Belgarath

He'll have to take his 2011 distribution from the IRA prior to rollover, but then can avoid future RMD's from the 401(k) until after terminating employment under the normal rules.

Thanks David. When all is said and done, I expect they will just take what is definitively allowable, and just terminate the existing plan and roll over the assets to the new plan established by the Son. 'Cause I'd be willing to bet that they won't involve an attorney anyway. This is just annoying me, because I feel like I should know the answer.

Hi Bird - thanks. I should have said that Son's business has established a PS plan - for 2010, apparently, so it is an issue of merging the plans in 2011. And while I couldn't find anything in 414(l), 401(a)(12), or ERISA 208 prohibiting this, it just "feels" strange - like I'm missing something entirely too obvious. But I suppose this is beneficial in that it is cheaper to merge the plans than to formally terminate the Dad's PS plan.

I've never seen this question before. Suppose you have business A - a sole proprietorship employing Dad, Mom, and a bunch of part time employees. They have a PS plan. Now son B decides to establish his own business. Technically unrelated to Dad's business, although it is likely (they are doctors) that Dad's previous patients will come to Son B. Son B will employ Dad and Mom in his new business. Son B is establishing a PS plan. The question came up - can Son B's plan assume the assets and liabilites of Business A's plan? Part of me says "why not" and part of my says "how the heck is that possible" when Son is not buying Business A and there is no technical business relationship or merger? Any thoughts on this? I'm just sort of drawing a blank... P.S. Dad is ceased his business A as of 12/31/10, if that makes any difference in your thoughts.

It is indeed a judgment call. Depends a lot on who you get for a reviewer if they ever look at it. My personal leaning on this, without knowing all the specifics, is that this would likely be considered "significant" but this one falls into the gray area, IMHO. SECTION 8. SELF-CORRECTION OF INSIGNIFICANT OPERATIONAL FAILURES .01 The requirements of this section 8 are satisfied with respect to an Operational Failure if the Operational Failure is corrected and, given all the facts and circumstances, the Operational Failure is insignificant. This section 8 is available for correcting an insignificant Operational Failure even if the plan or Plan Sponsor is Under Examination and even if the Operational Failure is discovered on examination. .02 Factors. The factors to be considered in determining whether or not an Operational Failure under a plan is insignificant include, but are not limited to: (1) whether other failures occurred during the period being examined (for this purpose, a failure is not considered to have occurred more than once merely because more than one participant is affected by the failure); (2) the percentage of plan assets and contributions involved in the failure; (3) the number of years the failure occurred; (4) the number of participants affected relative to the total number of participants in the plan; (5) the number of participants affected as a result of the failure relative to the number of participants who could have been affected by the failure; (6) whether correction was made within a reasonable time after discovery of the failure; and (7) the reason for the failure (for example, data errors such as errors in the transcription of data, the transposition of numbers, or minor arithmetic errors). No single factor is determinative. Additionally, factors (2), (4), and (5) should not be interpreted to exclude small businesses. .03 Multiple failures. In the case of a plan with more than one Operational Failure in a single year, or Operational Failures that occur in more than one year, the Operational Failures are eligible for correction under this section 8 only if all of the Operational Failures are insignificant in the aggregate. Operational Failures that have been corrected under SCP in section 9 and VCP in sections 10 and 11 are not taken into account for purposes of determining if Operational Failures are insignificant in the aggregate. .04 Examples. The following examples illustrate the application of this section 8. It is assumed, in each example, that the eligibility requirements of section 4 relating to SCP (for example, the requirements of section 4.04 relating to established practices and procedures) have been satisfied and that no Operational Failures occurred other than the Operational Failures identified below. Example 1: In 1991, Employer X established Plan A, a profit-sharing plan that satisfies the requirements of § 401(a) in form. In 2005, the benefits of 50 of the 250 participants in Plan A were limited by § 415©. However, when the Service examined Plan A in 2008, it discovered that, during the 2005 limitation year, the annual additions allocated to the accounts of 3 of these employees exceeded the maximum limitations under § 415©. Employer X contributed $3,500,000 to the plan for the plan year. The amount of the excesses totaled $4,550. Under these facts, because the number of participants affected by the failure relative to the total number of participants who could have been affected by the failure, and the monetary amount of the failure relative to the total employer contribution to the plan for the 2005 plan year, are insignificant, the § 415© failure in Plan A that occurred in 2005 would be eligible for correction under this section 8. Example 2: The facts are the same as in Example 1, except that the failure to satisfy § 415 occurred during each of the 2005 and 2007 limitation years. In addition, the three participants affected by the § 415 failure were not identical each year. The fact that the § 415 failures occurred during more than one limitation year did not cause the failures to be significant; accordingly, the failures are still eligible for correction under this section 8. Example 3: The facts are the same as in Example 1, except that the annual additions of 18 of the 50 employees whose benefits were limited by § 415© nevertheless exceeded the maximum limitations under § 415© during the 2005 limitation year, and the amount of the excesses ranged from $1,000 to $9,000, and totaled $150,000. Under these facts, taking into account the number of participants affected by the failure relative to the total number of participants who could have been affected by the failure for the 2005 limitation year (and the monetary amount of the failure relative to the total employer contribution), the failure is significant. Accordingly, the § 415© failure in Plan A that occurred in 2005 is ineligible for correction under this section 8 as an insignificant failure. Example 4: Employer J maintains Plan C, a money purchase pension plan established in 1992. The plan document satisfies the requirements of § 401(a). The formula under the plan provides for an employer contribution equal to 10% of compensation, as defined in the plan. During its examination of the plan for the 2005 plan year, the Service discovered that the employee responsible for entering data into the employer’s computer made minor arithmetic errors in transcribing the compensation data with respect to 6 of the plan’s 40 participants, resulting in excess allocations to those 6 participants’ accounts. Under these facts, the number of participants affected by the failure relative to the number of participants that could have been affected is insignificant, and the failure is due to minor data errors. Thus, the failure occurring in 2005 would be insignificant and therefore eligible for correction under this section 8. Example 5: Public School maintains for its 200 employees a salary reduction 403(b) Plan (the “Plan”) that satisfies the requirements of § 403(b). The business manager has primary responsibility for administering the Plan, in addition to other administrative functions within Public School. During the 2005 plan year, a former employee should have received an additional minimum required distribution of $278 under § 403(b)(10). Another participant received an impermissible hardship withdrawal of $2,500. Another participant made elective deferrals of which $1,000 was in excess of the § 402(g) limit. Under these facts, even though multiple failures occurred in a single plan year, the failures will be eligible for correction under this section 8 because in the aggregate the failures are insignificant.

