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I would say that the answer is no. The distribution is taxable, but can also be claimed as an itemized deduction on the personal tax return as a charitable contribution. If the participant had made any after-tax contributions to the retirement plan, it is possible that some of the distribution would not be subject to taxes. Hope this helps.

As of May 20, 2004, the St. Louis address is still correct per the 1-888-568-7343 phone number listed in Mike Preston's posting. Checks should be made out to "Financial Agent".

HIPAA supposedly requires that amendments be added to cafeteria plans where the employer has more than 50 employees. Would anybody know where I could possibly look at those amendments? Thanks for any help.

In a large plan that I administered in a former life, terminated participants were allowed to continue their loan repayments. Their loans were "converted" to a monthly amortization schedule, and they were required to send in a check every month. If they didn't, they got a friendly reminder letter, and if they missed a second time, their loan was considered in default and was "distributed" to them. Doesn't that sound like fun?

A trust is named as beneficiary of an IRA. Owner dies before age 70 1/2, and the trust agreement indicates that the 2 children are the named beneficiaries. Obviously conduit or decendent IRA's could be established to allow each beneficiary to receive the distributions over their lifetime, but the question is that when the payments begin, can the payments be made to a different trust (in the name of the beneficiary) and not directly to the beneficiary? The logic is that it would be considered taxable income to the trust, and thus subject to lower tax rates than if the individual beneficiary included the distribution on their personal tax return. Any thoughts would be appreciated. Thanks.

Thanks, Gary, that does help. I didn't see any reason why the broker wouldn't take the contributions, but just wanted to make sure. Thanks again.

Just read the post regarding partner deferrals to a SIMPLE IRA Plan. I have a different issue: Husband and wife S-Corp pay themselves their W-2 compensation at 12/30/2003, taking out their maximum SIMPLE IRA elective deferral. However, due to circumstances, the deferrals were not submitted to their IRA broker until 2/2/2004. The broker refused to take the deferrals as they were outside of the 30 day window for making the contribution, and they won't budge. What is the client to do? I'm not that versed in SIMPLE's, so any help would be greatly appreciated.

I just took over a 401(k) plan whose previous administrator notified them (correctly, by the way) that they needed to make a 3% Top-Heavy contribution for the plan year ended 12/31/02. I just got the accounting records for 2003 and the contribution was never made, and the client just verified that it never got done. I have normally treated this as a Form 5330, failure to meet minimum funding, 10% excise tax. It's been so long since I've had a client not meet their contribution requirement that I want to make sure that I report this correctly. Thanks for any replies.

Employer contracts with a payroll provider during 2003 to utilize their PEO 401(k) plan. He goes along with the employees and essentially everyone in the company becomes a leased employee. A question arose that asks what would happen if the employer went back to work for the company and left his employees with the PEO. Could he have his own retirement program with the company (e.g a SEP or a Uni-K) that just covered him? I would be interested in opinions. Thanks much.

Interesting! Talked to an IRS Manager after I posted this, and they informed me that the return of stock to replace the cash would be acceptable. I guess, from a logic point of view, that the person putting the stock into the IRA would lose the basis on the stock, and when removed would be taxable at ordinary rates (versus the new 15% gain rate), and any possible capital loss would be eliminated. Barry, do you have a cite for your answer? Thanks for your response!

An IRA holder who is less than age 59 1/2 takes a distribution from the IRA. Can this person, within the 60 day period, return the distribution to the IRA in the form of stock (at FMV) instead of cash? I can't find anything in the IRA answer book that deals with this scenario. Would the person pay capital gains (or take a capital loss) on the stock that is transferred to the IRA, if allowed? Thanks for any replies.

I have drawn a blank: When did the law change, regarding Money Purchase Plans, that allowed you to reallocate forfeitures instead of using them to offset the employer contribution. I think it was effective in 1993, but can't find the technical side behind it. Thanks for any replies.

Question: IRA holder wishes to receive as a distribution a particular security held in his/her IRA account. I know that the amount of the distribution is calculated using the Fair Market Value of the security on the date of distribution. However, the question has arisen as to what the holding period (for capital gains treatment on future sale of the security) of the security is when it becomes a "personal" investment -vs- an IRA investment. I am under the belief that the holding period begins when the security is transferred; therefore, if you take the security out today and sell it tomorrow, the result is a short-term capital gain/loss at the personal level, even if the security had been held for 5 years in the IRA account. Am I correct? Any replies would be appreciated.

