GMK

Yes. I think Dave's on it.

Heard about it. Haven't seen it yet.

but it could have. As you know, there are fewer worries if you consider the consequences before, rather than after, adopting the amendment. A stitch in time ... and all that. Anyway, posts #10 and #11 here: http://benefitslink.com/boards/index.php?showtopic=39718 give some guidance.

masteff - You are correct. He's innocent of tax cheating unless and until he does it. He did come back and ask for a corrected 1099, but originally he came and asked for a rollover distribution. And when he decided he wanted cash instead, he did not request a "corrected" distribution. Instead he cashed a check that was not payable to him (not so innocent an act) and thereby just so happened to bypass withholding. I think Mr. Norman is correct in calling a corrected 1099 the third error. And if the plan accommodates this guy under these circumstances, they need to be careful that they are not less accommodating to future participants who play fast and loose with distributions. I very much like your suggestion of using a form 5329 in this situation. Sorry, but it doesn't sound the same to me. In this case the insurance company did not do what the participant requested, presumably because for some reason the insurance company's records did not specify that the distribution was to fund a loan. In the OP, the plan's records were accurate, it correctly issued the rollover distribution in accordance with the participant's request, and it documented the distribution correctly in the 1099R. The 1099 reports what the plan did. As long as the 1099 reports the rollover distribution, and the check was made payable to the rollover receiving account, the plan has done what is prudent and right, and it does not share any responsibility for the distributee's later misdeeds. If the plan issues a revised 1099 indicating a direct payment, then the plan is saying that the original 1099 was wrong. In so doing, the plan acknowledges that the distributee's highly questionable post-distribution finagling was an action that the plan recognizes as legitimate under its distribution procedures and which requires the issuing of a corrected 1099. And I, too, agree to disagree on this one. Thanks to all for an interesting discussion.

msimpson could check on the details of the check, but the OP says the check was "made payable to the eligible retirement plan," so I figured it was not made payable to the distributee. Then again, I tell people to 'assume nothing.' At the risk of repeating myself, mail the check to the receiving plan.

Really? (BTW, I agree that this doesn't matter to the plan.) Let's see. 1. He requested this rollover distribution, which he could have requested be paid to him (but that would involve 20% withholding). 2. He gets the full payment by cashing a check made payable to someone else, which is highly irregular and in some places illegal. 3. Next spring, he looks at his 1099 (or his accountant looks at his 1099), sees that the taxable amount is zero, files his taxes without including the payment as income, and Bob's your uncle. Step 3 is speculation, but I see it as the most likely conclusion to steps 1 and 2, which he has already taken. Of course, past performance does not guarantee future results, so he may "remember" to pay his taxes on this payment. Kevin C - The plan did pay the distribution as a direct rollover. It issued a check to the rollover receiving account. The participant did not change it into a direct payment. The participant stole the money by illegally cashing a check that was made payable to someone else. The plan's 1099 correctly reports what the plan did. The plan should not now help cover up a crime.

True, true. There is that. And it looked so simple on paper.

msimpson - I recommend that you consider JSimmons' comments very carefully. Since the issuing plan did things correctly and is under no obligation to issue a revised 1099, it shouldn't. The plan does not need to become a party to Mr. Devious' web of deceit. Furthermore, if the plan were to issue a revised 1099, then the plan, not the crook, will receive the on-going requests from the IRS for the withholding (ref. post #17, above), which would be an unwelcome and avoidable penalty on the plan. Of course, the plan may wish to confirm all this with its own attorney.

Am I missing something here? You check at year's end whether any inactive, partially vested participants have five one-year breaks, and you forfeit the unvested balance from those that do. Once they've forfeited their unvested balance, they become 100% vested the remaining balance in their account, and you don't forfeit from fully-vested accounts, so what's to remember? or am I missing something here?

You won't get an argument from me on that. There's something attractive about tax free earnings. Some on these boards point out that there have to be earnings before there's any attraction to paying the taxes now. And earnings were unimpressive in the last decade. But past performance is no guarantee of future results, so you and I keep putting money into Roths.

Thanks, John. You've clarified it for me (once again). I admit to being one of Mr. Rigby's other taxpayers, upset that this crook is likely to pull off his tax free distribution scheme. Of course, it's springtime, from which blossoms the hope that he will do the right thing. 'Past performance is no guarantee of future results' works both ways.

Isn't the rollover receiving plan also a forgery victim here? Someone (a bank, mutual fund, etc.) would have been making more money if the deposit to the receiving plan had been properly made. I wonder if the receiving plan ever asked what happened to the money they were supposed to get, but that is not the issuing plan's concern. Thanks, JSimmons, for the explanation that the plan does not have to issue a revised 1099. Apparently, the only reason to do so would be to honor Mr. Devious' request for a revised 1099, which would inform the IRS that he owes taxes on the distribution he took. But the revised 1099 would show no withholding, so maybe the plan should also attach a note to the IRS explaining why it did not withhold. Hmmm, that works for me. I'm having trouble with knowingly letting him off tax-free as being a prudent act.

