Lou S.

Probably need to ask an attorney but I think it could be argued that it is a moving expense.

As the title implies a terminated plan of a bankrupt employer is processing late refunds for the 2010 year, after 3/15 but before 12/31. This is not an automatic enrollment plan with the 6/30 deadline. Who pays the excise tax and files the 5330 in this case when the Plan Sponsor is out of business, has gone through bankruptcy and now no longer exists?

The participant does get a 1099-R for income and it is treated as a distribution for that purpose so I'm inclined to treat it as such for Top-Heavy pending further guidance from the IRS. I was just hoping the guidance was out there and I just missed it.

Is the in plan roth conversion treated as an in-service distribution subject to the 5 year look back rule for top-heavy purposes or is it treated as a transfer to a related rollover source and inculded in the balance on the determination date?

Unfortunately I agree with you. I was hoping someone else had a different view and perhaps a citation or at least a tidbit from the IRS to support it. If they do I would be interested in rethinking. edit - Thanks Tom that helps.

If a partner has negative earned income for 2010. Effectively $0 compensation for plan purposes, I understand that the employer contribution is $0, the deferral limit is $0 and the 415© limit is $0. The question I have is, if the plan allows for Roth-401(k) contribution and catch-up contributions can the partner make a $5,500 ROTH catchup contribution under 414(v) for 2010 since it is excluded from 402(g) and 415? I did a few searches and scrolled through several pages of threads and didn't find anything directly on point so if this has been covered before I apologize.

For purposes of determinimg the highest allocation rate of any key employee you have you add in elective deferrals prior to any corrections. My guess here is you will have a required 3% top-heavy minimum for this client. edit to add - see Q M-20 of the treasury regs 1.416-1.

Revenue Procedure 2008-50 sets forth the current EPCRS. http://www.irs.gov/irb/2008-35_IRB/ar10.html See Correction Methods and Examples for more details.

Curious as to the why. Are there muliple HCEs and you want to limit the owner ADP to $1/comp and still put in $5,500 as catchup that isn't tested?

I think I agree with you 100% on the bold.

Thanks all! Very helpful.

If your mother was less than 70 1/2 in 2010 she would treat the IRA as her own by refusing to take the MRD as a beneficiary which would eliminate the need to take an MRD until she attains 70 1/2. See IRS Pub 590 P 18. I am assuming she is sole bene of the IRA. Yeah but doesn't help in this case, both were in their 80s when dad passed away. RMD clearly applied for the 2010 year she just didn't realize it having not be the original IRA owner. Taxes and investments not exactly her specialty.

My mother inherited an IRA when my father passed away in 2009. Prior to 2009 all RMDs had been taken and 2009 they were suspended. Somehow in 2010 the first year she should have taken an RMD it was missed for the new account. She got some letters from custodian of the IRA in early 2011 and has since taken the 2010 RMD (late) and setup monthly payments which will be larger than the reqired 2011 RMD. It's a pretty small IRA and not a teribbly large amount we are talking about but how often does the IRS waive the 50% penalty for reasonable cause in this case? And is it as simple as sending a letter with the 1040 and 5329? Also do you still pay the 50% exicse tax and request a refund or do you assume they will waive it for cause and not pay the excise tax with the 1040? Any experince with this would be appreciated.

But he says A and B are related. Doesn't that help in this case? I'm not sure how related they are but if CG or ASG wouldn't his time in Company B be continuation of time in Company A? I admit some of the employer-employee relation questions vex me at times so I could be way off on this and have never actually run into this particular situation before.