I have been reading the posts on cross-tested plans where the rate groups are individual HCE's (doctors, etc.) and "everybody else". Question for clarification: 401(k) Profit Sharing plan is Top Heavy. Employer will provide 3% top-heavy contribution to all non-key (and NHCE) employees, no need to make it a safe-harbor contribution, as the ADP test passes easily on its own accord. No ACP test, no employer matching contribution. To the cross test: There are 26 rate groups: The 25 "HCE's" and everybody else. Everybody else is getting the 3% Top-heavy minimum. The other 25 rate groups may receive a PS contribution up to 9%, in order to meet the gateway. The question is can an individual "rate group" elect to have nothing contributed on their behalf (for various reasons, such as termination or retirement). Obviously this would have a great influence on the discrimination testing in favor of the other rate groups. If this is allowable, does the employer need a written election from the non-participating rate group? Can the 0% for 2003 rate group go back and elect 9% for 2004, if desired (and subject to testing, of course), or is the "opt-out" for 2003 considered permanent (such as an irrevocable opt-out for an employee initially eligible for participation in a qualifed plan)? Hopefully this isn't too confusing. Thanks for any responses.

A company wishes to make their annual pension plan contribution (DB or DC, does not matter for the example) with appreciated property. I know that for purposes of the contribution, the property is transferred into the plan at fair value; however, how does the appreciation of the property (for example, a $10,000 piece of property gets "contributed" to the plan at a time when its fair value is $40,000) get handled? Is it taxable at the company level? Thanks for any replies.

Client is a single member LLC, which has employees. Obviously the LLC can adopt a 401(k) plan, but my question is about the 100% owner. I believe that testing is done on his self-employment income, not on any salary that he may receive (supposedly he has received salary during 2003, which should be corrected). Is that correct? Thanks for any responses.

Thanks, Pax, but I had already checked out that website. It doesn't have an example of an engagement letter for a SAS70 audit.

Don't know where to put this, so I"ll try it here. Question: Does anyone know where I could find a SAS70 engagement letter? We are pondering performing a SAS70 audit and obviously need this to start. Thanks for any assistance.

A 73 year old IRA holder withdraws funds for whatever reason. May they return the funds within 60 days to the IRA to avoid taxation in 2003? Obviously anybody under age 70 1/2 may do this, but does the law allow an over age 70 1/2 person to do so? The IRA holder will keep out funds necessary to cover the 2003 MRD. Thanks for any responses.

Saw this situation numerous times. The participant would end up a very small "cash" balance and the loan would make up the remainder. Cash would build back up based on the loan repayments. And in my case, when the person had enough real "cash", a new loan would be taken out. Just call it the "Bank of 401(k)".....

We currently are engaged to perform a certified audit for a non-profit organization who sponsors a 401(k) plan. The client has inquired as to whether it would make sense to terminate the 401(k) plan and roll it into a client sponsored 403(b) plan, which is not subject to audit (the investments are in an annuity product, thus allowing limited reporting) Obviously the audit would have to be performed on the 401(k) plan for the year in which it transfers to the 403(b) plan. Other than that, are there any potential pitfalls? Thanks for any replies.

We had an instance where the DOL "investigated" a plan because the fidelity bond amount listed on the Form 5500 was not 10% of the plan assets. By the time the investigation occured, the client had upped the bond to an appropriate amount. The investigation was over quickly, to say the least... We recommend to all our clients to obtain a bond, in order to avoid the messy situation described above. And, in answer, if the DOL investigates, get that bond ASAP!!

I use something to the effect of "A review of your account indicates that you have been paid in excess of your account balance in the plan. If you have rolled over these amounts, your IRA has a non-qualifed contribution subject to excise taxes...." If the person takes it in cash, we request the money be returned within XXX days. Hopefully you get the money back. My success rate with the above is 2 for 2 in 16 years in the business. However, I did see an instance late last year where the employer actually sued the employee for the double distribution. Unpleasant to say the least...

Please note that the DOL will contact you about going into the Voluntary Compliance Program based to your answer on the 5500. I have a client who is habitually late, I have reported the late contributions on the 5500 for the last couple of years, and the DOL provided an "invitation" letter to go through Voluntary Compliance.

So, to paraphrase my situation as it applies here, if a greater than age 50 individual makes a $3,500 IRA contribution, up to $3,000 is deductible and the other $500 would become non-deductible. This is correct, right? Never mind. Reading the instructions to the 2002 Form 1040 clearly shows that an age 50 or older person can deduct the full $3,500 IRA contribution.