If the point is whether or not the distributee pays his taxes, then issue the corrected 1099. How else is the IRS to know that the distribution is taxable? If this guy thinks it's OK to cash a check that is made payable to a rollover receiving account, what's to stop him from using the uncorrected 1099 as evidence of a taxable amount of zero when he does his taxes next year, his integrity?

I assume that the check was properly made out and therefore agree that it is not the Plan's fault. Sounds like the distributee should have followed the age-old advice of consulting a tax or financial advisor before "taking" a distribution from the Plan. Let the distributee and whoever cashed the check try to explain to the IRS what's wrong with the 1099 that the Plan issued. As a suggestion for future reference, mail the check to the receiving plan.

You can count all of the $15,000 or so (from after-tax contributions before 1987) first in the transfer to the Roth, and this part is tax free. Then the rest of the transfer amount is taxable.

Quick answer: Consider the contributions you made before 1987 separately from those you made after 1986. For the part you contributed before 1987, if you roll this part to your Roth, you will not owe taxes on the basis, which is the amount you contributed before 1987 and already paid taxes on. You will owe taxes on the earnings on those contributions, but not on the contributions themselves. Contributions made after 1986 are looked at differently (but it doesn't matter in your case). Distributions of amounts contributed after 1986 are considered to be made up of proportional amounts of your pre-tax and after-tax contributions (and their earnings), but in your case your post-1986 contributions were all pre-tax. So, any amount you roll over to your Roth from your post-1986 contributions and their earnings is taxable. Consult your financial or tax advisor before doing any rollover.

Thanks for keeping us updated. If the wording is such that it is clear that the dollar amount is the amount to be distributed, then the PA will not have a problem with it. The PA could reject the DRO if the wording allows two different interpretations of how much to distribute (with different results). At this point, gotta just wait and see what the PA says.

This is an important matter that is sometimes missed when the amendment is adopted. Unless the plan as amended says that the former employees (as of the effective date of the amendment) stay on the old vesting schedule, they very well could benefit from the new schedule. If vesting is based on years of service, and if the amendment simply says that the new vesting schedule applies to participants, without excluding former employees, and if the rest of the plan document does not exclude former employees from the effects of amendments, then I think the former employees have a case to claim their windfall. ..but that's just my opinion for what it's worth.

HEY! There's nothing poor about my basketball picks. It's just that the teams seem to be going off on their own and doing whatever they choose to and not listening to me. I haven't finished the explosions yet, so I don't which of them I like better.

In total agreement with K2retire, I would add that PA's couldn't be happier than to see a dollar amount in the DRO. The person who may need convincing is the judge, who will (and should) want to be sure that the dollar amount represents half of what it is supposed to, in keeping with the divorce decree that the judge signed. It helps if you and your ex agree that the amount is the appropriate amount. Generally, it sounds like you're headed in the right direction. Hang in there.

Filling out the paperwork for the distribution in advance should be no problem for anyone, and I doubt that Vanguard would have any objection to sending you the form. One last comment is that if you and your ex can agree to a dollar amount to list in the DRO for the ex's benefit as Alternate Payee (and the judge agrees with it), then it will be much easier (and faster) for the PA to know the AP's benefit amount. The PA would not have to take the time to go back and calculate the AP benefit from percentages. Good luck.

For long term planning, I'd lean toward the Roth. We all hope there are huge earnings on our Roth's and 529's, but that's not guaranteed. The Dow Jones Industrial Average was 7965 on the first day Roth's were first available, and at the moment (12 years later) it's at 10756. Where will it be in 17 years? What's going to matter is how much you contribute. These days, earnings are uncertain. My choice of a Roth is only because it gives you more options in the distant (hard to predict) future. I am not a financial planner or expert in much of anything. I'm just expressing my opinion in answer to your question, for what it's worth.

which probably reduces your taxes, but keep in mind that current tax rate reductions sunset after 2010, so tax rates go up next year unless the federal tax laws are revised (which is likely but without form or substance yet).

We all like TPA Man's suggestion, which might work, especially with a copy of the divorce decree, which as QDROphile points out, is a domestic relations order, even if not fully qualified. Otherwise (and maybe at the same time), it's time to bring in QDROphile's With the hit and miss guidance out there, we PA's can get thick headed and arbitrary, but sometimes we yield to well-founded reasoning.

Do the Procedural Rules also specifically say that upon receipt of the QDRO Confirmation the Plan will then delay or not allow any distributions to the participant? (We're looking for an opening here.) It's kind of a catch-22. If you can take the distribution, the QDRO process will begin. If you can't take the distribution (to seek a QDRO), then there's no money for seeking a QDRO (which would make you eligible for the distribution). You could call the PA and ask if they have the phone number for the area EBSA office so you can confirm what they are telling you. Then, whether they give you the number or not, find the number for EBSA and call them, tell them the situation, and ask for their advice. At worst, they will tell you the PA is correct. If you don't want call EBSA yet, at least check out the EBSA website for information.