He is an HCE right? He did in fact have a deferral of $22,000 from 3/1/10 - 2/28/11 right? I mean it came out of his check and was depoisted in the plan in July in one lump sum. So even if your interpuration leads you to believe he is over the 402(g) limit you would still have to test the $16,500 + $1,600 = $18,100 in ADP because 402(g) excess deferrals are always tested in ADP for HCEs and never tested in ADP for NHCEs. I forget the exact cite but I'm sure that is true. Now the question becomes is the $1,600 a 402(g) excess in 2010? Under both example 5 & 6 the participant is allowed to defer the full 402(g) + 414(v) limit for the calendar years. It just becomes a question of which plan year and how much is tested in both examples more than the then $15,000 is tested in at least one PYE. I still believe under this set of facts and circumstances that $18,100 is the correct amount to be tested in the PYE 2/28/11 ADP and that the $1,600 that was recharaterize as catchup for PYE 2/28/10 does not now limit the participant to $20,400 ($22,000 less $1,600 recharaterized) calandar year limit in 2010. Now the position might be that becuase actual deferrals were $0 for 1/1/10 - 2/28/10 that the $1,600 was not eligible for recharaterization on the 2/28/10 ADP test and as such you should have done a refund last year, but I don't see anything in black and white on point that would support that though if someone has an citation I'd be more than happy to rethink my position on it and admit that I'm wrong.

A plan that is safe-harbor and has only safe-harbor contributions that satisfy the k & m regs is deemed to be not top-heavy. Unless you have a PS contribution or forfeiture reallocation that will blow the exemption, you don't need to provide additional T-H contributions for 2010. 12/31/2009 is simply the determination date for the plan year beginning on 1/1/2010.

Maybe, but in theory you shouldn't. We had a plan like this about 4 years ago and never got a letter when we switched from Filing a 5500 to filing an EZ but I don't know if that is the norm or we just got lucky. Worst case is you get a letter and send them a copy of the EZ with proof of timely filing.

What does the partnership agreement say? What is their understanding of how it will be done? How does their accountant think it should be done? I think that B's contribution should not be charged to A as he's really a partner (assuming B owns 100% of the corp). B's wife it sort of depends on if she is a real employee or if she is on the payroll for other reasons. If she's a real employee and they split the employee contribution 50/50 then B's wifes contribution should be allocated 50/50.

Good question. Not sure what the "offical" position is on this but unless the employer or particpant can provide pre-2002 deferral info we would limit the hardship to the information we had on file.

Aren't you missing that the software already treated $1,600 as cacthup in the prior FYE? Either you weren't allowed to recharaterize that and should have refunded it or you were allowed to recharaterize it and can't count it as catchup in the next FYE.

I agree with you but the regs don't always say what the people who wrote them want them to say, much to their chargin later on. It would be an interesting question for a conference to see if a macth that satifies the ratio test at every level of deferral but has an increasing rate at one or more steps could be an acceptable ADP safe-harbor, even if it fails the ACP safe-harbor and requires testing.

Because that would have made too much sense. hmmm. the more I look at this the more you may be right

As others have noted to be safe harbor you'd have to be non-increasing rate of match at all levels as deferral rates increase. If they still want to macth half of the first 15 something like 100% first 3 50% of next 2 (3-5) 35% of next 10 (5-15) would still work but obviously this is an increase of some sort for all who are deferring less than 15% and you'd still need to test some or all of the macth in ACP since you are matching over 6% of pay. edit - hmm see Sieve's prior post and my next one - I may be wrong on the whole nonincresing as rate increases as Sieve points out in the sematics of the regs...

Presumably new Doc had been funding those contribs from his company as a participating employer no? Wouldn't he have just spun off the balance to his new company vested and non-vested? If he was just an employee of old doc, then no he's now a former employee of old doc and an employee of the new company.

The way I read the regs (and I could be wrong on this) is that you get a $16,500 402(g) limit and $5,500 414(v) limit on a calendar year basis. The fact that Non-CYE plan testing gets screwy shouldn't effect the ability to put in $22,000 from 1/1 - 12/31 if you are catchup eligible but what gets recharatized, how, and when, along with what may or may not need to be refunded is why I hate Non-CYE 401(k) plans.