DP

Business owner and spouse have been taking RMDs for several years. Owner's RMD for 2003 is $75,000. Owner took RMD of $10,000 in January 03. Owner died in March 03. Financial institution says spouse must take remainder of owner's 2003 RMD distribution by 12/31/03 ($65,000). Financial institution says the balance of owner's IRA can be transferred to spouse, but spouse's RMD for 2003 must be recalculated including rollover value from owner. I thought 2003 RMD was based on 12/31/02 value. This looks like double dipping if spouse has to recalculate her 2003 RMD. I need advice please.

Tom, So you're saying that with a FYE 10/31/03 plan year, a participant under age 50 in a Safe Harbor Plan could defer $11,000 in December 2002 and $12,000 in January 2003? Then no more deferrals could be made until 2004.

I'm setting up a new Safe Harbor PS 401k Plan for a client with a 10/31 year end. The plan is effective 11/1/02 and the 401k portion is effective 1/1/03. For the 10/31/03 plan year, is the maximum 401k deferral $11,000 or $12,000? Can the catch-up deferral be $1,000 or $2,000? I wasn't sure if you looked at the beginning date of the plan year to determine the 401k limits for that fiscal year - or if you go by the ending date of the plan year. I understand I'll have to watch the individual participant deferrals on a calendar year basis also to make sure they don't exceed the calendar year limits. The plan year limit is what's throwing me. Please help!

We have a client who has provided his staff with an array of mutual funds for their PS/401k contributions. The owner of the business wants to invest his share of the contributions in stocks, bonds, etc, but doesn't want to give this option to the staff. In my mind this is discrimatory. Could someone provide me with a cite that will prove this is frowned upon by the IRS? Thanks.

We have an employer with a new Profit Sharing 401k plan who recently closed out their DB plan. $25,000 in surplus DB assets have been transferred to a holding account in the PS 401k plan to be used towards the PS Employer Match. Does this $25,000 have to remain in a Money Market, or can it be invested in various securities - subject to the market's ups and downs.

Does this mean the early entrants will also have to receive the gateway allocation for a total of 5% employer contribution (3% SH and 2% ER)?

We have a SH 401k cross tested plan with age 21/1 year entry into the PS portion. The 401k allows entry after 3 months of employment. The plan is written where the 3% non-elective safe harbor contribution will only be given to participants who have met the age 21/1 year eligibility. The plan is top heavy. Do the early participants in the 401k have to receive a top heavy contribution if they are not yet eligible to participate in the employer contribution?

We just got the owner/doctor to agree to write a letter asking for the overpayment back from the IRAs. Thanks for everyone's input.

We have a problem with this owner/doctor "playing by his own rules". The forfeitures would have been used to offset the employer contribution for 2002. The owner/doctor intended for the terminated doctors to receive 100% of their account balances. There was no mistake in his communication with the broker. In my conversation with the broker, they did say if the owner/doctor sent them a letter saying he had made a mistake that they could retrieve the overpayment from the IRAs. I don't think the owner/doctor will agree to write this letter.

We have a medical practice with a PS plan which uses a 6 year vesting schedule. Two doctors recently terminated their employment and are 60% vested. Without going through us, the owner/doctor instructed the broker to rollover 100% of these terminated doctors' PS assets to their respective IRAs. If the owner/doctor does not want to retrieve the 40% forfeited amount from the IRAs, will this result in all participants becoming 100% vested?

A participant currently has her mother as beneficiary. The participant recently married and does not want her new husband as beneficiary at this time. If the participant does nothing, when will the new husband automatically become her beneficiary? Is it after one year of marriage? Thanks.

Our client, a medical practice, has a Profit Sharing Plan which will give their doctors the maximum $40,000 contribution for 2002. Several of the doctors also receive 1099 income from making speeches, etc. These doctors want to establish individual SEP's on their own and contribute another $40,000 to the SEP based on their 1099 income. Is this allowable for them to receive $40,000 in PS from their employer, and also contribute another $40,000 to their own SEP? Can they use Form 5305-SEP or does it have to be a prototype SEP? Thanks.

Our client has a Safe Harbor 401k Plan with a 5/31 plan year. The client is now wanting to change to a calendar year and run a short plan year for 6/1/01 - 12/31/01. Can you use the Safe Harbor provisions for a short plan year? The HCE deferred $8,500 in May 2001. Does this mean his maximum deferral for the short plan year can only be $2,000? The employer contribution is a cross-tested formula. Am I correct in saying the $35,000 annual limit must be prorated to $20,417 (7 months)? Thanks for your help.

We have a medical practice that was bought out by the hospital. The group of doctors at the practice have incorporated and now lease the NHCE's from the hospital. The hospital has a 401k plan with an employer match which the NHCE's participate in. There is no employer discretionary contribution from the hospital. The doctors have set up their own 401k plan. There is no match, but they do have an employer discretionary contribution. Would the doctors have to make a discretionary contribution for all of the eligible leased employees? Does the doctors 401k stand on its own for testing? I need help in understanding how all this works (in plain English, please).

