Earl

Plan was restated for GUST in 2003. 2002 the plan did prior year testing. If we switch to current for 2003 is that a switch that locks the plan into current for 5 years or was that the last of the "free" switches that would allow the plan to use prior in 2004? Thanks.

did you use the maybe notice? if so, 12/1 say no

First year of deferrals, 9/30/03. Plan fails ADP. I want to use a QNEC. Can you use the deemed 3% + QNEC or are you forced to use actual results + QNEC? QNEC will be deposited post 9/30/03 so for 2004 I can't use actual + QNEC for 2004 ADP limit as prior year testing, is that correct? Can I add the QNEC to the 9/30/04 year end deferrals for prior year testing of 9/30/05? Thanks

penman: thanks for the link. Seems you think that it is not deductible in the current (2000) year. That is a good discussion of my dilemma. Seems the general consensus in that discussion is that prior year is only option until after 8/15. pax: $78k was a 412 cont for 1999 and used in the 2000 assets. I do not have the 412 calculation for 2000. I took over the plan and was given the tax assessment letter 5 days before the "pay the taxes" date. GBurns: I mistakenly wrote 1999 audit. I edited the post as it is a 2000 audit. So, yeah, the disallowance is causing a $35,000 tax bill for 2000. I am told that 1999, the year in which it MUST be deducted is closed. 2000 personal return would be open. However, it sounds like I am being told that I should look at the 404 max and see if there was room over the amount taken in 2000, 2001 and 2002. Eat some of it up each year. I do know that the 2002 404 max was $140k and he deducted/contributed $80k, so there is $60k, if I can do it that way. Is this correct? So money is eventually deductible?

timeline: 12/31/99 - PYE min contribution for 412 is $78,000 04/15/00 - files for extension of time to file 1999 return 05/21/00 - Employer files his 1999 return with a $0 deduction 08/11/00 - Employer funds his $78,000 (timely for 412 min funding) 08/15/00 - 1999 Extension expires 12/31/00 - PYE min contribution for 412 is $27,000 04/15/01 - files 2000 return with $105,000 deduction 02/03/03 - IRS initiates an audit of 2000 05/21/03 - 1999 year closes (3 yrs from actual filing) 08/15/03 - IRS gives notice saying $78,000 is disallowed as a 2000 deduction I point out 404(a)(1)(A)(i):"amount necessary to satisfy the minimum funding standard provided by section 412(a) for plan years ending within or with such taxable year (or for any prior year)" as basis for deducting the amount in 2000. IRS says 404(a)(6): "a taxpayer shall be deemed to have made a payment on the last day of the preceding taxable year if the payment is on account of such taxable year and is made not later than the time prescribed by law for filing the return for such taxable year (including extensions thereof)." So they say that since it was deposited before 8/15/00, the extended deadline, it was ONLY deductible in the prior year (1999). Does this sound right? Thanks for wading through this and making any comments.

Do you think someone that is not in business can establish a plan of any kind? I am thinking that the "individual" must be a sole proprietor to sponsor a plan and to be a SP you have to file a Schedule C. What if the person filed a Sched C in the past but just not now or in the future?

Plan sponsor of 403(b) plan is discontinuing and starting a 401(k). Investment provider is hitting the sponsor with a participant fee. Is there a way to "cash-out" terminated participants with under $5,000 to end this charge? Could Plan sponsor unilaterally transfer the participant accounts to a new provider? I think they can only control new money, but am not at all versed in 403(b)s. Thanks for anyone taking the time to respond.

corrective amendment to definition of comp. Did you have another idea?

1st employee would enter SEP 1/1/05. Would enter 401(k) 1/1/04. 3 owners have a SEP and want to have a 401(k) to max out. In 2004 could they have a SH 401(k) and the SEP so that the employee would get only the 3% Safe Harbor Non-Elective to satisfy ADP & Top Heavy and then max out the owners in the SEP? Thanks

but only a nazi would do that when the document could be amended.

about: "3. assets held for investment" How does that work for an individual account 401(k) Plan. Give info on that person's account? Is the plan required to prepare and provide some sort of rolled up report on the total asset in the plan? Seems like, in a small plan, that list provides basically nothing to the Participant (asuming just mutual fund investment, no loan defaults, company pays all fees...) So I would just give the guy a copy of the 5500 and Scheds and a copy of the statements on his account that he has already received? Thanks

I would be sure to offer participants ability to purchase out of the plan and not just surrender the policies.

