emmetttrudy

I dont think there really is an advantage other than like the others have pointed out saving on possible transaction fees and market flucation for a day or two. But the participant wants to do it that way. We're not in a position to convince him one way or the other. The plan allows for it, he is choosing to do it this way for his (well, presumably his advisor's) reasons. As for your second point, technically yes, the "Plan" owns the account. But I'm not sure why an individual taking a distribution of non-employer stock from his individually directed FBO account would affect the Plan or other participants (positively or negatively), whom all have their own individual accounts.

These are just shares of a popular stock (non-employer) held in his own personal brokerage account, so I don't think it would have any affect on any other participant's in the plan. As for the valuation, my assumption is they would pay him out enough stock to at least cover the RMD, and depending on the price of the stock, if it's not possible to get the exact amount of the RMD, he would be paid out something slightly more (ok since he is currently eligible for an in-service distribution anyway).

ok, thanks. the document does allow for in-kind distributions.

An advisor would like her client (a participant in a 401k plan) to take his 2014 RMD as an in-kind distribution of shares of a certain stock. Is this allowable? I know the RMD is a taxable event. Regardless of whether tax is withheld from the distribution or not the 1099-R will show the entire amount as taxable. But is it ok to transfer stocks in-kind from a 401k plan to another account (trust)?

one thing we thought of doing was to design the DB formula so that his DB conribution is limited in 2014, and he stays within the deduction limit. and then it increases in year two so he can put a significantly higher amount in the DB Plan + the 6% profit sharing.

Effen - right, i understand the combined deduction rules, but the way it's going to pan out, given the amount he'll contribute to the DB Plan, hisPS won't be able to be $1 more than 6%.

A sole prop has a 401k PSP for 201 and has already contributed his maximum deferral of 17,500 and PS of $33,500. Now he would like to implement a DB Plan in 2014. If he does this, his PS contribution would be limited to 6% based on the combined deduction limit, but he's already contributed more than this. How to fix this, if possible?

yes, i mentioned in one of my posts above that it is fractional based on plan years of service (i.e. participation), so the accrual isn't taking into account any years of service prior to the effective date of the plan. i may be misunderstanding your question, but i think that's the information you're asking for?

the valuations aren't using prior service for accrual. the formula is 80% of average compensation, not based on credited service so his AB = $0 as of the effective date of the plan. his entity had existed for 3 years prior to the effective date of the plan and he instituted the plan at age 60, with NRA=65, so future service = 5.

sorry yes, that was a typo. effective 1/1/2012, adopted sometime in late 2012. we did ask the client but he was unaware of what happeend, he didn't even remember it had been done.

Formula is 80% of AMC. Fractional accrual based on plan years of service. So his accrued benefit was $0 at 1/1/2009, the date of the first valuation. I noticed the amendment is actually signed on the same day the plan was adopted as well. Not sure why they didn't just fix the formula. Maybe they thought it was easier to just amend as opposed to redo the document, SPD, etc.?

We took a one person plan over that was originally effective 1/1/2012. The average monthly compensation calculation is currently using the K-1 compensation (net income minus 1/2 se tax) for the years 2009, 2010 and 2011. Compensation has decreased since then so the benefit is likely to remain based on these three years. There was an amendment to the plan in 2012, prior to any valuations being done, and shortly after the plan document was executed, to change the average monthly compensation definition section of the plan document to say 2009 compensation in excess of $100,000 will not be taken into account for purposes of the average monthly compensation calculation. Is this permissible? At first I thought no because it is essentially amending a compensation from three years prior. But the more I think about it the more I think it may be ok. It's essentially amending the benefit formula indirectly (not sure why they just didn't go that route). Thoughts?

it was an NHCE. non-owner. over $5,000. the client had requested a distribution packet, and apparently anything longer than one day to turn it around was too long for them, so they just sent the participant a check (no tax withholding) based on the estimate of their benefit from the prior statement, and planned on reconciling it once the actual calculation was done.

