masteff

http://www.dol.gov/ebsa/pdf/ppa2006.pdf Section 906

Might start w/ the links in this thread: http://benefitslink.com/boards/index.php?showtopic=35698 A relevant term to search on is "QROPS" (it comes from the UK-side wherein a person can move their UK pension to a qualified retirement scheme in another country providing the rules are met; I haven't made any attempt to understand the rules so no idea how hard it is or whether a 403(b) falls into the category).

Might want to consider to what extent the "prudent person" test of the fiduciary responsibility rules might warrant that an age-based benefit be documented w/ reasonable proof of age. This would potentially ensure that excess benefits are not paid out by the plan.

Sorry if I created confusion... the post I responded to specifically used the word "asset", not "distribution" or "income". As to "if reciept of payments which are taxed to another person reduces financial aid"... it depends on how you interpret the last line of Worksheet B of form FAFSA. It reads: "Money received, or paid on your behalf (e.g., bills), not reported elsewhere on this form." If you deem this transaction to be a property settlement, then it probably would not count as being "received" (but rather something to which an ownership interest was already attached). But regardless of that... unless the former spouse is going to immediately spend it all then she will have to report the cash on line Q43. That goes back to IRA's question above of does she need the money now? Form FAFSA: http://www.fafsa.ed.gov/fafsaws89c.pdf

Whether or not they should be treated differently is not the same as whether they are treated differently... This FAQ item from the Dept of Education has a general list of what investments are and are not included in on the FAFSA form; retirement plans ARE excluded from the investments that are reported. http://www.fafsa.ed.gov/help/fotw33c.htm

I'll ditto what Janet said and suggest you review the definitions of participant and leave of absence. The wording you quoted above likely pertains to income before the participant's initial eligibility (and possibly to post-termination payments, like late payouts of severance, vacation time, bonuses, etc).

First, thanks to the OP for editing your post to add the extra info. That's useful to know. I'll append my previous statement, having realized now the difference between a durable POA and one that's essentially immediate, such as the mother would have here. While I don't agree w/ what the mother's trying to do, that's no reason to say no. Janet raises a good question about does the plan have language about POAs. I'd also encourage the client to have an attorney make a quick review of the POA just to make sure it seems to be in proper order (think of it as insurance against a later claim the POA was blatently invalid).

More important is the source of the disability payments... is it paid directly by the employer or by a third-party, such as an insurance company. Who's the payer in your case?

Is this a voluntary or mandatory distribution? What I'm getting at: is she initating the distribution or merely facilitating a cashout in a way that's in his best interest? (Not being an attorney, I can't say that has relevance but certainly worth clarifying.) We once has ERISA counsel who was of opinion that the participant had to be truly incapacitated and not merely unavailable (but those circumstances were for a person in the US and not in a war zone, which would certainly be an extenuating circumstance).

Just guessing... Sounds to me like abuse of requirement in ERISA for plan fiduciaries to review plan investment options periodically. Is "ABC Co" an outside investment company? In which case, there is a reasonable probability they want to get inside the plan and figure out how they can recommend that the plans investments be moved to their company because they'll be able to offer lower expense ratios or higher returns or some such rationalization which will have the net effect of their gaining income off the plan's investments. I've seen it before; the bigger the company, the more they come out of the woodwork like this. TANSTAAFL - There ain't no such thing as a free lunch

See section 824 of PPA 2006. It contains a n amendment to IRC sec 408A and is the missing piece you're looking for. Effective for distributions after 12/31/07. http://www.dol.gov/ebsa/pdf/ppa2006.pdf Edit: PPA sec 829 too.

And you might find IRS Publication 590 to be helpful. http://www.irs.gov/pub/irs-pdf/p590.pdf

And to get the full CYA effect, I'd propose the employer respond to the written request w/ a letter acknowledging the request and explicitly stating the consequences of default, as well as providing a copy of the special tax notice. P.S. - after reading a few DOL Advisory Opinions that were only halfway related (dealt w/ not allowing loan deductions at all vs stopping deductions), I do think the DOL would be the more likely to have a problem w/ it. Of course, I just had my "duh" moment... it would be the DOL because it's ERISA preemption and not IRC preemption.

The reg reads: "Expenses for the repair of damage to the employee’s principal residence that would qualify for the casualty deduction under section 165 (determined without regard to whether the loss exceeds 10% of adjusted gross income)." The key is that it's expenses for the repair. It's not for the damage. The tax return is useful as evidence that the damage qualifies (as the participant filed it on the return, you don't have to waste time trying to determine if he could; you just have to make sure the repairs relate to that damage). Now you need documentation of the cost of the repairs. (And to prevent J Simmon's excellent point about preventing double-dipping; he's not kidding that people will try to give you duplicate documentation w/ white-out on it.) P.S. - Form 4684 (Casualties and Thefts) should show how much insurance covered. Be sure to offset the repair bills by the insurance amount.

Form W-8BEN would be another for future reference.

The thing to review most carefully would be rehires... they might have forfeitures that were removed and never restored.