I had this happen a few years ago. I warned the client that it was no guarantee, but... put the whole thing in a larger envelope (showing the original posting) with a letter saying it was mailed timely but returned and here is proof and here it is again. That was IRS, this is DoL. I don't know what the outcome would be now but sure would like to hear.

I think I would advise the client to adopt an in-service provision effective back before the distribution as a correction and document it as such. (And passing out a new SPD, rather than an SMM, would mean no one would even know it was a new provision). Probably should file and pay a sanction but I know 90% of my clients would say screw it. I occasionally get asked about audit frequency. I tell them I do 500 plans (small Plans) and have had less than 10 audits total in the last 5 years. And no auditor ever found anything. Is this a typical ratio?

If the safe harbor contribution for 2000 was $100 and the client deposited $105 in 2000 then there was a $5 Profit Sharing contribution for 2000, whether the client intented to make a Profit Sharing contribution or not. Like blinky says you have to allocate all the money in the Trust (unless you hit 415 etc...) If the extra $5 was not deposited until after the year (in 2001) then there is $100 for the 2000 SH and $5 for the 2001 Safe Harbor and the same model works for the 2001 SH contribution. If the money went in in 2000, I would bet the client deducted it on the 2000 return. How could you not allocate it.

there is some great stuff in the "Cross Tested Retirement Plans" section

ok: Vesting is measured at the end of each plan year. You said it includes service before plan so effective date of plan doesn't matter. DoH 3/1/98: 03/01/98 - 12/31/98 = 1 yr (assuming over 1,000 hrs) 01/01/99 - 12/31/99 = 2 01/01/00 - 12/31/00 = 3 01/01/01 - 12/31/01 = 4 01/01/02 - 12/31/02 = 5 DoH 10/1/99: 10/01/99 - 12/31/99 = 0 (under 1,000 hrs for the 12 months ending 12/31/99) 01/01/00 - 12/31/00 = 1 01/01/01 - 12/31/01 = 2 01/01/02 - 12/31/02 = 3 Again, 25,457 Changing the vesting computation period talks about looking at the 12 month period ending on the valuation date. Short years, effective date of plan (unless elected), date of hire don't enter into it.

DoH 3/1/98 You say effective date 11/1/99 so I assume it is a 10/31 year end and at some point you change to 12/31. Vesting is measured at the end of each plan year. 3/1/98 - 10/31/98 = 1 yr (assuming over 1,000 hrs) 11/1/98 - 10/31/99 = 2 11/1/99 - 10/31/00 = 3 11/1/00 - 10/31/01 = 4 11/1/01 - 10/31/02 = 5 01/01/02 - 12/31/02 = 6 (doesn't really matter when the short year was) I don' t think you pro-rate the hours, I think you keep using the 12 month period ending on the valuation date. See Labor Reg: 25,457 Changing the vesting computation period.

29k/200k = 14.5/3 = 4.833 Isn't there also a gateway problem here?

So they are ineligible for A's plan but not B's? If so I would be afraid to distribute them. I would transfer to B's plan just saying that there was a clerical error in the payroll. If they were intensional deferrals, I don't think you can distribute. Although you might be able to distribute the pre 2003 account balances under those new guidelines, I haven't thought that through. 1099, I would either treat as a non-elective transfer and not 1099 or 1099 as a roll to new plan.

Seems to me that the question is can the 10% premature distributoin penalty be paid with the deposit of the x% (10% default) income tax withholding. I believe the answer is no because by definition any amount paid is paid as income tax witholding. The person would then have 30% withholding and the 10% would still be due with the filing of the 1040 with a 5329. I don't believe that any refund the person might be due could be earmarked/transfered as a credit to the 10%. They would have to pay the 10% and get a refund (or pay more taxes, if that is the case.) He better just set the 10% aside.

Thanks - I'm thinking that I am going to go with it. Interesting though because I have to argue that a (restated) plan is not a succesor plan to itself (with regard to the 401(k) feature).

I sure don't know the legl answer, but I don't report it. I figure "what's the downside?" Audit happens and the auditor says "you should have listed this as a 20% holding".. I say "really? ok, I will. thanks!"

Plan had a 401(k) feature but was amended in December 1998 to remove it, effective 1/1/99. 401(k) money still in the Trust. Can the plan add a 401(k) feature now and use a safe harbor in 2003?

one issue that arises with using a Money Market is the deposit of withheld txes. Banks generally won't take a tax deposit drawn on an account that is not theirs. You just have to mail in the deposit, which is not a big deal. I think the current instructions to do that are: The check is to be made payable to the United States Treasury and the address is: Financial Agent Federal Tax Deposit Processing P.O. Box 970030 St. Louis, Missouri 63197