saabraa

Yes, the leave payment constitutes earned income for IRA purposes, as does the final regular paycheck. But don't forget the active participant aspect. You'll receive a w-2 for 2007 showing an "X" in box 13 (pension plan), meaning you actively participated in an employer sponsored plan in your 2007 tax year. So, depending upon the amount of your modified adjusted gross income for 2007, your deduction could be reduced or eliminated.

Age is not a problem in contributing to qualified 401(a) plan or SEP Ira. Traditional Ira contributions are not allowed once he's reached the year when age 70 1/2 is attained.

Why can't the plan document for the SEP be a Form 5305-SEP? Granted, the 5305-SEP includes a sentence that says not to use it if a qualified plan is maintained by the same employer. The only plausible reason I've ever heard for the preclusion is that the 5305-SEP is designed for the 1 plan employer. The existence of another plan would require a few more sentences to account for section 415 and 416 provisions. Presuming the plan sponsor has complied with any operational areas where the 2 plans interface, on what basis does either plan have a problem?

The switch can be made, regardless of whether contributions have been made to the SEP. The main and perhaps only concern is to be sure to consider both plans in the aggregate, when measuring section 415 and 416 compliance. If the 401(k) document allows rollovers from IRAs, then it's up to the individual participants to roll or not.

Absent anything more on point, I would go with the 2 week period that's not less than 7 days nor more than 21 days prior to IRS receipt of the application. The reg somewhere specifies same as when to post the notice.

The first sentence of IRC section 401(a) says that a qualified plan is a plan of the employer for its employees. 401(a)(26) participation is a problem if there's more than 1 otherwise eligible employee, aside from the one partner being discussed. Must cover at least 40% of the eligible employees, even if they're all HCEs.

You haven't provided enough facts for a precise response. It sounds like you received a Form 1099-R that shows $10,500 of taxable income. If the 1099-R says 2006 on it, then it's taxable in 2006, but it's also likely you should look into sending in estimated tax payment(s). See Form 1040 ES for more info on that. If the 1099 R is for 2005, then you need to amend your 2005 and pay the additional tax. If you don't, you'll eventually receive a notice from IRS that tells you that you owe tax and interest---and possibly penalty. The letter from the company probably gives a date as of which the "distribution" is deemed or offset. If it was an offset, that is, you simultaneously received the remainder of your account balance (probably because you left that job and became eligible for same), you have 60 days from the date of the offset to rollover any portion of the $10,500 you're willing and able to rollover, thereby avoiding tax and penalty on that portion. There's no reason to send the 1099-R to IRS if it doesn't show there was withholding of tax.

You're correct about her inability to remove her deferral balance. As for hardships, one of the rules from the old regs which is presumably still present in the newer regs is that participant must max out on any permissible plan loans, UNLESS doing so would increase the hardship. For example, having loan payments to make might not be feasible given her budget. Or if the hardship is needing funds to purchase a home, it could make it more difficult to qualify (not sure if that would be construed as "increasing the hardship.").

Yes. Regarding RMD, I believe you can avoid a 2006 requirement if nothing has actually/physically been contributed as of 12/31/06.

Sounds ok to me, as long as it's a profit sharing plan.

The correction process deals with qualification issues. To impact the qualified status of a plan, there has to be a violation of section 401(a) of the Internal Revenue code. The excise tax issues found on the Form 5330 do not link to 401(a). Somewhere in Rev Proc 2003-44 it'll say essentially the same thing. For your funding situation, section 4971 and its regulations tell you the tax kicks in when you've gone beyond 8 1/2 months past the end of the plan year, and the plan is underfunded. Maybe you should get rid of the money purchase plan like many others have done, now that psp allows 25% contribution.

There is no qualification failure. You may need to file form 5330 and pay excise tax on the funding deficiency. You must repay money purchase plan, including interest. If you are past the deduction deadline for the psp, there's no going back to contribute for that year.

My thoughts: The SIMPLE must be maintained thru 12/31/06. New hires of the acquiring company are eligible for the SIMPLE. No current or new employees of the acquired entity (your original client) are eligible for the SIMPLE (presuming the 2 entities are still identifiable as such/have not been commingled). The lack of verbiage on SIMPLES is refreshing, except when situations occur that don't fit neatly into the sparse guidance that exists. The code under 408(p) and Notice 98-4 are basically the authorities. Question and answer B-3 (2) of the Notice looks to be the most pertinent cite for your coverage situation. It appears fairly clear. As far as the ability to terminate the SIMPLE, I too originally thought to treat it like a PSP. The authoritative language doesn't appear to definitively preclude termination short of 12/31. But IRS feels any SIMPLE plan year must continue thru 12/31. My best guess is they're leaning on language defining compensation to always be the whole year's compensation. ............................Just saw your prior post under SEP/SIMPLE category last month, where you clarified that the SIMPLE was properly ended in 2005. But you posted that a while ago, so: I stand by my original response above, if deferrals have been made to the SIMPLE for 2006. (Except what exactly was the notice given to employees? SIMPLE or no SIMPLE?) . If there's no problem with the notice, whatever it said, and no ctbns have been made to the SIMPLE for 2006, I agree with Gary Lesser, except I like dogs a bit better. Sorry.

I know of nothing against it from a legal perspective. You'll need a social security number. From a tax planning standpoint, I have no opinion, and anyone who does is likely to need more facts. Offhand, your idea sounds like a good one.

