SFSD

Yes, they could but the participant doesn't want to go this route since too much was withheld to the tune of $2,000. It was our mistake so we are trying to fix it so the participant gets his money now.

We are a TPA and have been advised by our custodian who handles withholding and Form 1099-R reporting that an error in 2010 withholding can no longer be corrected since it's now 2011. I always thought this could be done by filing a Form 843, Claim for Refund and Request for Abatement and Form 941c, Supporting Statement to Correct Information. Then the excess 2010 withholding would be "refunded" in the form of a credit to the payor's account. But, maybe this is ancient history? The custodian says that at this time their Form 945 filing must match their total Form 1099-R filings and that "adjustments" are not allowed. Now I know the IRS can make rules that don't make sense but is that the case here? Mistakes happen and it doesn't seem right we cannot make the appropropriate corrections for the participant. Any ideas? Thanks in advance for your help.

Recently had a client report their audit cost about $33,000. This seems pretty high to me as the last I heard Form 5500 audits were more like the $5,000 to $10,000 neighborhood - for limited scope where the plan has a certified annual asset statement. A full scope audit was required because of the lack of a certified annual statement. Employer uses a TPA for recordkeeping and all money is invested in one mutual fund company that informed them they do not provide certified annual statements. Have you had the same experience with mutual fund companies? Thank you for any information you can share! Employer is located in Texas.

My apologies for the incomplete initial posting! No contributions were ever made to the plan. The debate is when is a plan created including the need to file 5500's - when the documents are signed, when the trust is funded, when the plan is announced to the employees?

An Employer went to all the work to establish a 401(k) plan with a 4% Safe Harbor matching formula but never announced the plan to their employees. Now they have decided they don't want to proceed and the plan has been in effect since the beginning of the year. Do they need to file a 2010 Form 5500? Would your answer change had they elected the 3% Non-Elective Safe Harbor formula?

Interesting. I got one too and brought it to Dave Baker's attention via e-mail. You might want to let him know too. He replied that he's trying to come up with a way to prevent this but there really isn't one at the moment unless he makes signing up a lot more difficult.

Thank you!!!!!!!!!

Thanks to all of you who replied. Finally, I reached a helpful person at the IRS. I learned it is possible to get a refund or tax credit if one has remitted too much withholding to the IRS. This is done on Form 945 when you reconcile what's due versus the amounts paid during the year. Now it's up to the custodian. Unfortunately, the participant doesn't want to go the short-term loan route. Even if they get the tax withheld back when they file their tax return, by then it will be well beyond the 60 days of the original distribution so they won't be able to roll the money.

Naturally, they cannot come up with the funds. My thinking is the only way to get this done is by the custodian issuing a second check to the participant's rollover. Otherwise the 60 days will be long past by the time they get their tax refund. Is there no relief from withholding errors in other than the current tax year?

Depending upon their tax picture, they may or may not be entitled to get all of it back. Also, they will have the 10% penalty for a premature distribution. Most important, they want the roll the money to their IRA. The only way to accomplish this that I can think of so far is to get the funds back in the custodian's hands so a check payable to the participants IRA can be issued.

In December of 2007, federal tax was withheld in error. It was the participant's intention to roll their entire distribution to an IRA and the mistake was not theirs. Now with the consolidated 945 coming due at the end of the month, we're trying to figure out if there is a way to recover the 2007 withholding. The custodian is stating there is not. The IRS has moderated their position on some items and I'm wondering if this is among them? Any ideas?