masteff

First, IRS Code section 72(t)(2)(A)(v) provides an exception for the 10% penalty for distributions "made to an employee after separation from service after attainment of age 55". The instructions for Form 5329 actually say "in or after the year you reach age 55". Second, it depends on the plan's rules as to what type of withdrawals are available after separation from service. Some plans only allow lump sum distributions. Others allow monthly installments. Others allow "as needed" withdrawals. The only way to know is ask the plan sponsor and/or review the summary plan description. Third, the amount of monthly installment payments generally can be any amount and does not have to use any of the IRS tables, UNLESS the person is either subject to minimum required distributions or is using certain methods to set up a series of substantially equal payments per Section 72(t)(2)(A)(iv) to avoid the 10% penalty.

Going back to the original question, depends if you mean DB or DC. QRP can be an inexact acronym. DB -- the ones I've worked with had provisions that the employee could withdraw their contributions but would lose any associated benefit making it a very costly withdrawal DC -- depends on the plan's provisions. It is possible to have a withdrawal solely of after-tax monies (proportional between contributions and earnings).

True, and that's useful from the individual's point of view. But my question pertains to the employer's point of view. Pub 590 also states: "The Form W-2 you receive from your employer has a box used to indicate whether you were covered for the year. The “Retirement Plan” box should be checked if you were covered." Therefore Bird's answer above is important because the notice and thread he provided make it definitive when the box on form W-2 gets marked by the employer.

If you read pub 590, I'll assume you also read EPCRS. While this isn't an exact fact pattern provided in SCP, it certainly appears to meet the criteria. Simple's are covered by EPCRS. And the Simple did accept a rollover from a source other than another Simple when the plan document doesn't provide for such, which would meet the general definition of an operational failure.

IRS Pub 590 (pg 70) says: "Traditional IRA mistakenly moved to SIMPLE IRA. If you mistakenly roll over or transfer an amount from a traditional IRA to a SIMPLE IRA, you can later recharacterize the amount as a contribution to another traditional IRA." While it's discussing monies coming from a traditional IRA, I'd presume the same would apply in your circumstance.

It's not the amount of the contribution, rather box 13 is a check box that indicates the individual is an active participant in a retirement plan.

Thank you very much. It made sense it'd be next year's W-2 but when did the tax code ever make sense.

But does that presume the intent of making the contribution is known? Since profit share is optional, unless I'm not understanding something, it could potentially be decided after the issuance of W-2's that a PS contribution will be made.

My current employer has no retirement plans. We're considering using a profit share to move part of what's currently paid as annual bonus to a retirement contribution. I'm aware that the plan has to be in place before year end for the contribution to be deductible this year. Since we have no current plan, some employees have already funded their IRAs for this year. As W-2 box 13 is a primary indicator of whether an employee is subject to limitations on deductible IRAs, I'm trying to understand when box 13 gets marked for the first year's PS contribution. The thing that confuses me is the instructions for W-2 say: "Generally, an employee is an active participant if covered by ... a defined contribution plan (for example, a section 401(k) plan) for any tax year that employer or employee contributions (or forfeitures) are added to his or her account." If the contribution is made in 2008 after the 2007 W-2 is prepared and distributed, the box would not have been marked because the contribution would not have been made yet. Instructions for W-2C address correction of errors and not subsequent events like first year profit share contributions. So my question for the forum is: if a first time PS contribution is made in 2008 based on employees' 2007 eligible compensation, how would you handle box 13 for 2007 and 2008?

Guess we need to clarify what the individual means by "remove and substitute". Does he mean he wants to sell the LP investment and then use the proceeds to purchase another investment? That's perfectly fine as long as it's done inside the IRA. Does he mean move the LP from inside the IRA to outside the IRA but still in his possession? And the replacement would be something he owns outside the IRA and then would move into the IRA? Exchange of investments between an IRA and its owner is a prohibited transaction. See Q&A's 2 & 6 here: http://www.irs.gov/retirement/article/0,,id=163722,00.html

Just to add to what Jim said... So the real trick when talking to the financial institutions will be to make sure they confirm the regular 401(k) they're trying to sell you does in fact allow you to elect a Roth 401(k) feature. Most should have Roth as a feature but you don't want to get stuck w/ the one firm who doesn't.

Even if it's a one person plan, nothing to prevent her from using an equivalent formula to safe harbor. Wouldn't that give the same net effect?

By Waiver of Participation, does that simply mean the employee has elected to not make deferrals or does that mean something more?

The unsigned designation is not valid; ignore it. The signed designation is only valid if a) he was single at the time or b) he was married and the spouse signed consent. If the plan sponsor truly suspects the person might have still been married, then they need to investigate that. I'd start w/ his long-time coworkers who might remember hearing about any divorce. Then, it would be a matter of doing a search of records for the divorce. Assuming the participant has lived continuously in Virginia, the plan sponsor can try the Office of Vital Records ( http://www.vdh.state.va.us/Vital_Records/index.htm ).

Services like CCH and RIA offer model loan agreements as part of larger packages. Thompson Forms appears to allow you to purchase just specific forms (fairly nominal price). http://forms.thompson.com/hrportal/search....cat&catid=1 (if you click to view details on a form, you can then click to view a sample and see if it's what you're looking for) (I'm guessing what you mean, since you specify terms for the loan, is a model agreement, versus actual document text. If I'm wrong in that assumption, sorry.)

