated tax payment to the IRS since we're still before the Jan 18th due date (Form 1040-ES).

Without putting pencil to paper, I'd say the employer's cheapest way out (short of saying "too bad too sad") is to recharacterize w/out correcting the withholding and offer to pay any penalty (but only up to the amount resulting directly from any underwithholding caused by this error). The requirement would be that the employee submit a copy of their tax return once it's figured and then you can have an accountant w/ tax experience in your company help you refigure the taxable income and penalty w/out the change and confirm how much of the penalty is the company's responsibility. (If you were still w/in the same tax year and the employee had enough income to cover the extra withholding, then yes, I'd look at fixing it via the payroll system to correct the withholding but since you're in a new year, that route is now more than a little messy.)

Does Dad's plan document say anything about appointment of successor plan sponsors? Of course Dad could simply maintain the plan. See this recent discussion about whether a plan became an orphan: http://benefitslink.com/boards/index.php?showtopic=43782

Code Section 530 does not appear to contain an inflation provision. http://www.law.cornell.edu/uscode/26/530.html As further evidence, comparing IRS Pub 970 from various years from 2002 to present, the limit has not changed. http://www.irs.gov/app/picklist/list/prior...eria=formNumber

This statement is correct. Do not default unless the employee stops making payments on the loan.

Sounds like someone in HR is too procedurally oriented to realize that the cows are already out of the barn on this one. My guess is the policy is to prevent the appearance of a "sham" termination (i.e., let go solely for the purpose of obtaining a distribution from the plan and then quickly rehired). So Kevin's suggestion is highly relevant... they would have no appearance of a "sham" termination if the distribution is repaid to the plan.

Are you using a 125 Plan for the benefits offering (sure sounds like a cafeteria plan to me)? If so, then your proposed 401(k) election is subject to the same restrictions on changes (ie, annual election, qualified life events, etc) (and only on a prospective basis, unlike, say, a change in medical coverage). Also, if it's a 125 Plan, then I suspect you need to change your terminology from match to deferral, but I'm not a 125 expert by any means so you really need to talk to your ERISA atty and/or 125 Plan administrator. (The end result is the same, those people who don't use the money toward other benefits can put it into the 401(k); but the Devil's in the details). Edit: I found one note that says change in family status rules do not apply to 401(k) in a 125 Plan, so you'll really need to get some expert guidance if the company pursues this.

If we think of having two threshholds in time, one in the past and one in the future, then I always took the "for up to" clause as setting where the future threshhold lies w/out speaking to the past threshhold.

To the best of my knowledge, past vs future is plan subjective (as pmacduff notes above). If the plan doesn't restrict it, I personally would allow for this. I might have to think more closely if it were for an older semester than the one just finished.

If Jenny still has a balance in the plan then I'd suggest discussing w/ your newly retained counsel whether or not to place a hold on Jenny's account to prevent her removing any ill gotten gains. And just thinking out loud... this would be an excellent case study for a fiduciary ethics course... it certainly had my attention riveted thru all the posts above.

I don't know the technical answer but... Why not go the conservative route and send a new mailing to anyone who was defaulted into the plan? It should simply explain that they were defaulted into the plan and if they wish to discontinue, here's how. My concern is at least a few of those people want to be in the plan and the fix for lost deferral opportunity would actually cost the company money, a lot more money than a simple mailing.

I'd say yes. http://www.irs.gov/pub/irs-tege/notice87_16.pdf

Just to muddy the water a bit more... the latest 5500 doesn't appear to ask for preparer information: http://www.dol.gov/ebsa/pdf/2010-5500.pdf

But why did that become such a taboo thing to do??? Reagan used the Laffer Curve to justify cutting the top rates from 70% to 28%. People remember that cutting taxes worked okay under Reagan, therefore (and here's the logic error) it must be okay to keep cutting taxes. It worked for Reagan but it didn't work for Bush Jr because we'd already moved from the right-tail to the left-tail of the Laffer Curve... further reduction only has the effect of reducing revenue. Try this mental excercise.... a man named Uncle Sam walks into your bank and asks for a loan. Last year, Sam had gross annual income of $2.38. Further, Sam has outstanding debts of $13.89. Would you loan Sam another $1.00? Now suppose that you happen to know that Sam is living beyond his means and is spending $3.55 per year; would you loan him $1.00? While I accept that that Sam's spending needs to be brought inline with his income, the problem is he has no ability to service his debt without increasing his income. The only way for Sam to increase his income is higher taxes. The biggest problem in Washington is the thinking that a budget surplus must be "returned to the people".... no, it must be used to repay the budget shortfalls we ran in years prior. I take a $100,000 loan to a start a business and the first few years are tough but then business picks up and I'm making a profit. Do I then fail to repay my business loan? No, I used it to get economic prosperity and when that prosperity arrives, I have to use the excess to repay the loan that got me there. </soapbox>

My CCH "US Master Pension Guide" says: In determining whether the $200 floor is reached, all eligible rollover distributions made to a recipient by a plan within one tax year must be aggregated. I'd say don't aggregate in your example since the MRD is not an eligible rollover distribution. @GMK - my 2002 guide cites IRS Reg 31.3405©-1 Q&A-14 (I didn't go look it up to see if it mentions "in lieu of" or not)

That's a good line! I'll definitely have to re-use it! I agree that the behaviour of Congress is very frustrating to those of us who actually understand things like funding a retirement plan. Guess I'll have to add a grand or two this year to my personal savings to further offset the inevitable failure of SS. Oh, but wait! I'm supposed to spend it on disposable goods to stimulate the economy! Maybe I'll just add back that latte a week that I've been skipping as suggested by all the "how to save money" articles on the interwebz.

Certainly concern. If nothing else, isn't one of the requirements for most corrections to establish procedures/controls to ensure the same violation doesn't recur? How can you say the control is in place if you fully anticipate that management will override the control?

Sounds to me like a lack of system programming resources at either EBSA or IRS to make the Line 4 EIN change work correctly for the prior EIN. They've finally admitted to themselves that it isn't getting fixed any time soon so the "manual workaround" is making their customers file amended returns. If you do the amended "final" return, I'd add an attachment with a short narrative stating "EIN changed in 20XX, this is final under EIN XX-XXXXXXX, future Forms 5500 will be filed under EIN XX-XXXXXXX". This way you have double cross-reference: the old references the new and the new references the old.