masteff

Our interpretation (which was blessed by outside ERISA counsel) is that the 401(a)(17) compensation limit is an annual limit and not an intraperiod limit. So as long as the maximum deferral for the year is limited to the lesser of a) the 402(g) limit or b) the comp limit times the max % allowed by the plan, then you're okay. Based on this, a person making $460K could wait to begin deferring until July 1st and still be allowed to make the maximum allowable contribution for the year (i.e., lesser of 402(g) or plan limit).

If you got the same bankruptcy notice I'm thinking of... we generally took that as notice to stop withholding loan payments from the participant's pay. Our legal counsel always told us to send the participant and the attorney a copy of the special tax notice w/ a note directing them to the section on the tax consequence of defaulted loans.

I'd agree that the IRS missed the boat in the first place. While a technical correction might make it even clearer as to Congressional intent, I believe it's already there in the law... 401(a)(31) requires direct trustee-to-trustee transfers of rollover eligible distributions. 401(a)(31)(D) points to 402(f)(2)(A) for the definition of rollover eligible distributions. 402(f)(2)(A) says the term has same meaning as in 402(c ). PPA Sec 829 added 402(c )(11) which says a direct trustee-to-trustee transfer by a nonspouse bene shall be treated as an eligible rollover distribution. Since PPA made it an eligible rollover distribution, it has to be provided by the plan. And since PPA Sec 829 was effective for plan years starting after 12/31/06, they're giving everyone credit for good behavior by not mandating nonspouse rollovers before 1/1/08.

PFranckowiak - The beneficiary designation form would be the next place to look. Are the kids the secondary beneficiaries? So if the friend waived rights, the kids would automatically be next in line? Otherwise you have the problem of the friend stepping out of line and the next person in line getting it instead of the kids.

Just adding to what WDIK wrote... What's the exact wording of the plan? Does it explicitly say "matching contributions" or does it say something broader like "contributions of the employer"?

Just adding to what Bird said to specifically address this one point in your post.... yes, you can do that. Just make sure all the SARSEP contributions have gone in before you do a rollover to avoid the minor problem of getting a small additional amount of money in the SARSEP that could require a 2nd rollover.

My preference was always a letter or something from the lender which explained the consequences of not bringing the mortgage current. So even if it didn't say "we're starting foreclosure", if it said "you're past due... here are the consequences" then I'd take it. My experience is mortgage companies are more than happy to fax letters to past due borrowers if it helps them get paid faster. Just ask the participant to call the lender to request a past due letter. The lender's form letter should have enough to give adequate documentation.

70 1/2 distributions are required by Code section 401(a)(9). So it's a plan qualification issue, not just individual tax issue. They'll be looking at filing under EPCRS.

Looking back to the original post... my thought is given the 6-month suspension is part of the safe harbor and not a mandated suspension, one would need to review the exact language of the plan in question but usually it's broad enough that deferrals can be stopped a couple pay periods after the fact and the 6-month timer started from there. While the regs and possibly the plan use the word "after receipt of the hardship", plan administrative procedures can be used to show that most changes are effective w/in one or two pay periods. The fact that the case in question has gone three pay periods is not sufficiently different to matter. This is part of why, in my last job, we were consistent in using the "one or two pay periods" phrase, even if it normally happened faster; it's a nice security blanket for when things do take longer.

QDRO - As the 6-month suspension is provided by the IRS safe harbor regulations for hardship withdrawals, I presume what you're proposing is that the plan abondon the safe harbor. It's extremely important the plan understand the potential consequences of going outside of safe harbor. It's not something to do lightly. Kim - that section of the regs is tricky to read... the 6-month suspension is listed under what's "deemed" to meet the rules... meaning if you include that and other listed requirements in your plan, then you'll automatically be deemed to be in compliance.

Wrestler, I'd call your IRA company sooner than later. It'll avoid any undue complications.

Just thinking out loud... I know that in the case of QDROs an administrative hold is placed on an account. I wonder, given that the employer is prosecuting, if a judge could issue an order putting a hold on the account. It wouldn't delay providing forms but could delay the distribution itself. I don't know if it's possible legally, but something worth looking at.