But is the existence of insurance coverage really PHI? I've had the understanding that it's not. http://www.hhs.gov/ocr/privacysummary.pdf “Individually identifiable health information” is information, including demographic data, that relates to: • the individual’s past, present or future physical or mental health or condition, • the provision of health care to the individual, or • the past, present, or future payment for the provision of health care to the individual, and that identifies the individual or for which there is a reasonable basis to believe can be used to identify the individual. Existence of coverage does not give any indication to: physical condition, the actual provision of health care, or payment of claims for actual provision of health care.

This was a close as I could find for the price you quoted. It's not the standards themselves but the codification of them. Might also try your public or local university library. http://www.aicpa.org/Professional+Resource...g_standards.htm

Okay... given the disenting opinions above, I went and found the better answer. Reg 1.401(a)(31)-1 Q&A-16 Q-16: Must a direct rollover option be provided for an eligible rollover distribution that is in the form of a plan loan offset amount? A-16: A plan will not fail to satisfy section 401(a)(31) merely because the plan does not permit a distributee to elect a direct rollover of an eligible rollover distribution in the form of a plan loan offset amount. Section 1.402©-2(b), Q&A-9 defines a plan loan offset amount, in general, as a distribution that occurs when, under the terms governing a plan loan, the participant's accrued benefit is reduced (offset) in order to repay the loan. A plan administrator is permitted to allow a direct rollover of a participant note for a plan loan to a qualified trust described in section 401(a) or a qualified annuity plan described in section 403(a). See Sec. 1.402©-2, Q&A-9 for examples illustrating the rules for plan loan offset amounts that are set forth in this Q&A-16. See Sec. 31.3405©-1, Q&A-11 of this chapter for guidance concerning special withholding rules that apply to a distribution in the form of a plan loan offset amount. The way I read this is that you'd need to read the Plan document section on direct rollovers and make sure it doesn't limit the form of direct rollover (eg, cash only). This would then determine whether you can do the 1099-R as a direct rollover or if it's a distribution w/ subsequent rollover.

Rollover of a designated Roth account to a Roth IRA was established by EGTRRA section 617 ( http://www.irs.gov/pub/irs-utl/egtrra_law.pdf ). Specifically it added language at 408A(e) which cross references 402A©(3)(A). This language was effective for taxable years beginning after Dec 31, 2005. This should not be confused w/ the further changes that result from PPA, which is the PL Gary cited. EDIT: Quick thought... looking back at your question... might need to make sure you're looking at the most current version of 408A.

Special Tax Notice says "If your employment ends and you have an outstanding loan from your Plan, your employer may reduce (or "offset") your balance in the Plan by the amount of the loan you have not repaid. The amount of your loan offset is treated as a distribution to you at the time of the offset and will be taxed, if otherwise taxable, unless you roll over an amount equal to the amount of your loan offset to another employer plan or an IRA within 60 days of the date of the offset." This matches my understanding that the distributing plan treats a loan offset simply as a distribution (code 1 or 2). The participant then has, as stated above, 60-days to make a rollover contribution equal to the amount of the loan offset. (Can't rollover the loan per se, have to put equal amount of cash into the receiving plan and then take a loan from it, in order to have that net effect.) If the loan was in default, then you'd use code L and the loan would not be rollover eligible.

Fortunately, PPA made the EGTRRA portability provisions permanent. Meaning, no real fear that IRA won't be rollover eligible for qualified plans in the foreseeable future.

Rollover of IRA monies to qualified plans was added by EGTRRA. Unless your plan has deemed IRAs and the money was explicitly rolled into a deemed IRA, then the money is simply treated as regular roll over money. It loses it's IRA nature and is subject to the plan's rules governing rollover money (including whether it's available for loans).

Getting into HR and total compensation theory can always get a bit sticky. All depends on points of view and what the desired outcomes are. One issue is how you define a competitive salary. Another issue is whether other employees can opt out of benefits and take that money as extra salary as well. Also, you said the insurance cost more than expected, which means it's a larger sum of money than the organization had really intended to spend, so why would you keep spending that much given the option? A more fair thing than just giving him the entire amount as salary might be to pay the difference in the wife's cost between single coverage and family coverage. This way he's not penalized by taking the other insurance but your organization isn't penalized for the full cost of the existing coverage (which you said was higher than had been hoped). The organization is still providing insurance for the family and he doesn't get a windfall by having taken the less expensive insurance (the windfall in my opinion should stay with the organization). Either way, you want to be sure that the money representing the medical insurance is kept separate from his base salary. Imagine in a couple years that his wife stops working and he asks for insurance again; by keeping it separate from base salary, it's easier to switch from cash back to coverage. The worst scenario would be that he insists it was given to him as a raise and insurance should be added on top of that.

Have you received a past due notice on your taxes? And does it make reference to the consequences of failing to pay your taxes, such as tax liens and/or seizure? If so, then you can likely take a hardship w/drwl to prevent eviction or foreclosure. But you can only take enough to cover this year's taxes (as part is past due and part is due by the time the w/drwl could be processed). You might do a search on this board for "prevent eviction" to see similar threads and discussions. As for the other debts... Congress and the IRS established a very narrow definition of hardship for this type of withdrawal. Paying down your debts will not qualify. You should talk w/ your plan administrator to determine what qualifying reasons the plan allows for withdrawals and see if you meet any of those reasons. As to the tax and penalty... you pay based on the full gross amount of the distribution.

Be careful of opening Pandora's box. How many particpants in pay status might be similarly situated? Has anyone else in pay ever asked for this before and been denied? Rather than repeat it, re-read Pax's last sentence above.