masteff

Might want to review Pub 590 which explains things such as the ordering rule for distributions. It also explains qualified distributions versus other distributions (which K2 was getting at w/ his question). http://www.irs.gov/pub/irs-pdf/p590.pdf

You're right, the CPA has crossed a wire on "substantially equal payments" vs MRDs.

Is the beneficiary in the US or outside the US? This makes a difference. If outside US then you need to see form W-8BEN http://www.irs.gov/pub/irs-pdf/fw8ben.pdf

Kevin hit the nail on the head... the key question is: does the plan allow catch-up contributions for anyone, if so then they need to talk to their ERISA attorney immediately. Inconvenience is not an excuse for non-compliance.

That would depend entirely on how the specific plan is written. Generally, I'd say the answer is no.

Including them for testing purposes but excluding them from participation is different than having to include them for both purposes. I think that's the point behind distinguishing PEOs from other temporary worker situations. It comes down to why the person(s) quoting the 401(k) felt the workers had to be included and whether they simply meant included for testing or for both testing and participation.

Interest is allocated to the underlying source(s) of the loan. For example if a loan was 80% pretax and 20% company match, then the interest would be split 80/20 accordingly. So... if a loan was rolled over to the Roth source, then interest would be allocated to the Roth account.

or we remember how much we pulled out hair out in prior years and being older and savvier we now simply plan to wait for you to figure them out and post the answers for us. I mean seriously, have you looked at #102? And I'm not sure #122 is legal in all 50 states!

The above post has commercial spam in it... if you click and drag to highlight, it becomes visible. I omitted the color tags in the above quote so it shows.

Of course this is really a question for your benefits department / 401(k) provider as they will be the ones processing the distribution and (should be) calculating the taxable portion of it. We can tell you how it will likely work in general but we can't guarantee how it will actually be processed.

The citation he bases that on is irrelevant because it speaks to investment alternatives... a Roth account is not an investment alternative.

A Roth account is not an investment option so RR96-47 wouldn't apply.

Can someone confirm that if the plan doc is silent then applicable state law would govern? If you can't find it in the plan then your next phone call should be to a lawyer.

Yep, I'd agree w/ that analysis. Lump it in the same amendment to add the Roth account feature and it's hard to deny the connection. Edit: in fact, the second sentence of A-17 has a phrase that could be extended: "applies to a plan amendment that permits elective deferrals under the plan to be designated as Roth contributions". Your "special deferral modification date" certainly seems close enough to that.

1) A-17, first sentence, you might try re-reading w/ some added emphasis on the words "any" and "pursuant". The second sentence begins w/ the words "for example" so that sentence is inclusive but not exclusive. 2) I'd certainly think SMMs all around. And yes, I'd agree that plans w/ restricted deferral modification rights (e.g. quarterly) would need a special election opportunity to enable a 2010 rollover ("eligible employees are given an opportunity to elect on that date").

mjb - I would have loved to have you to help argue this w/ Fidelity a number of years ago when it came up. As I stated above, I disagree w/ the notion that an MRD is an annuitized stream of payments (despite the methodology used to calculate it). My main point for bringing it up was so Tom and others (yourself included) could see that some have taken that position (or at least did as of a few years ago). I personally think MRDs should follow the source heirarchy.

Tom, I'd agree w/ that vesting would still trump so if you only had 2 sources then you might pay out solely from the vested one. -- Looking back thru my CCH Master Pension Guide... my best recollection is that Sec 402(a) points you to Sec 72 and that Fidelity argued that if it looked like an annuity and smelt like an annuity (and how can you argue that MRD's are not based on life expectancy) then you had to do prorata as an annuity in order to acheive return on investment in the contract. I'll note that prior to Roth accounts, the only other place it truly mattered was a) after-tax contributions and b) legacy sources solely invested in specific investments (e.g. a stock only permitted to be held in one particular legacy source, such as prior plan match invested in prior company stock). (or at least those are the two places it made my life miserable.)

To the contrary, a major national recordkeeper/investment firm argues that all MRDs are annuitized payments and must come out prorata from all sources. We fought w/ them for nearly a year before deciding we couldn't win and turned belly up to their attys. (Note: I personally agree w/ Tom.)

IRS Pub 15-A, page 5, Statutory Nonemployees, Direct Sellers. Can't say if spliting the person's income like that between W-2 and 1099 is correct but being a statutory nonemployee is why.

Scenario 1 - you'd put $10K into his Roth account and deduct the taxes from the remaining $1K. The W-2 would reflect gross pay of $11K (Boxes 1,3,5), the appropriate taxes (Boxes 2,4,6), and the full $10K would be shown in Box 12 w/ code AA. Scenario 2 - you'd put the remainder ($9K plus or minus) into his Roth account after having deducted taxes. The W-2 would reflect gross pay of $10K (Boxes 1,3,5), the appropriate taxes (Boxes 2,4,6), and the $9K-plus-or-minus amount contributed to the Roth account in Box 12 w/ code AA. Really, Roth contributions are no different from regular pre-tax deferrals (in the context of the current discussion) except you also take federal and state withholding when processing payroll and, on the W-2, you don't reduce Box 1 and you use a different code on Box 12. Regular pre-tax deferrals are subject to FICA and you don't reduce the amount that goes into the plan nor the amount reported in Box 12 of the W-2; so stay consistent for the Roth account.

You example fails to state the gross amount of pay that you're starting from. If you're starting from sufficiently greater than $10K, then $10K would go into the Roth account and (as QDRO noted above) the taxes would come from the remainder of the paycheck. If you're starting from $10K and the person elected 100% Roth deferral, then you'd first take out taxes and deposit the remainer into the Roth account; thus you cannot truly defer 100% as taxes and other deductions (health ins, etc) need to be allowed for. Oh, and you're also forgetting federal and state income tax withholding... Roth deferrals are subject to withholding. As for W-2, you'd report the Roth deferrals in box 12 with code AA.

I respectfully think you're overthinking it. The instructions for line 13 are essentially unchanged since at least 1990. http://www.irs.gov/pub/irs-prior/i1120_a--1990.pdf If the IRS was having a huge concern about the 25% restriction, they would have built a mechanism into the forms to ensure compliance long before now. Also, there are a number of the places that compensation might be reallocated to (such as 263A as I noted), so the IRS is well aware that it cannot rely on line 13 as a true "plan eligible" comp.

ERISA Reg 2550.408(b)-1(a)(1)(iv): "Bear a reasonable rate of interest"

First I'll say.... the IRS and logic are not close companions. Second, having not worked in depth w/ the 1120 in several years, I can't say for certain that nowhere else calls either of those specific lines (like in some worksheet or something), but I'd say it's highly unlikely to have any net tax effect if you put it on line 13 versus line 23. The first possibility that comes to mind is 263A costs but even there it should get sucked back in depending on how you do the calc.

K2 - in your case, he's not missing. Off the top of my head, he can get a taxpayer ID number even though he's a "foreigner" and the account can be "corrected" to that TIN. I'm not aware of any law that would make him forfeit the account (but am not up-to-date on the subject and won't get offended if anyone has better knowledge to share).