K2retire

The TSP actually encourages you to leave money in the plan and annuitize distribution payments at normal retirement age.

The available funds are widely reported to be among the lowest cost in the industry. Since my husband retired and moved his money to an IRA I haven't kept up with their returns, but they were pretty much middle of the road in the late 90s and early 00s. The rather generic fund descriptions would probably be helpful to those who are overwhelmed by investment choices that they don't understand. The default distribution is a QJSA that very few participants seem to want, although that seems to be changing since 2008. As an option for those who are not covered by a workplace retirement plan, I think it has potential.

The comment about no capital gains tax seems misleading. It is true that you don't pay capital gains tax on the transaction, but since the eventual withdrawal is taxed at the higher regular tax rate, I don't see how that is an advantage.

I like the thought process, but we are talking about IRS rules that don't necessarily make sense. The same could be said of the tax on excess group term life insurance and it is taxable.

What the top heavy comment is saying is that when you don't give the otherwise excludables a 3% safe harbor, you may end up having to give them a 3% top heavy minimum instead.

There is no doubt that practices vary among firms, and sometimes within the firm based on what the client negotiates. As a practical matter, compensation, hours and eligibility must be tracked for all employees, regardless of account balance because they must be included in testing. Account balances of terminated employees must be tracked to determine top heavy status and RMDs. Terminated participants also must receive various notices. The bottom line is that whether or not a fee is charged, all of these participants increase the workload.

A big part of this issue stems from the fact that the date of plan termination in the amendment to terminate and the wrapping up of final testing, 5500 filing, distributions etc. do not happen at the same time. The most effective way to make certain that the acquiring company has no liability is to plan ahead so that all of those things are completed before the acquisition. But that is not easy!

Inactive -- or just ineffective?

I thought the first year was the only year an RMD could be delayed into the next year -- hence the warning that if you do it the first year you'll have to take two in the second year.

I was taught that even with a valid extension filed in the proper order actually filing the return before the due date negated the extension. We always advise clients not to file their returns before April 16 if they want an extension of time for their retirement contribution.

Are these all plans of the same employer?

Or perhaps the individual with whom you were speaking doesn't understand the difference between the IRS no longer allowing something and their internal procedures no longer allowing it.

My former employer has an inexpensive bundled option for small plans. The trade off is that your document options are pretty seriously restricted and the client has to do a significant amount of the work. Send me a private message if you'd like to know more.

We had a similar situation with a plan that had doctors whose compensation was always over the limit. The client wanted to deposit 1/4 of the amount to get the doctors to the 415 limit each quarter. But that wasn't a level percentage, due to the Integration level not being met at the time of the first deposit. No one noticed this problem until one of the doctors left mid year. Just one more reason to dislike making profit sharing contributions before the end of the year.

I agree with you that it should not have happened. But I've seen lots of record keepers do this any time the plan sponsor asks and I've never heard of anyone getting caught or penalized. That makes it hard to explain to clients why they shouldn't do it.

Did the record keeper require a form along with the funds? If so, it is likely to include language certifying that the funds are from a source that are eligible to be rolled into the plan. A participant signature on that form should end the issue.

She also said that the assets were pooled. If that is the case and it is balance forward accounting, that may be the hold up.

My first answer was not as complete as it should have been. If the match overage is due to a failed ACP test, it should be paid to you. If the match overage is because, now that you've gotten deferrals back there isn't as much to match, it would be forfeited. That may be what they mean by "it never should have been matched in the first place.

The failed test is a common problem. If the plan is already providing a match, depending on the formula already in place, it might not cost any more to make it a safe harbor match instead. But it is a required match that must be fully vested, so in that way it could end up costing more. Your match should only be forfeited to the extent it is not vested. Any vested match should be distributed to you along with your deferrals.

It was my understanding that the health insurance premiums paid by the company that are taxable to Subchapter S shareholders who own more than 2% are not permitted to be included in plan compensation.

When the plan defines compensation as W-2 comp, the payroll division of our company is including everything that goes on a W-2 in the contribution deposits that they make for the clients. Unfortunately, that includes the taxable company paid health insurance premiums that are added to the taxable compensation for the greater than 2% shareholders of S corporations. They are now asking me for proof that it is not supposed to be included, and I'm having trouble finding it. Where should I be looking?

It adds to the paperwork that is available to protect the plan sponsor should anyone challenge whether or not they made the appropriate contribution.

I read it that way the first time too. But the sentence you highlighted says it is for payments made by the employer NOT by the plan.

I'm not an expert on 403(b)s, but since they are required to have universal availability I'm having trouble understanding the need for coverage testing.

'Tis the season!