Past comment from abanet.org made w/ respect to proposed "enforceable payroll withholding arrangement" for a plan loan... My personal opinion is run directly to ERISA counsel and make them put in writing which way to go w/ a given employee's request... but I do think it's not entirely cut and dried.

My former boss was of the opinion that, in spite of a loan agreement stating payments will be made by payroll deduction, payroll laws can sometimes require employers to stop the loan deduction if the employee requests it in writing.

In order for w/h'ing to completely cover the amount of extra tax and penalty due, use the following fomula (where T = expected fed&state tax bracket % and P = 10% penalty): % to withhold = { T + [ (T*P) / (1-P) ] } Example, given T=27% and P=10%, it would be: { .27 + [ (.27*.1) / ( 1-.1) ] } = .30

December 4th would be the last day of the six-month exclusion period. So the distribution could be made on or after December 5th. You can't count June 4th as the first day of the six months because the employee is actually at work that day; June 5th would be the first day of the post-employment period. It's worth noting that in one place the regs use the phrase "on the first day of the seventh month following the date of separation from service". So you don't distribute on the last day of the six months, you distribute after that. The problem in the OP is that it's specifically a month-end scenario. As I stated above, the question is do you start counting from June 30 (with distribution the day after Dec 30) or from July 1 (with distribution the day after Dec 31). I'd argue that you'd start from the first day of the post-employment period, July 1.

XTitan - Is there some other benefit or program that makes the employee need to terminate employment on the last day of a month? If not, since June 30 is a Monday, why not suggest the employee terminate on Friday June 27? I know I'd rather not come back for a single day if I could avoid it, especially w/ that being the week of July 4th. This would avoid the question of whether you start counting from June 30 (arriving at the day after Dec 30) or from July 1st (arriving at the day after Dec 31). (Arguably, if you start counting from July 1st, then you'd count the whole month of December and not just 30 days of it as rcline rightly points out we're counting months and not days.)

I've always understood the 20% mandatory w/h'ing to be a minimum and not a maximum. So unless your trustee's system is badly hardcoded, you should also be able to accomplish it by allowing a w/h'ing election of 100% on the 20% non-rollover portion. (I can see how they'd not be programmed to allow w/h'ing on a direct rollover, as that wouldn't have happened in the past.)

It's worth also noting that Reg Sec 1.401(a)(31)-1 Q&A-14 explicity says a determination letter is NOT required in order to reasonably conclude that it's a rollover eligible distribution (not that it stops other plans from asking). We liked when the distributor would print "direct rollover" on the check stub somewhere as why would they call it that if they weren't qualified to issue it as such. We did the exact same, both because we couldn't include forms and because we wanted the participant to remain involved in the process. As for experiences, etc... 1) Since IRAs are commonly moved via transfer instead of direct rollover, one regular problem is that financial advisors try to do back office paperwork to initiate a transfer. However those forms almost never meet the requirements of a qualified plan (especially receipt of the 402(f) special tax notice and proper spousal consent). The result is having to reject the paperwork and instruct the participant on the proper distribution procedure. 2) On the trustee to trustee part. Since the direct rollover must be payable to the TRUSTEE of the receiving plan, some trustees began rejecting rollovers that were not exactly worded to their requirements. In a large company (w/ 4 DC & 4 DB plans), this made having easily accessible rollover procedures very important. 3) MRDs are a common pitfall for those over 70.5 trying to do rollovers. Some plan administrators require that the annual MRD be taken before a rollover distribution can be made (whether that policy is right or wrong has been subject of other debate). This can result in a two step process (1st MRD, 2nd rollover).

Not quite... the 10% is not "assessed" at the time of distribution. It's an extra tax paid on your form 1040. Only the 20% federal withholding (and possibly state w/h depending on your state's rules) would be taken out of the distribution. So by following the instructions of form 5329, you can avoid having to pay that extra 10% on your 1040. And if you truly need the money in the next year or so for living or medical expenses, then I'd skip the step of moving it to an IRA. It would gain you almost nothing. But... if you don't need all the money right now, perhaps just a little of it each year, then the IRA would make great sense. Lastly, you are probably in a tax bracket that is higher than 20%. Therefore, it would be to your advantage to have them withhold MORE than 20%. Otherwise, you're going to have a huge tax bill next April 15th and possibly not have the resources to cover it. By having enough withheld now, you avoid causing financial distress for yourself next spring. Your tax advisor can tell you what tax bracket you are likely in.

First, it's not a 20% tax... it's 20% withholding for taxes. The amount of tax you owe will be based on your actual taxable income reported on your annual form 1040. The withholding cannot be avoided because the money is rollover-eligible. Ask the 401(k) company to send you a copy of their "Special Tax Notice" which will explain further about withholding and rollovers. Second, if the distribution is not coded using the disability code, you can still file form 5329 which allows you to indicate that your wife is not subject to the 10% penalty due to total and permanent disability. Form 5329 is filed with your annual form 1040. If the IRS later questions it, the paperwork showing her total disability under Social Security should be sufficient.