ETA Consulting LLC

I wouldn't think so. The question would be when was his actual election to defer made? For deferral purposes, you cannot wait until your extended tax filing deadline to decide how much to contribute, this type of discretion pertains only to the employer contributions. To contribute earnings on those late deposits would seem to undermine the primary purposes of the rule; to protect the retirement assets of common-law employees being among them. I will acknowledge that the rule of late deposits do apply to plans that are not subject to Title I of ERISA, but wouldn't go as far as saying it would apply to a one-person plan where the owner is the sole participant. Good Luck!

You make an interesting observation. We know that there are objective tests that must be performed annually in order for the plan to continue to meet the conditions for favorable tax-treatment. This is not to say the employer is aware of these requirements and operating their plan accordingly. Observations such as yours tend to show there "MAY" be some impropriety there.

Correct. None of the service class exclusion rules apply to churches. The heiarchy goes 1) Churches; 2) Governments; 3) Everyone else. All of the IRS rules apply to 3, while 'virtually' none apply to churches. Some, but not all, apply to Governments. For instance, Public Schools (governmental employers) must have written plans for their 403(b) plans. This rule does not apply to churches. Good Luck.

Sure they can, as long as they pass the non-discrimination tests each year. Without going into tons of detail, there are rules, tests, reporting requirements, and other responsibilities that must be adhered to when sponsoring a qualified plan. Nothing is arbitrary. Good Luck!

When he rolled in the plan in, did he have the option of rolling it over to an IRA instead? If so, then it would not be a related rollover. Good Luck!

It is typically the Plan Administrator's (which is often the employer) responsibility to interpret what each provision of the plan means. Typically, when designing a new comp plan you would anticipate these issues and clearly define the groups to where the meaning is not debatable. Nonetheless, the Plan Administrator is generally authorized under the written language in the plan to actually interpret what the provision means. As long as such authority is written into the plan (providing the Plan Administrator that role), then their interpretation will prevail; except in instances where that interpretation is arbitrary and capricious. Basically, any consistent and reasonable interpretation should be fine; doesn't require a court ruling to determine the best interpretation. Good Luck

No issues. Churches are exempted from 1) Written Plan requirements, 2) universal availability; and 3) non-discrimination rules. Good Luck!

I agree with you on the rules, but would not subscribe to an administrative policy that would contradict language written in the special tax notice. Section 3405 of the IRC outlines the rules; and they aren't exactly abitrary. To your specific case, however, the amount of hardship requested may be increased by the expected taxes to be paid. So, the person may request an additional 30% for the taxes; and also request 30% withholding (like you said, discretionary); but an administrative policy making a certain amount mandatory is a little too aggressive. I would, respectfully, yield to a KevinC or Sieve on this one; not to call anyone out, but they've corrected my thinking on several occassions (which has truly earned my respect).

Mbozek, Based on your insight, I have one 'personal' question; are you going to take advantage of the catch-up this year?

You know what's interesting (since we're on the subject); the RMDs. It seems that RMDs were started around 1987 in order to generate taxable income, the idea being that tax deferrals were allowed for so long, that there has to be sometime to actually receive the money and pay taxes. During 2000's, budgetary surpluses enable Congress to say (for qualified plans) "hey, if your still employed and you're not a 5% owner (i.e. rank and file...), you can delay distribution until you retire. At some point, you want to say, 'hey, lets just go back in time and leave the RMD rules unchanged'. I'm just saying.... It's interesting how Retirement Plan policy is always looped in to the need for revenue. I predict this type of stuff will be continuing to happen 30 years from now; not that there's anything wrong with that.

Oh, since you're new we can go break it down a little further: We would typically look at each type of contribution (deferral, employer, rollover) as having their own attributes. For employee deferrals, there is a universal eligibility requirement that allows the employer to impose a restriction on the employee's eligibility to defer. One major restriction allowed is that the employee is "expected" to work 20 or more hours per week. Employer contributions (e.g. nonelective) have different standards. Those standards appear irrespective of whether the nonelective is being made to a 403(b) or Profit Sharing portion of a 401(k) plan. My contention would be that there is no precendent to effective require an employee to have to work at a rate translating to more than 1000 hours per year in order to receive an employer contribution. Good Luck!

