saabraa

Most plans use the safe harbor definition of hardship. Expenses for medical care is one of the 4 safe harbor reasons. It's a stretch to say medical insurance is for the care of the employee. Hardship distributions can't be rolled over. That's why they're exempt from 20% withholding. Excepting amount needed to pay taxes, there can't be any distribution of an amount in excess of the hardship. Hardship can avoid 10% early distribution tax to the extent: Potentially deductible medical expenses exceed 7 1/2% of adjusted gross income (regardless of whether med expenses are actually deducted on Schedule A), The distribution is used to acquire principal residence

I vote for another 1099-R for the beneficiary for $10,000. The $10,000 loan outstanding remains a plan asset/investment that could be rolled over within 60 days of the offset. I'm just asking; did you check instructions for F. 1099-R?

As far as I know, the IRA custodian/trustee must show fair market value of the account on the annual Form 5498.

Try Internal Revenue regulation section 1.401(b)-1(a) for the cite. SEPs can now deduct up to 25% of net earnings.

Yes

Are you asking whether IRS can audit years prior to 2002, in this situation? If so, I've never heard of that happening. My experience has been that filing the basic 5500 itself, with or without the Schedule P, suffices to start the running of the SOL. The prime piece of information on Schedule P is the trustee's signature. As for the trust EIN, the instructions to Schedule P tell you to enter the trust i.d. #, IF YOU HAVE ONE. For many plans, the number falls off the IRS system within a couple of years, when no money's been transacted to IRS under the number.

what is his limit in the 4K? $15K less his max simple contribution? Basically, you're correct. In this case, the 402(g) individual limit of $15,000 is reduced by the SIMPLE elective deferrals. I presume no other glitches; e.g. self employment compensation is large enough to cover the $5,000 or so of elective deferrals to the 401k. And of course you already know about the 25% employer contribution permitted in the 401k, over and above the elective deferrals.

Presuming the $148,000 is net income from self employment and is not w-2 income--- ($148,000 less 1/2 self employment tax) times 20% = the maximum 'employer' contribution. If, for example, 1/2 of self employment tax is $7726, then you wind up at a little over $28,000 as the maximum employer contribution. This must be reduced to exactly $28,000 if $14,000 has already been contributed under the 401k feature. Do not reduce the $148,000 by the amount of elective deferrals.

Doesn't immediately look like there's any controlled group issue under code 414b and/or 414c. We'll presume you included all relevant facts, such as possible ownership attribution from or to spouses and children. The general rule for constituting a controlled group for purposes of the retirement plan rules specifies an 80% or greater ownership interest in common by the same 5 or fewer owning entities. Affiliated groups under Internal Revenue code subsection 414(m) have more to do with functional relationships between the 2 businesses. You already said you don't serve the second LLC and presumably the reverse is true for your partner. And if furthermore there's no business relationship between the 2 businesses, you're good to go on your 401k, without concern regarding others becoming eligible. You can try to do a do it yourself determination of this affiliated service group status or lack thereof by using IRS Form 8388 and also document 7005. This Worksheet 10 and its explanation are refreshingly short, compared to some of the other worksheets. You can find these by going to the IRS website. Then click into "retirement plan community." Then click "more topics." Next, look to the right and click "determinations." The next click is on "alert guidelines." Finally, look at the above mentioned material. Have a wonderful holiday season.

My first thought is that 98.55 is a feasible percentage rate for "otherwise received in cash." Our $10,000 individual defers $9,855 and receives a $300 match from the employer, for a total of $10,155. I don't know of anything in the SIMPLE-Ira rules that's been violated. If the same thing happened in a 401 plan, I don't know how it's NOT a problem, other than having catchup contributions in a SIMPLE 401k plan in 2004.

2. I'd first consider potential UBI issue. .... Why would there be a UBIT issue? Is flipping RE any different from buying and selling stocks & bonds and investing in Options? Does anyone know of someone subjected to UBIT in the .com bonanza? The IRC and regulations under subsection 513© and 1.513© get into the concept of a trade or business that's regularly carried on. It's one of those facts and circumstances determinations. If the sponsor of the plan is already a realtor or developer, the UBI possibility goes way up. On the other hand, even where the plan sponsor's normal business activity is very different than the plan's source of income, I think a trust that exclusively flips property has significant potential of being subject to UBIT. Trading in securities IS qualitatively different. As for the dot com bonanza, I know of no one subjected to UBIT as a result.

