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jpod, I agree with your answer after talking this around a little bit. However, if it were still 2011 and the deferrals had been discovered, I think then they could have been returned and run through payroll, subjecting them to Federal and State taxation. Sound right? Thanks! (and yes, it was in writing.)

I haven't had this happen to me since the late 90's, and I can't remember if this is allowable, and the 401(k) answer book didn't address the issue: Informed client that their 401(k) Plan become top-heavy for 2011 and that no deferrals should be made in order to avoid the 3% required non-key employer contribution. Received the payroll files yesterday and all of the owners deferred $16,500 during 2011 (plan passes ADP testing, so this is not an issue). Owner does not have the cash to make the 3% top-heavy contribution. In addition, the plan was amended 1/1/2011 to allow collectively bargained employees to participate in the plan. Two questions: (1) May the owners remove the deferrals from the plan (as a mistake of fact) to avoid the top-heavy minimum? And (2) must the collectively bargained employees share in the top-heavy allocation, if the owners decide to fund the minimum? Thanks for any replies!

Am I wrong, or did the IRS limit the number of outstanding loans a participant may have to three in their recent regulations regarding loans? I have a client at three and someone wants a 4th. Thanks for any assistance!

A taxpayer will be inheriting a portion of an IRA (there are multiple family members named as beneificiaries) from a deceased parent. The taxpayer would like to disclaim the IRA so that it would go to the taxpayers's children and be used in the future for educational purposes. Not being that familiar with the disclaimer process, is this feasible? In reading about the disclaiming of an IRA, it appears that upon disclaiming, the IRA passes to the contingent beneficiary of the IRA. If the taxpayer's children were not contingent beneficiaries of the IRA, I don't think this could be done. In addition, it also appears that the contingent beneficary would also be required to take MRD's from the inherited IRA based on their life expectancy. Am I in the ballpark on this? Any thoughts would be appreciated, thanks.

A 401(k) requires the owners of the company (S corporation) to fund their own employer discretionary contribution, based on a cross-tested allocation. One of the owners terminates employment June 1, 2011, and to date has not funded his/her contribution. They want to know if they can revoke their 2010 election, based on the fact that they will not be paid any future compensation with which to fund the contribution. Or do they have to come up with the funding based on the 2010 election? Thanks for any replies.

I had somebody in this boat, going back to 1998. I did all of the years, since the DFVCP sanction is only $750. Better safe than sorry....

Answering the question "no". This is a known EFAST2 bug.

A client called who has a number of leased employees working for their company. They have excluded the leased employees from their insurance coverage for many years. However, they, in getting quotes to set up a 401(k) program, found that leased employees have to be covered under the plan. Now they are worried that they should have been offering insurance coverage to the leased employees as well. I am not very versed in healthcare rules, so I thought I'd throw this out hear and see what opinions are. Thanks for any replies.

I think I might have misaddressed the question. What the question is if the taxpayer is going to take a portion of a traditional IRA and convert it to a Roth, they will pay taxes. Does the conversion distribution, which is subject to tax, also count towards the MRD requirement for 2010? Thanks again.

Taxpayer is getting ready to take 2010 MRD from Retirement Plan/IRA. Question is if the taxpayer decides to convert a portion of the IRA to a Roth, does the conversion satisfy the 2010 MRD requirement? I looked through the questions and do not see this addressed. Thanks for any replies.

Yes to filing an extension. Though I'm sad I don't get to go to Europe...

I would agree, Michael.

I was on a conference call yesterday that implied that some organization (I think perhaps the AICPA) has again petitioned the DOL to extend the 12-31-09 Form 5500 filing deadline to 12-15-2010. Has anyone else heard that?

The bankrupt corporation was the "Plan Administrator".

Speaking for the cranky auditors of the world , and then speaking as a cranky TPA (I do 401(k) audits in my "spare time"), I take the .pdf file that the auditor provides, print the appropriate supplemental schedules from the audit report, make those pages into separate .pdf's, and then happily file my Form 5500 with required attachments. Then the only cranky person is me...

Corporate 401(k) Plan Sponsor goes bankrupt. Filed 2007 Form 5500 without attaching the auditor's report, because an audit was never prepared. IRS/DOL rejects the filing for lack of an audit attachment. Plan Sponsor ignores the notice. A couple of months ago, the owner of the bankrupt corporation (sole 100% owner) receives a DOL $15,000 CIVIL penalty notice for failure to provide a complete 2007 Form 5500 filing. DOL says that since it's a civil penalty, there is no recourse and the $15,000 is now due. Question is: Who pays the civil penalty? Corporation is bankrupt so there's no money there. Is the 100% owner of the bankrupt corporation personally liable for the civil penalty? Thanks for any assistance!

You are correct. I contacted EFAST2 yesterday and they informed me that the limited reporting requirements apply to all late 403(b)(7) Plan filings. The entering of the appropriate plan chararcteristic code (2M for a 403b7 plan) lets them know you are only providing the limited reporting information. Thanks for all the replies and help!

I agree with both answers, but how to file electronically? That's where I'm getting confused. Do I set up the initial year with a 2009 Form 5500 and just answer the limited reporting questions, and then replicate for each subsequent year? Use the 5500-SF? Instructions don't seem to make this easy.

That's my impression, but if you have to use 2009 forms and show the old dates, would the DOL then be looking for financial information, or just the limited reporting information that was required in the past?

I just inherited a 403(b)(7) plan (not an organization exempt from filing under Title I of ERISA) that never prepared the old "limited filing" Form 5500's for the years it was in existence. I have been provided the necessary information to prepare the 2009 Form 5500-SF. Using the new EFAST2, how do you think I should go about preparing the late returns? Using the limited filing option? Not filing the late returns and have the tear-stained letter ready? I don't think the client would be able to retreive the financial information for the late years, except for maybe 2005-2008. Anybody have an opinion? Thanks for any replies!

Department of the Treasury Internal Revenue Service Center Ogden, UT 84201-0027

I received a mailing from a TPA firm indicating that the IRS is sending out a questionnaire to about 6,000 retirement plan sponsors inquiring about the plans processes and documentation. Has anybody else heard about this? Thanks.

US Citizen is married to a Resident Alien. US Citizen has W-2 compensation and is not covered by an eligible retirement plan. US Citizen may make an IRA Contribution, but can an IRA be made on behalf of the spouse who is a Resident Alien? Publication 590 does not address this scenario. Thanks for any replies.

A taxpayer asks this question. He is planning to convert a traditional IRA to a Roth in 2010, and wants to elect to spread the tax payment over the 2 year period. Question that is raised is what happens if the taxpayer passes away in 2010 after the conversion is made? Does the conversion amount become taxable in 2010, or does it still spread over the 2 years? Any replies are appreicated!

I don't work on DB plans enough to know this question, so here goes: In the past (like in the 80's, you now see how old I am), Key Employees used to waive their benefits on a plan termination so that no future funding had to take place, as long as assets were sufficient to pay any Non-Key's that were in the plan. Today, I have been told by an actuary that these benefit waivers are no longer accepted by the IRS. Is this true? If so, where can I find a cite for my records. Thanks for bearing with me on this question.