wmyer

Pennsylvania does not have mandatory state withholding for 401(k) distributions.

The 3% non-elective cannot count towards the base for integration. If the client wants to give, for example, a 4.3% integrated contribution in the profit-sharing/Safe Harbor 401(k) plan, then he'll have to give an additional 4.3% profit-sharing contribution. (Pursuant to IRS Notice 98-52.)

Thank you, R. Butler. That makes sense.

Can you have only one entry date? I thought that you had to have at least two entry dates.

There are a number of options. I hope this is helpful: First, you can leave the $6,000 in the 401(k) plan, where it will continue to grow tax-deferred until you need to withdraw it to pay educational expenses. It's possible that with the 401(k) you may not be paying any annual fees, and that the mutual fund expenses are lower than you would get with an IRA. Second, you can roll the $6,000 over to a traditional IRA. You cannot roll the money directly over to a ROTH IRA, but you can convert the money to a ROTH if you meet the eligibility requirements. The money would have to remain in the original participant's name (i.e. your husband) for it to be a rollover. It would not be in your name or in the children's name, and an IRA is an individual account, not a joint account, so it would not be in both your names.

Fidelity will report the withdrawal on a 1099-R with distribution code J (distribution from a Roth IRA). You will need to report the total distribution on line 15a of the 1040, and the taxable amount on line 15b. You will also probably have to pay a 10% penalty, which you would report on IRS Form 5329. For more information, see IRS Publication 590 (the section entitled "Are Distributions From My Roth IRA Taxable?") which you can download from http://www.irs.ustreas.gov/prod/forms_pubs/forms.html and of course, consult your tax advisor.

Because you changed your plan year less than four years ago, I believe that you are not automatically approved for a plan year change and will probably have to file a Form 5308.

Interesting question...I'm not a lawyer, but I would definitely file an amended return (under Title 18 of the U.S. Code, §1027).

It depends on the plan. Some plans allow hardship withdrawals for non-401k assets...this may be an option because the individual is buying a house. Alternatively, some plans allow in-service withdrawals, for example if the participant is over 59 1/2.

Yes,if the plan is effective 2/1/2000 and ends 12/31/2000, you would have a short plan year and would check box B(4).

Chris, you can start an IRA at any age under 70 1/2, as long as you have income. You can do this by going to pretty much any bank, or by finding a financial institution on-line (like E*TRADE BANK or SCHWAB). Each bank will have its own minimum requirement; some may require $500, others $1000, some have no minimum. The maximum per year is $2000. Before opening an IRA, though, there are a lot of considerations you should take into account -- whether you want a Traditional IRA or Roth, what the fees are for the investment institutions, what investment options they offer, what investment options you're looking for, &c. The sooner you start an IRA, the better. Good luck!

According to the definition for years of eligibility service in 410(a)(3)(A), service begins on the employment commencement date. This is regardless of whether the plan exists yet or not. You are correct that the employee should come in on 1/1/2001 when the plan begins, as he has already met the eligibility requirements.

Absolutely. Unless it's a one-participant SIMPLE 401(k) plan with less than 100,000 in assets, you must file the Form 5500 every year. SIMPLE IRAs are not qualified plans and do not require 5500s (nor do SEP-IRAs).

Does the plan document address the timing of forfeitures at all? I don't know of any regulation that requires a reallocation of forfeiture within a certain timeframe, but usually the plan document will specify a timeframe. If the document is silent, I am uncomfortable with leaving the forfeiture in a segregated account for an indefinite period.

One of the qualifications for taking a hardship under the 'safe harbor' test is that the participant must make all other kinds of permitted withdrawals and loans first. I therefore understand that if the participant is terminated and hence eligible to take a distribution, they may not take a hardship withdrawal.

I disagree. See Tom Poje's comment at http://benefitslink.com/boards/index.php?showtopic=6598 Start with compensation, then reduce by deferrals and §125, then cap at 170,000.

You are correct; you apply the 401(a)(17) limit after subtracting deferrals, so in your example, you would use 170,000 for the 15% limit.

It's good when you have a problem with the 15% deductibility limit for profit-sharing plans. That way you can make the 3% SHNEC in the pension plan and max out deferrals in the profit-sharing plan.

Is the plan document silent on timing of forfeitures? The document should usually specify when forfeitures must be reallocated.

Are you amending the plan mid-year to remove the safe harbor? If you're doing the safe harbor match and amending mid-year, there are special requirements outlined in Notice 2000-3 (30 day notice and election period, satisfy ADP/ACP test for full year with current year testing, match through effective date of amendment). Further, I don't believe you can amend the plan mid-year to remove the nonelective.

Sure, as long as you're not making over the $ limit (about $100 grand) and are not married filing separately. And as long as you're not contributing more than 100% of your income. Remember, the ROTH IRA isn't deductible, so there's no phase-out for deductibility like with traditional IRAs for people who are active in other retirement plans. You have up until Monday, April 16 this year to contribute up to $2,000 to your 2000 ROTH IRA.

Does anyone have a sample letter which they send to terminated participants (with less than $5,000 vested), which gives them a certain number of days to provide instructions on how they want their account distributed--otherwise they'll have their account paid out? (Could you e-mail me this?)

Mr X, that's only true if you use 15,325.90 as his self-employment tax. However, don't forget that he's already paid social security tax up to the maximum, since he has a W-2 from another company. His self-employment tax will thus be only 5,356.30 (184,700 x 2.9%), and he will net down to 171,821.85 for 2001, which is reduced to the 401(a)(17) limit of 170,000.

This question is answered precisely in Notice 2000-3, question #10. You are not required to provide the SHNEC or SHMAC to participants under 21 or with less than one year service. But you have to elect to treat them separately for coverage purposes. And the plan must specifically provide that elective contributions on behalf of those employees will satisfy the ADP (& ACP) tests.

Can a plan elect to use prior year ADP testing but current year ACP testing? Seems to me the answer should be no, but I can't find authority.