Never mind. DOL reg 2510.3-(1)(j) describes the features of the typical POP. This cite does take it out of the welfare plan definition entirely. I'm back with my original response and realize that even though this back and forth stuff is off the cuff, it's still best to fully research something before running one's mouth. Also enforces Mrs. Guenther's rule stated in 6th grade science class, "Your first answer is normally your best."

E, your first sentence is correct. The 2nd sentence is what I originally thought but changed position after reading the regs. Please show me if I missed something: Reg 2520.104-20(b)(1) says there's a filing exemption only if <100 p's at beginning of year. Reg 2520.104-44(e) says if >100, then you don't need an audit but still need 5500. I don't see anything kicking the POP out of the basic welfare plan definition at Erisa sec. 3(1). (Even as I write the prior sentence, the phrase "payroll practice plan" comes to mind. Not sure where DOL talks about these, but maybe that's verbiage defining arrangements not considered to be welfare plans at all). DOL Technical Release 92-01 deals with finer points of eligibility for the exceptions; i.e., is such and such a situation still going to be considered unfunded or fully insured, for reporting purposes. Notice 2002-24 was unilaterally released by IRS and explicitly says you have to separately look at the DOL (Erisa) aspect. We're agreed on that. Correct me if I err in presuming that most service providers enter into contracts to prepare the required 5500 and do not somehow specify that this is only from the perspective of the IRS/fringe/POP, thus leaving the client to get someone else to consider the Erisa part. And just because the original question used IRS lingo and did not explicitly ask about the Erisa part does not mean they're a disinterested party re Erisa.

I don't understand your comment. Are you saying it's possible a plan with >100 p's can potentially escape filing a 5500 altogether? Notice 2002-24 says "We at IRS are doing a 180. Whereas the former rule was all fringe plans must file, the new rule is that no specified fringe plan need file for IRS purposes. Now you must proceed to step 2 and look at the DOL's welfare plan rules, which are unchanged." (paraphrased). So we look at the DOL verbiage. I think we have to set aside the subtleties that separate the fringe plan component from the underlying welfare plan(s), when the bottom line question is "do I have to file a 5500 for this arrangement?" I don't understand how an administrator can say that since there's no IRS requirement to file, and since I was hired to deal with the POP part, that's the end of the concern. Looking at the DOL exceptions from their general rules, I read that the particular arrangement we're discussing must file as a welfare plan but very possibly is exempt from the CPA audit. Haven't quite figured out if the exemptions are merely carving out relief from parts/all of DOL's usual filing/disclosure requirements or are actually concluding that this or that arrangement is now deemed to be (pick one or more depending on the facts): a) not a welfare plan, (b)unfunded after all, even tho it contains employee contributions, ©fully insured after all, even tho it isn't. At this point, I'm thinking I was wrong the first time.

But the original post didn't ask about the filing obligations for the underlying plan or plans. The question is just about whether there is a Form 5500 filing obligation with respect to the POP. Running with the presumption that the original poster might be interested in knowing about the requirements or lack thereof applicable to the underlying welfare plan--Further review (F. 5500 instructions, left hand column of page 4, second of three 'notes') shows the correct key cite here is DOL Technical Release 92-01 (time flies when you're having fun), aka 57 FR 23272. The DOL regs describing welfare plan exemptions from certain reporting requirements are 2520.104-20 and 2520.104-44. Looking at the above cites, my revised gist of it is that a plan with more than 100 participants must file a 5500 but is exempt from the audit if the plan exhibits the relevant specs. And the presence of employer contributions doesn't necessarily hurt the exemption. There can't be a trust and the contributions by employer must be from its general assets. The employee contributions must be used to pay the premiums within 90 days.

We started out saying this is a pure fringe plan, whatever that is. I can't immediately find my F 5500 instructions, but they reference a DOL pronouncement 2001-2 or was it 2002-1, which describes the fringe characteristics that result in exemption from filing). The gist of 2001-2 is that if there's ONLY employee money involved (no chipping in by the employer), and if that money is used within 60 days to pay for premiums, then there's no filing required.

No, severance pay is part of the definition of wages under the 3401 regulations.

Thanks in advance for any advice. I'm addressing a question you didn't ask and perhaps have already considered. If either you or your spouse has a Form w-2 where the "pension plan" box is checked, it's likely one or both of you is not eligible for the full $4,000 deduction. The 'active participant' rules kick in when you're considered to have participated in a business sponsored plan for the given year. When you're an active participant, you need to look at income level to calculate how much of a deduction is allowed, if any.

For $39, you can request a complete copy (you do not want a transcript) of your tax return. You have to fill out Form 4506. I would request the 2004 year and if possible, specifically mention that the 5498 is what you're looking for. The custodian/trustee of the IRA must send a copy of this form to IRS and to you each year. Even though you're not receiving your copy, presumably the IRS is getting theirs. The 5498 contains a summary of your IRA's activity for the year, including ending balance. (also includes name and address of custodian) You might try to contact IRS to confirm that obtaining the 5498 is doable. I found one web site that said it is, but it wasn't an IRS site.

I stand corrected on that point. When I actually referred to the 401k regs, they do cite 213(d) as the definer of medical expenses.

My opinion is: One batch of 1099's, but some say ABC PSP and some say payor is ABC Esop. One F. 945 with employer's name, ABC Co.