2. Is there a problem if the real estate properties are bought and sold frequently (i.e. flipping the properties)? 1. Not necessarily. 2. I'd first consider potential UBI issue. 3. Regarding Mwyatt's client, the client likely has a minimum required distributions to make. Is the plan properly valuing the investments?

I see no issue, presuming the written plan is not contradicted. I'm more familiar with an ESOP distributing a note that releases shares of employer securities over 5 years. In this situation, the note is fully taxable in the year of distribution (100% of the benefit), unless the NOTE is timely rolled over.

Can a participant of a 401(k) age take an in service distribution and roll it to an IRA and not have the mandatory 20% withholding? What do you mean by a "401(k) age?" Are you, the presumed plan participant, a current employee of the 401k sponsor? What does the written plan document say about in-service distributions? I predict most plan documents don't allow in service distributions. If a direct rollover/transfer is permissible and effected, you avoid withholding.

Archimage is correct.

In case you didn't know, and presuming you have a one participant plan, a 401k might provide a larger deduction. The 401k allows the same 20% deduction allowed by the SEP, plus it allows for a so called employee deferral under the 401k portion---possibly $14-18000 over and above the "employer" 20% part. In many situations, you'll get closer to the $42,000 limit (46,000 if age 50 no later than 12/31/05) than the SEP allows. This 401k is a 'qualified' plan and therefore requires more overhead. At a minimum, remember 2 things: Amend the plan when you're told to (if you want it to be effective for this year, sign it before 1/1/06. The SEP, on the other hand, can be adopted as late as your tax return's due date, including extensions). Sooner or later, you'll need to file at least 1 Form 5500 series return, probably a 5500-EZ.

The IRS had some 'tack on' amendments for TDR. One set was for DC and one was for DB. There were a small number of options to choose/blanks to fill in. See if the auditor can kindly obtain a set for you, in the interest of getting the case closed sooner.

That's correct. There was an ASPA conference question, and the IRS informally stated generically that QDRO alternate payee balances and distributions are part of the topheavy calculation and are attributed to the original employee participant.

I wouldn't automatically agree that there's been a discontinuance of contributions which requires full vesting. The mere cessation of contributions is only part of the story--The rest of the requirement is that there's LACK of a valid business reason for the cessation. Going out of business, lack of profit, using most of your equity for capital improvements; these are all examples of situations refuting the "cessation" assertion. On the other hand, the current situation does suggest real possibilities for a partial termination. Anyone "affected" in a partial termination must be fully vested. And someone already mentioned that those participants who have been cashed out of any vested balance and have additionally forfeited their non-vested account balance according to the plan's provisions, prior to the effective date of plan termination (and are not affected participants of a partial termination) can legally be said to have properly forfeited the nonvested balance.

Sometimes an employer contribution that's for a prior year can impact this year's box 13. For example, an employee deferred $2 into a 401k in 2004. The employer matches on a DISCRETIONARY basis; in January of 2005 the board of directors decides to match the employee $1. The "x" goes in the active participant/pension plan box on the 2005 w-2. Or just a regular profit-sharing contribution. Same scenario as above, except the employee deferred $0. The employer still contributes profit sharing for the employee in 2005. The employee is an active p for 2005.

Do the Form 5329 instructions contain an error at the bottom of page 3? If you look at the last full paragraph's last sentence, it says to not treat rollovers as an excess contribution. Maybe should have said, "Do not treat valid/allowable rollovers as an excess contribution."

I don't see anything to prevent adding the 401k.

The most on-point discussion of the IRS position that I'm aware of is GCM (General Counsel Memorandum) 39824. I'm confused and a little suspicious of the whole "now we're a sponsor.......whoops; now were not," scenario. I don't readily see anything that ever occurred to substantively make B a sponsor. Can't say I've seen it all by a long shot, but it sounds potentially like a sham for the very purpose of denying distributions. The 401k discussion regarding separation from service, including the recent liberalizing change, isn,t relevant for a DB plan.

How does the plan define "eligibility computation period" and "entry date?"