We have a participant who never responded to our Profit Sharing distribution requests. Her balance was less than $5,000 so we finally made a taxable distribution to her in April 2001. The 20% federal tax was also deposited in April 2001. The participant has never cashed her distribution check so it is being reissued to her. She is now wanting to roll the money over to her IRA. Will this be considered an eligible rollover since more than 60 days have elapsed since the check was written in April? Or do you start the 60-day clock over again when the replacement check is issued? The original check was not lost in the mail - the participant had it in her possession all this time. Also the participant thinks we should refund her 20% federal tax to her so it can also be rolled over. I know that can't be done.

We have a client, Mr. X, who owns 100% of Corp A. He has no retirement plan for Corp A. All the assets of Corp A are sold to Corp B in May 2001. Corp A is now just a shell with no employees, and Mr. X has no ties to Corp B. In fact Mr. X is unemployed. Mr. X wants to run the proceeds of the Corp A sale through as W-2 earnings for himself. The proceeds from the sale do not come in until June 2001. Mr. X wants to set up a MPP/PS plan effective 6/1/01 for Corp A with him being the sole participant. I keep seeing red flags. Will this fly?

I have a client who has a calendar year MPP plan with a 10% contribution formula. It is a standardized plan with no last day rule. Participants must work 501 hours to receive a contribution. The client is wanting to change the contribution to 7% effective July 1, 2001. My position is that he can't do this because the participants have already worked 501 hours this year, and they have "earned" the 10% contribution. Am I wrong, or can the contribution be changed mid-year? Thanks.

I have a client who wants to adopt a Safe Harbor 401k Plan using the following match: 100% on the first 3% and 50% on the next 3%. It definitely meets the first two Safe Harbor Enhanced Matching Formula requirements - that the match can't exceed 6% of compensation, and that the matching rate doesn't increase as the rate of contributions increases. I'm not sure I understand the third requirement: "the match rate at any rate of elective deferrals may not be greater for an eligible HCE than for an eligible NHCE." Could someone please explain this last requirement? Thanks.

We have a doctor who is a 10% shareholder in a large medical practice. She receives a $30,000 annual contribution from the medical practice's money purchase pension and profit sharing plans. This doctor also runs a food brokerage business with her husband which is a partnership. The doctor and her husband are the only employees. Can a SEP be set up for the doctor's earnings in the food brokerage partnership even though she is already receiving $30,000 from the medical practice?

We have a client who has a 401k plan which runs 6/1 - 5/31. The plan document calls for a discretionary match. Historically each month the employer puts in a 50% match up to 6% of deferrals. The participants receive quarterly statements showing the match allocation. The employer also prepared a simple participant handout outlining the plan which states the match will be 50% up to 6% of deferrals. The client now has a cash flow problem and wants to discontinue the match. Since the document says the match is discretionary, can he stop the match retroactive back to 9/1/00? The last participant statements prepared were dated 8/31/00. Or should the client give the participants a notice saying the match will be stopped as of 1/1/01? The client has already deposited match money into the plan for September, October, and November. Could this be used as part of the Top Heavy contribution due for 5/31/01?

We have a Profit Sharing Plan with a last day rule. Each employee self directs his own account. The employer prefunds the employer contribution quarterly directly into each participant's account. There have been occasions where we had to remove a contribution from a participant's account at the end of the year since the participant terminated employment prior to the end of the year. We keep getting conflicting reports from various sources. Some say we are not allowed to remove contributions already deposited into a participant's account. Others say this is not a problem if it is explained to the participant. Which is correct?

Thanks for the answer on the top heavy contribution. Since these ten employees voluntarily terminated their employment, does a partial termination apply to this employer?

We have a calendar year cross-tested PS plan with a last day rule. On 10/2/00 ten employees walked out of the office leaving behind five HCE's and two NHCE participants. In order to pass the coverage test, I brought in the terminated participants who had the most hours and was able to pass coverage by giving contributions to six of the terminees. For the cross-tested formula, I have three categories: 1 - physicians, 2 - actively employed staff members, and 3 - terminated staff members. Do the Class 3 employees have to receive a minimum 3% top heavy contribution if Classes 1 and 2 receive in excess of 3%? The plan is top heavy for 2000.

We have a client who has both a Money Purchase Pension and Profit Sharing Plan. The president of the corporation would now like to drop out of the plans (no longer get contributions) but continue funding the plans for the remaining participants. Is this option allowed?

We have a retirement plan where a stock was purchased in the mid 80's for $25,000. This asset was gradually written off over several years. Now we find out a new company has taken over the original company and we will be getting our $25,000 investment back. My question is - who shares in this income? Current plan participants? Or do we have to look back at the participants in the plan during the years the asset was written off? Or is this something that the plan document should address. Thanks.