Lou S.

Every year we get 1 or 2 who take hardships, elect no withholding and then come April the following year are calling up asking to take a hardship to pay thier taxes. It is funny that you are allowed to take a bigger hardship to cover the taxes at the time of the hardship but not allowed to take a hardship to pay the taxes later under the safe harbor rules.

Does the trust have a seperate TIN or are they using the employer EIN? I think that may control for timing but I'm not 100% sure.

If using the IRS safe-harbor hardship rules I think this is correct because you have to exhuast all other avenues of receiving funds before requesting a hardship and the participant has access to funds w/o requiring a hardship though the in-service feature. On the plus side you don't have the 6 months suspension of deferrals for in-service that you have hardship.

I think you are stuck with 5 years if you refinance.

I agree with Rigby. Seems like a pretty black and white issue if he meets the age and service condiction.

If determining HCE/KEY use the higher percentage; if allocating costs, ask the accountant.

Using prior year testing the contibutions would have need to have been made by plan year end to satisfy the 12 month rule. I'm not sure I follow what the actual contributions are, it seems like regular fixed contribution is always going to be greater than the minimum unless there are some allcoation conditions and the 3% is just the TH minimum. If you are trying to designate the first 3% as QNEC to NHCEs I think you may be creating a potential nondiscrim problem with the rest of the contribution since you can't double count the QNEC as part of your intergrated uniform contribuion formula.

That would seem to be a poorly worded document. I assume it was written like that to get the most bang for the TH buck by throwing it in the ADP and no one thought about the HCE as non-key problem. I don't think you are required to put the QNEC in the ADP test but if you don't put the HCE QNEC in the test, I don't think you can put the NHCE QNEC in the test either. Can you run it both ways and see which results in the lower refund? As a side note if the plan is TH and making a 3% to only non-key anyway why not just amend to 3% SH and excluded HCEs from the SH to avoid this problem as well as eliminate refund at the same time?

The loan is NOT income unless you default. You are losing if your returns in the 401(k) plan remain at 17% which is well above the historical average return for the stock market. It's not what you should expect on an annual basis. Also factor in whether or not your student loan interest is tax deductible, I'm not a CPA and don't have student loan debt so I really don't know if it is or not. If it is your effective interest rate is lower than 8.5% based on your tax savings. If you can make the 401(k) loan payments w/o reducing your 401(k) contributions and you are reasonably confidnet that you are going to be at your current job for the next 5 years, you may be better off with the 401(k) loan that the student loan. If you're planning on changing jobs in the near future, I'd avoid the 401(k) loan. edit - and as always free advice is worth what you pay for it.

Maybe maybe not. Having taken EA-1 (sadly more than once) I will say the exam was a bear. I have not taken the other two but have heard that passing the other two can be "easier" than passing EA-1. I think it depends how strong your math skills are.

Not involved with 401(k) loans, but here are my opinions (for what they are worth), even presuming that the 50% of balance restriction only applies when the loan is issued: If I correctly understand the original post, the history might look like this: Husband (owner): Had an account balance of $200,000, borrowed $50,000, has paid the loan down to $40,000. Has taken withdrawals of $170,000, so account balance is now only $30,000. Loan offset of full account balance would leave $10,000 unrepaid. Wife (ditto): Same numbers. ["...should she receive a full distribution" - hasn't she already received in cash more than 100% of her account balance?] No matter what, the owners should be compelled (through legal action, if necessary) to pay the remainder of the loan amounts back to the plan. Forgiveness of that indebtedness should not be an option. If it were an option, however, wouldn't the entire amount forgiven be treated as a taxable distribution (i.e., pay nothing more, receive nothing more, but the $10,000 still owed is forgiven, ergo $10,000 treated as a taxable distribution)? How or why would they have been allowed to withdraw amounts large enough to leave an account balance insufficient to cover the rest of loan? Would any of this have been considered a fiduciary violation? A prohibited transaction? It doesn't sound right to me. If it is a pooled account and that is what happened then someone screwed up in allowing the in service distribution. Yes it could very likely be both a fiduciary breach (if husband and/or wife are fiduciaries) as well as a potential prohibited transaction since the plan has esenitally loaned unsecured monies directly to them. I guess we just work mostly with participant directed plans where this really is never an issue.

The restriction is only at the time the loan is taken. After that all bet are off. Why would the wife owe money? Would she just receive a loan offest as part of her distribution should she take a full distribution?

I see no reason why not. The question about qualifying assets does not apply to 1 part filings.

Not sure on this one but there is typically a grace period the IRS allows when new forms are released like this. For example the new 5310 came out in December and while the IRS encourages you to use the new form, they did allow you to use the old form for 6 months I believe. I imagine something like this would be similar but you never know sometimes with the IRS.

Yes I would agree. The advantage of doing a 1 person SF is the ability to e-file.

My understanding is if the Plan becomes disqualified, the whole vested benefit becomes taxable but you might find an ERISA attorney who will take your position and argue on your behalf. good luck it's never fun fighting with the IRS.

totally agree with masteff's recommendation

Participant loan? The fact that he didn't want taxable income doesn't make it administratively unfeasible to distribute as you are probably finding out now. Did this come up because of IRS audit? I'm not sure I follow your other questions. Plan disqualification results in disallowance of deductions (though there are none since no contributions were made), inculsion of vested balance as income for HCEs, inability to roll balance to IRA and a few other things I'm probably forgetting like possible tax implications for the trust earnings in disqualified years. Is it possible to amend now under EPRCS for reduced sanctions? Not ideal but may be better than full disqualification.

If it is disqualifed then 100% is taxable income and if amounts were rolled to IRA you might have penalties there as well. Were the assets distributed in 2010? If so can you argue that it's a closed tax year?

Forgeting the non-discimination issue on availabilty of distribution option for a momment yes you could assuming you found an IRA trustee that would hold such a non-traditional asset.

For RMD determination (or HCE, Key-ee determination) you look at the highest percent ownership an employee has in any entity that has adopted the plan to determine if the participant is a more than 5% owner.

I agree with your logic.

I am not aware of any official guidence but I have heard some argue that accepting rollovers from terminated participant could be a potential violation of the exclusive benefit rule. Assuming the participant has some balance in the plan, I doubt the IRS would challenge a rollover in. No if the participant has a $0 account balance before the rollover in, I think you are in a little grayer teritory.

Do you have source eligibility set up in Plan specs? Also I think an incident to Relius would probably get this cleared up for you fairly quick.

sounds right