Earl, You make an interesting observation. First, I belive all 403(b) plans are, in fact, individually designed as the IRS hasn't issued any opinion, determination, or advisory letters. I think it will ultimately happen, but for now the requirement is that the plan merely be written. But, to your main point, any allocation that effectively requires an individual work more than 1000 hours a year to receive (in this case 1040 hours), would appear to violate some provisions of ERISA (the specific ones would have to be researched). Is the employer a non-profit subject to ERISA? I agree that there are issues here, but the emphasis should be placed on defining 'exactly' what those issues are; it may not get to how it is to be tested. Good Luck!

It's all speculation, but everything is on the table. I heard the same reports. Brian Graff (with ASPPA) wrote a highlight regarding this. If Vegas is taking bets, mine is on lower limits. Again, just speculating.

Nonsense, Poje is being modest. Heard him speak at ASPPA once, he wrote the book on this stuff. Even Sal Tripodi has to seek Poje's approval to ensure this thinking is correct.

Thank you John. You articulated your point well. Just so we're clear with respect to questions directed toward me; I, personally, do not care if a parent fund a kid's Roth IRA for $2 million (just making a point), but would also imagine that in such event the IRS would then audit (still making the point). I was merely engaging in a discussion of the rules; primarily that allowance is not earned income that can be contributed to an IRA. Sure, we can probably do it and the IRS would may not waste resources to challenge it. My contention was that recommending everyone do this may be be appropriate advise given that, as a rule, allowance isn't earned income that may be contributed to an IRA. Good Luck!

So, you're going to fund a Roth for an amount less than 400?

What would exempt him from paying FICA?

The income must be 'earned'; either paid on a w-2 or on a 1040 (Schedule C less 1/2 self-employment taxes). You cannot contribute allowance. As a rule of thumb, if you didn't pay FICA, then you don't consider it as income for IRA purposes. Good Luck!

You're saying that you want to allocate a QNEC instead of a one-to-one. At the same time, you are allocating the QNEC to add to a 'deemed' 3% since this was the first year of testing (and there weren't any real deferrals during the prior year). Also, you want to use SCP (instead of VCP) even though the correction is being made for the plan year that happened 6 years ago. I would recommend getting the failure identified and vetted against several options (including determining what the result would've been had the current year method been used). I would the proceed to VCP and recommend a correction method to the IRS with the objective of obtaining a compliance letter on this an any other failures. Good Luck!

It's a non-issue. Once the distributed the check to the participant, then there was nothing on their part to preclude the participant from depositing the check. Therefore, it's nothing to correct. If the check was distributed in a prior year, then they would've already provided the 1099-R to the participant. There would be NO need to provide a new 1099-R; as the participant's tax obligation would be for the year he had constructive receipt of the funds (stating this loosely). Merely failing to deposit the check changes nothing. Just don't sweat it... Good Luck!

Not to answer a question with a question, but on what basis would anything other than the original amount be paid? Just trying to understand what is being asked.

Yes. Correct. So, should you forego taking the loan from the plan and instead take it from the bank in order for the bank to pay the tax on the interest instead of you. The net result may be that instead of earning a "loan interest" rate of return, you earn an "rate pursuant to your investment mix" while you pay the bank the payments. You are still going to be taxed on your distribution from the plan when you ultimately receive it. So, my question again.... Is there any tax that the participant would pay for taking a loan from a plan that is above and beyond what would be paid if the participant were to take the loan from a bank? That is my question. My contention is that the answer is no; making any discussion of double taxation confusing and misleading.

I don't disagree with that. My only point is that: To suggest that a participant incurs additional tax by taking a plan loan as opposed to a loan from another source is misleading and simply not true. When we use the term "double taxation" to describe a recordkeeping function, we should be mindful not to imply that that participant is somehow paying additional tax that he would otherwise pay had the money been borrowed from a bank. I am impressed with our knowledge of recordkeeping, annual additionals, 402(g) limits and everything else. Without engaging in this semantical discussion, can we all agree that the participant does not incur any additional taxation by taking a loan from the plan as opposed to taking the loan from a bank?

Apparently, someone sold the plan an illiquid asset (i.e. annuity with huge surrender, limited partership) without properly anticipating the liquidity needs in the event of employee termination or retirement. Since it is a pension plan, isn't it being funded annually (is there funding currently due)? If so, fund the plan and use that cash funding. Just trying to throw ideas into the mix. Other than that, Lori, I appreciate the complexity of the situation here. Good Luck!

Correct; 1000%. Also, you can substitute "Retirement Plan" for "Bank" in your analysis, and it would be equally true. I like your example