What about the code section 4972 excise tax on nondeductible contributions? If the contributions are truly being made for the prior years, if it's past the deadline for deducting them then they would be nondeductible and result in the 10% excise. Otherwise, if you're deducting them in this year, then why wouldn't they be subject to this year's annual additions limit?

I'd take that to mean the offset is taxable to the decedent.

Plan language would be very important. Are loans automatically offset upon death and/or upon full distribution? Are distributions limited to cash only? Etc.

Employer records for sure, medical, emergency contact, etc. The employee's coworkers might know something useful. An obituary might state who the ee is survived by.

Sorry Mike, didn't mean to sound disagreeable... was just adding a secondary point to make sure it was clear that gross up was provided by regs and not just by standard practice. To the extent the plan uses the hardship safe harbor, gross up is inherent. I fully agree w/ both of your posts... how narrow or broad the plan language is really does a make a difference.

End of argument. You're welcome to your opinion. I'm welcome to disagree with it. Good-bye.

Tax gross up is provided explicity in the regs. "For this purpose, the amount required to satisfy the financial need may include any amounts necessary to pay any federal, state, or local income taxes or penalties reasonably anticipated to result from the distribution."

Due to timing of interfaces between TPA and client computers, I've seen it go 45-60 days between date of issuance to date of first payment (which would fit w/ pmacduff's comment about what the TEFRA blue book says). At my last company (4 plans w/ $1billion assets), we used that "industry practice" and, while I can't say the practice is 100% correct, we did go thru a full audit about 2 years ago. I suspect part of the logic is that the "term" of the loan is deemed to be the number of payments to be made based on a certain payment frequency, not the duration from issuance to payoff.

I would agree that the PLR does further confirm a rollover can be made during the first 4 years. However.... the PLR also says that particular spouse is not converting the IRA to her own and is commencing distributions prior to age 59 1/2, which is well before the required beginning date. These are two factors which make the PLR materially different from the situation in the original post of this thread. The PLR does not begin to address the situation of the spouse revoking the 5-yr election when such election is made after the required beginning date. 54.4974 is about excise taxes... it has no precedence over 1.401(a)(9).

mjb - please explain how the code sections you're citing allow the spouse to revoke an irrevokable election to take distributions over 5 years. 1.401(a)(9)-3 Q&A-4© explicity says "the election must be irrevocable with respect to the beneficiary and must apply to all subsequent calendar years." And please stop citing that PLR as it applies to a case where the rollover was made prior to the required beginning date, thus making it materially different from the fact pattern in this thread.

mjb - We never truly disputed that a spouse could or could not do a rollover in the 4th year. Going back to the fact pattern in the original post, what Wilma cannot do is take a rollover in year 4 and then switch to life expectancy because she had to make an irrevokable choice in year 1 between the 5-yr rule and life expectancy. The choice is irrevokable because the 1.409(a) regs say the choice is made at the earliest date a distribution is required under either 5-yr or life expectancy, which we established above is the year after Fred's death. That choice follows the rollover and is binding upon the money when it's in the IRA (which is evidenced by the IRS's language in the Q&A-19 referenced above).

1) It's not just any amount that must be distributed that can't be rolled over, it's MRD's that can't be rolled over. It's part of the definition of rollover eligible... certain things are excluded such as MRDs. Reg 1.402©-2 Q&A-3(b)(2). 2) It's an exclusive option between 5-years and life expectancy. You can't start the 5 years then later try to switch to life expectancy. Read the titles in 401(a)(9)... life expectancy method is an EXCEPTION to the 5 year method. In all matters tax related, once you have started down one path, you can't later invoke the exception; the exception must be invoke from the beginning. Note to anyone reading past this post in the thread... I'm with Bird. Our case has been presented above. I'm not arguing it any further w/ someone who's only continuing to argue because he refuses to concede (past threads w/ this person show the same pattern).

I don't have cite to give but some plans do allow for up to two month forward (so all past due plus two). You can easily justify plus one on the rationale that if the person had sufficient money currently for one month's mortgage payment, they would have already applied that to the past due amount, therefore their current immediate financial need includes the upcoming payment. Just be sure to get a copy of a monthly mortgage coupon/statement showing the normal payment as the past due may be for more than just one month and may include penalties and interest. The plans I previously administered allowed "plus two" and passed full IRS audit.