masteff

Let's not get ahead of ourselves.... To excerpt from Appleby's post above: Let me repeat that last bit... but, as described in Q&A-19 of this notice, the 5-year rule must also apply to the IRA to which the rollover contribution is made You do not beat the MRD process by doing the rollover in the 5-year period. Once the beneficiary has elected the 5-year option, the money must go out by the end of the fifth year regardless of all other factors. So unless you want Wilma to pay the full tax burden on the account in year 5, then the 5-year rule is not an option. By the way, mjb, there's your cite, Q&A-19.

It's the first (after tax basis / after tax balance * amount of after tax distribution). Pub 575, pg 16, top of column 2: "Defined contribution plan. Under a defined contribution plan, your contributions (and income allocable to them) may be treated as a separate contract for figuring the taxable part of any distribution." http://www.irs.gov/pub/irs-pdf/p575.pdf Someone else might have reg citation for you.

Bird, once again, was right from the beginning. Fred died before 12/31/06. Therefore Wilma, as beneficiary, was the owner of the account, even if the account was not transferred to her on paper until 2007. The regulations say she must take an MRD on or before the last day of 2007. This rule applies to the calendar year (scroll up and read it). The obligation to take the MRD attached to the money at 1/1/07 (even if it could be delayed to 12/31). Therefore, the amount of the MRD was not rollover eligible. Which is what Bird said at the very beginning, just in less words. As said above, whether it's done as a correction or an MRD, the money has to come back out. The PLR doesn't apply because in that case, the money was rolled over before the required beginning date. In the case here, the obligation attached to the money on 1/1/07 and the rollover occured after that. So whether it's a beneficiary or owner account is moot.

One thing is that the separate fees being paid now are covered by an umbrella fee. It's not that the audit is free, it's that it's rolled up into the overall fee. Have to list out all the current costs and compare to the payroll services fees. Also the payrolll service has economy of scale and standardization on their side. MSN - my experience is that it is an independent auditor, not owned/controlled by the payroll service. Might vary from service to service.

Appleby - the spouse has the option to covert a beneficiary IRA to an owner IRA. This is what that PRL is addressing. It's specifically a provision of 408 that allows this. EDIT: I don't have time right now to go back and look at the EGTRRA provision that allowed spouse rollover to another plan. I'll have to hold off on saying rollover is fully sham... I can tell you it's not how we administered it. I'll get back to that later and post a follow up. MJB - yes, you could probably invoke the 5-yr rule. However the original post indicates the spouse wants to take the MRDs, just not earlier than required. There is no indication that "Wilma" wants to take the money out w/in 5 yrs but the OP does indicate intention to take over life expectancy. The point is not to avoid the MRD entirely but to not force it until the latest possible date. (And there's still a school of thought that even under the 5-yr rule the bene must take MRDs; it's certainly the most conservative approach from the plan's perspective; plan language would certainly come into play).

Enough.... I've dug out the regs so we can put this to bed. Here's what Bird quoted (though w/out the full citation) above... Reg 1.401(a)(9)-3 Q&A-3 (b) Spousal beneficiary. In order to satisfy the rule in section 401(a)(9)(B)(iii) and (iv), if the sole designated beneficiary is the employee's surviving spouse, distributions must commence on or before the later of— (1) The end of the calendar year immediately following the calendar year in which the employee died; and (2) The end of the calendar year in which the employee would have attained age 70½. Emphasis #1: ON OR BEFORE Emphasis #2: THE LATER OF In the case where the employee (Fred) dies in the year he would have attained age 70.5 (ie subparagraph 2), then subparagraph 1 would occur later. Therefore, by virtue of 1.401(a)(9)-3 Q&A-3(b)(1), Wilma must commence MRDs on or before 12/31/2007 with respect to the amount to which she is a surviving spouse beneficiary of Fred. P.S. - the rollover in the original post, in my opinion, is a sham transaction (the post even says the money never left the plan). The money in the QP still represents a beneficiary account as it appears to me that only IRA's can be converted from beneficiary accounts to owner accounts by surviving spouses.

I'd add that post-Enron, some of the general audit standards have gotten more excessive, resulting in audit requests that are excessive (and made more so by over-zealous application of the tighter standards). My horror story: We had a plan which came to us via acquisition, that was frozen as of the acquisition in the mid-90's. Post-Enron, our auditors, in their 3rd year of doing the audit, suddenly decided they needed to test the definition of compensation used for the frozen calculations which had been certified by a major actuarial firm. The auditor tried to tell us that the definition of comp was misapplied and that 12-year old calcs needed to be changed. Let me say that again, an audit staffer who was only two years out of college told us that compensation calculations determined 12 to 20 years prior were wrong and needed to be changed and if we didn't then they'd have to put in our audit report that we were at risk of having the plan disqualified. I'm sure, AndyH, that my boss then said many of the choice things you're saying now. We barely got the staffer stopped before a full-fledged fishing expedition got started in our file room. Along the lines of what Andy the Actuary said, only solution to excessive audit requests is to work your way up thru the chain of command of the audit firm and find someone w/ a brain who can maybe get a grasp on what's truly reasonable and necessary (keeping in mind there might have to be compromise from both sides).