Based on the definition, it doesn't appear to be because the participant doesnt seem to fall under the definition of "disqualified person". Thoughts?

If a Plan pays out a participant wihout the participant filling out any distribution paperwork is this a PT? No election forms, no spousal consent, etc. they just sent the participant a check. Lots of issues here we're aware of but my only question is, is this a PT?

Thanks!

Code 2 (early distribution exception applies) says "A distribution from a qualified retirement plan after separation from service in or after the year the participant has reached age 55.". Does a plan termination count as a "separation from service" for these purposes? Someone is age 56 and takes a cash distribution from a plan because the plan terminated. Would this be Code 1 or Code 2?

That's what I'm confused about, however, because the 1099-R showed the entire $50,000 as taxable, even though he had paid a portion of it back. At the time of default $42,000 was outstanding. He did not make any more repayments after this. So, are you saying he would have $0 basis in the example above?

if the checks were not cashed i recommend you put a stop payment on them and use the following service. https://p3.penchecks.com/login.aspx?ReturnUrl=%2f instruct Schwab to send the checks to Penchecks and they handle all tax reporting, IRS remittance, 1099-Rs, etc.

were the checks cashed??

One-person DB Plan. In 2012 the participant defaulted on a loan, and a 1099-R was issued for the 2012 year. The total loan taken was for $50,000. At the end of 2012 the outstanding balance on the loan was $42,000 because the participant had made some repayments. The 2012 Form 1099-R was issued for the full amount of $50,000 showing the entire amount as taxable. In 2013 the participant took a cash distribution of the remaining balance in the Plan. The participant had paid back $8,000 of the loan (this was part principle and part interest) into the Plan. My thinking is the amount he repaid created basis in the Plan and he does NOT pay taxes on this again for 2013 when he took the cash withdrawal of the remaining assets. Is this correct? If so, does the principle payments only create basis, or both the principle and interest payments ($8,000 total) create basis?

technically there is no notice requirement for terminating a 401k plan. they can terminate the plan 12/31/2013.

Plan's original effective date is 1/1/2006. Plan is going to terminate 12/31/2013, and possibly be submitted sometime in 2014. Is it exempt from the IRS user fee? The instructions on the 5310 aren't exactly clear. The exemption from the user fee applies to all eligible employers (defined below) who request a determination letter within the first 5 plan years or, if later, the end of any remedial amendment period with respect to the plan that begins within the first 5 plan years. A determination letter application that is filed by an eligible employer meets the requirements for exemption if: (1) the application is filed no later than the last day of the submission period for the plan's current remedial amendment cycle under Rev. Proc. 2007-44, and (2) the plan was first in effect no earlier than January 1 of the tenth calendar year immediately before the year in which the submission period for the plan's current remedial amendment cycle begins. (If the plan was first in effect before this date, but the application is still filed within a remedial amendment period that began within the first 5 plan years and you are an eligible employer, complete only the Certification and attach an explanation of how your application qualifies for exemption under section 7528(b)(2)(B).) Example. An employer maintains an individually designed plan first effective on July 1, 2001. Assume that the plan's 5 year remedial amendment cycle is Cycle A. Therefore, the submission period for the plan's current cycle ends on January 31, 2012. Assume that the employer files a determination letter application for the plan on January 31, 2012. If the employer is an eligible employer, the application is exempt from the user fee requirement because the application is filed by the last day of the submission period for the plan's current remedial amendment cycle and the date the plan was first in effect (July 1, 2001) is not before January 1, 2001 (i.e., January 1 of the tenth calendar year immediately before 2011, the year in which the submission period for the plan's current remedial amendment cycle begins).

I've read it a couple of times and just don't see anything. I definitely here ya, it would seem odd NOT to allow just the RMD. I just dont see where there's an exception.

Assume the Plan Document only allows for lump sum distributions of the entire benefit. it does not allow partial lump sums. A participant is subject to an RMD. Do they then have to take their entire benefit out of the Plan? Or is there an exception for RMDs that would allow them essentially to take a partial distribution?