Appleby

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 . .

Daestrom- You are right. The two-year period starts on the day the first contribution is deposited to the SIMPLE . Belgarath, I’m, with you 100 %

You are right- consolidation can sometimes be a good thing- but Bird is right. The plan sponsor can allow the participants to rollover the assets to the 401(k) plan…but the bottomline is that the assets are in an IRA, and the owners of the IRAs can do whatever they please with these assets. The employer , plan sponsor nor the financial advisor cannot dictate when and how distributions , including rollovers occur from SIMPLE IRAs. SIMPLE IRA assets can be moved to anther SIMPLE IRA another at anytime ( before or after two years). The 25% penalty would apply if the assets are distributed before the two year period and the individual is under age 59 ½ when the distribution/rollover occurs. The 25% penalty would also apply to rollovers ( of SIMPLE IRA assets within the 2-year period) because the transaction would not be treated as a rollover for IRS purposes, instead, it would be treated as a regular distribution and a regular contribution to the receiving plan…if the receiving plan is an IRA, it would be treated as an IRA contribution subject to the $3,000+ catch-up limit (for 2004). If the receiving plan is a qualified retirement plan (QRP), it would be treated as an ineligible rollover which must be removed from the plan in accordance with the allowable corrections procedures as defined by the plan and applicable regulations.

Lori, By one-participant 401(k) plan I assume you mean the Individual (k)/Uni-K/Solo 401(k) plan? If so, and these individuals are not owners of the business, wouldn’t the narrowly defined parameters under which these plans are governed automatically exclude the organization from being eligible to adopt the plan?