Appleby

I think we agree on when the amount would be taxed. What we appear to disagree about is whether the withholding rules apply to the amount. Let’s separate the two issues. Unless you are saying that because it is taxed in the previous year 3405 does not apply ??? which I do not think is the case … Note that I am not saying that you are wrong…but... At first, I also thought Rev Proc 92-93 only addressed 415 excess amounts. However, it also says… “The distribution of elective deferrals pursuant to section 1.415-6(b)(6)(iv) is a corrective disbursement rather than a distribution of accrued benefits. Thus, it is analogous to distributions under sections 401(k)(8) (distribution of excess contributions), 401(m)(6) (distribution of excess aggregate contributions), and 402(g) (distributions of excess deferrals).”…. Therefore, Rev Proc 92-93 appears to include amounts that are excess deferrals due to failure of nondiscrimination testing. agreed? From the instructions for filing 1099-R and 5498 “To determine your withholding requirements for any designated distribution under section 3405, you must first determine whether the distribution is an eligible rollover distribution. See Direct Rollovers on page R-2 for a discussion of eligible rollover distributions. If the distribution is not an eligible rollover distribution, the rules for periodic payments or nonperiodic distributions apply. For purposes of withholding, distributions from any IRA are not eligible rollover distributions. “ Do you still think the withholding does not apply?

Rev. Rul. 2004-12 attached Rev._Rul._2004_12.pdf

IMHO, Spousal Consent is required… From Revenue Ruling 2004-12 ”a distribution of amounts attributable to a rollover contribution is subject to the survivor annuity requirements of §§ 401(a)(11) and 417...as applicable to the receiving plan."....it would seem then the loans are subject to the same requirements...

Harwood, help me out here. I know that the excess amount is not subject to withholding if distributed within 2 ½ months…but isn’t that treatment limited to the excess amount and not the earnings thereon? If not, what am I missing? On the treatment of the distribution of elective deferrals Rev Proc 92-93 says “The withholding requirements of section 3405 of the Code apply to the portion of the distribution that is includible in income”.

Isn’t a return of contribution to the employer limited to ‘mistake in fact’ or if the plan is disallowed? Wouldn’t the proper course of action be to put the funds in a suspense account to be allocated the next year to all the employees?

The 10-percent would not apply to the excess, but would apply to any earnings… It seems the only requirement is to provide the option to elect out of the 10-percent. OTOH…IRC § 3405(e)(8) says that 100% can be withheld…wouldn’t this suggest that the option should be given?…especially when one considers the penalties that could apply under the estimated tax rules if the withholding and estimated tax payments are not sufficient.

Good suggestion, but if they already sent her a check, it is too late for that. The only option would be the one mbozek suggested, which is to see whether the financial institution would VOID the check, and return the amount to the IRA with neither of the transactions ( debit/credit) being reported

90-24 Non-spouse beneficiaries are not eligible for the direct rollover option

…but it seems Code T no longer includes SEPPs. As you can probably tell- we are getting ready for 1099-R reporting

Please ignore that prior post ...It has been a long week!

It appears that the final version of the instructions does not include SEPPs in Code 2 . I am seeing right? http://www.irs.gov/pub/irs-pdf/i1099r.pdf

See thread at http://benefitslink.com/boards/index.php?showtopic=23098

Agreed.. Also, if the plan allows, the assets can be transferred to an inherited 403(b) at another financial institution, which must be maintained in the names of the beneficiary and the deceased, using the TIN of the beneficiary..

No. That rule applies to the SIMPLE IRAs, where the SIMPLE IRA cannot be transferred or rolled to an eligible retirement plan until two years after the first contribution was made to the account. ...and as Gary Lesser says about SARSEPs

Thanks to you both. I agree. IMO, the deadline would not apply to establishing the SIMPLE, since the October 1 deadline was put in place to allow employees sufficient time to make their salary deferral contributions for the year. OTOH, some employers (those that come into existence after October 1) are allowed to establish the plan after October 1, which suggests that even though employees would be at a disadvantage with SIMPLEs that are established after October 1, it may be allowed under extenuating circumstances…but alas, without any apparent guidance, one can’t be too sure

The October Special Edition employee plan news talks about extension for tax filing and contributing to SEPs and SIMPLEs. http://www.irs.gov/pub/irs-tege/se_1004.pdf. But I can’t find anything that states whether the deadlines for establishing the plans were also extended. Are you aware of any such provisions?

Good point mbozek. The new CIP regulations could nullify that option

Yes. If the employee refuses to complete the paperwork, or the employer is unable to locate the employee, the employer should complete the paperwork on behalf of the employee to establish the employee’s SEP IRA. My notes say cite Prop Treas Reg Sec 1.408-7, but I can't seem to get my hands on a copy

I don’t. We often rely on proposed regs when final regs are not available. Most popular example is the 1987 RMD regs. From the IRM .." When no temporary or final regulations have been issued, examiners may use a proposed regulation to support a position. Indicate that the proposed regulation has no authoritative weight, but is the best interpretation of the Code section available" Lori, from IRS notice 98-4…” forfeitures are disregarded except to the extent forfeitures replace otherwise required contributions”

Yes. After the two-year period, SIMPLE distributions are treated like traditional IRA distributions

Yes but only as a traditional IRA contribution- not as SEP contribution…as you may know, most SEP IRA owners use the same account for their regular IRA contributions

Blinky- why option 2? Wouldn’t option be better since there would be no need to track the MPPP assets for the REA provision

Bird, ahead of me by a milli-second . You make a good point. The exception to filing the Form 5500 series return may not apply as they may not be eligible to file Form 5500 EZ

I don’t see why not. The employer is eligible to adopt the plan, providing only the business owner is eligible to participate. They are all business owners so they should be fine IMHO.

I couldn't find any reference either.. Borrowing from rulings on a similar issue for IRAs, the IRS’ position is that since the purpose of funding the retirement account if for your retirement, if you are deceased then you there is no need to fund your retirement account anymore. However, if there are other participants in the plan who will be receiving contributions for the year, failing to contribute for the deceased could create compliance issues . .