Given that the "document clearly states that payments are made as elected by the beneficiary", then lacking provisions elsewhere in the document, the money sits in the plan until MRD's commence in the year the part would have been 70.5 and the money is slowly paid out that way. While mjb is correct that you don't need spousal consent on a death benefit, you do need a plan provision that allows you to force it out w//out an election. Your plan "clearly states" an election is required. Edit: This is a big annual task in large plans. At my last job, I'd send 200+ MRD letters per year and 10-20% were beneficiaries. And I was always surprised how many people only want the minimum and want it on the last possible day of the year. P.S. The lack of a response, unless you explicity tell them to contact you, means they're happy to leave the money where it is (or at least it's less confusing than trying to move it). Typically a lack of response is interpretted as an election to defer payment.

Whereas this is in the Cafeteria Plan forum (ie Section 125) and whereas the original post never suggests otherwise, why are these answers skewing away from Section 125 context? Chaz is exactly right that Section 125 needs to be taken into account given the location of the posting and the lack of anything saying it's not applicable in this situation. If an answer is to be given out of the context of a Section 125 this it needs to expressly say so.

I'd actually read this to mean the coverage itself must be for different periods (plan years) and not just the election period. But it's a good suggestion by chloe for a possible solution to this.

Can't mix and match types of plans. The 401(k) has to satisfy its own MRD (can't even use another 401(k) to satify it). You can use one IRA to satisfy another IRA (which is why the question generally comes up at all).

Yep - The purchase of an annuity commencing next year does not obviate the need for a distribution this year.

Bird's right on. If Fred didn't get it taken, then Wilma has to. And I agree that the right amount of money needs to come out of the plan now regardless of which account it's in.

See page 62 (and pages 48-51) of Pub 590 at www.irs.gov (follow the forms and publications link). Another place to look is the instructions for form 5329 (which is where a penalty on the excess contribution would be reported and also where an excess from a prior year can be applied to a subsequent year). You might call your IRA company and see if they're able to assist you; for example, since it's still the current year, they may be able to move this year's contributions to a non-deductible traditional IRA. For future years, I'd suggest putting the amount into a savings or other taxable account until you know for certain where you are on the limit and then contribute to a Roth or non-deductible traditional IRA before filing your tax return but after you know your AGI.

The problem is that benefit offerings are a complex assortment of products available thru a myriad of different channels. You can't buy "law" by going directly to court house, but you can buy insurance by going directly to insurance company. Or you can go thru a broker. Or you can hire a consultant. Or you can buy it bundled w/ some other product from another vendor (like thru your payroll service). Try the listings on this site's yellowpages: http://benefitslink.com/yellowpages/ Sounds like what you want is a consultant or a third-party administrator (TPA) who does consulting. There's a decent sized listing under both categories. You can also look under individual products to find providers who specialize in that area.

Do read Pub 590. One thing to distinguish is whether you can contribute versus whether you can deduct the contribution from your taxable income. Generally you can contribute but are restricted on when you can take a tax deduction. Pub 590 will explain the rules, which include an income limitation, on when you can deduct your contribution. If you cannot deduct your contribution, then you can consider whether to make a non-deductible contribution or to make a Roth contribution. Pub 590 also explains about Roth IRAs. You'll find the rules on deductibility apply the same whether it is you or your spouse enrolled in the work place retirement plan. The 401(k) may allow you to contribute more per year than an IRA would, depending on your circumstances and the rules in the 401(k).

Thanks all.

But if becoming active under the DHS plan causes ineligibility under the company's plan, wouldn't the change in eligibility for insurance be a change in status? Of course that assumes the employee would become ineligible and not that the company's plan would simply become secondary. (Though leevena hit on the bigger issue, that the DHS plan requires no current coverage.)

Yep, that was going to be my next step if I decided to stick my nose further into it. She seems content to let DHS process her paperwork and is confident that she's still eligible for the plan despite the improper termination in August, so I'll probably just leave well enough alone. Thanks for the insights.

Thanks for the reply. Looking at the other way.... would it be a change in status if she enrolled now and then regained DHS coverage in a month or three? Would we then be able to drop her on our plan?

As long as the person has a listed phone number and hasn't moved out of state, some online phone directories can be useful as a first step. We would use anywho.com (which is an AT&T product) before trying other resources. It was most helpful a) when the person had merely moved across town or to a nearby town (google maps was handy for looking up unknown towns) and b) when the person had a reasonably unique name (e.g., not John Smith).

Odd situation... 19-year old employee, should be covered thru State program by DHS and foster care system. Coverage was wrongly terminated in August. She is now in process of getting reapproved and was told by DHS to not take our insurance during annual enrollment. My question: Suppose she's denied in a couple months. (I wouldn't expect her to be denied but just thinking ahead while we're still in open enrollment.) Is that denial of coverage a sufficient change in status at that time? I know if she was actively covered and lost it, then it would be. But what about where the State's rules say she should be covered and DHS said not to take it and is then denied?

Presuming the employer ever files one or the IRS ever catches the lack of filing and goes back to them.

Of course could probably use the regs for eliminating optional forms of benefit to synchronize the two plans beforehand and hopefully not have it be too big a mess in that regard.

If you have any professional certifications, you might review their ethical conduct codes and see if any of them would make you feel compelled one way or another.