http://www.irs.ustreas.gov/pub/irs-tege/lrm_crosstest.pdf

Ignoring the issue of whether 5500's SHOULD be caught up in this foolishness, take a look at IRS Notice 2008-13. I think that will clarify a lot of this for you. And news isn't good...

Saw yesterday that the IRS will be very substantially increasing audits of individual returns for 2011. So, to the tune of Jingle Bells: Dashing through the snow The audit's on the way O'er the roads we go Screaming all the way. CPA's to bring Tax returns not right Oh what fun to dance on strings The Service pulls tonight. Oh, Jingle bells, audits smell Auditor's not right, Scarier than Hell To think of Jail cells tonight.

What's a "budget surplus?" And I mean a REAL budget surplus, not one using government accounting that doesn't count the trillion or so spent in Iraq or Afghanistan, etc.. I think I'll be unlikely to see one in my lifetime. And while I generally try to avoid political statements here, I feel comfortable when I'm trashing both parties. I see no difference in "fiscal responsibility" of the Democrats or the Republicans in Washington. They are all useless. Only difference is the emphasis on where the money goes. The great thing here is that "WE THE PEOPLE" elect them, so we as a country are collectively idiots, and we will pass on the consequences to our children and grandchildren. Ah well, off the soapbox - tis the Holiday season, so my rantings are inappropriate, and I'd like to wish you and your families and friends a wonderful season - and let peace and goodwill reign supreme!

I'd like to hear what the lawyers think (although it is sometimes hard to know what they think, since they argue either side depending upon who they are representing - after all, that's their job.) But isn't there some sort of general legal principle that employers are liable for the acts of their employees, as long as the employees aren't exceeding their authority, etc. - and if the employer's legal department instructs the employee not to obtain or use a PTIN, then shouldn't that employee be safe?

No, but they did take a business course or two: B101 - Money can make you rich B203 - Tax shelters for the indigent B104 - Fractured Actuarial Science

See 1.401(k)-1(a)(6)(iii). The election must be made by 12/31. As to the timing of the deposit, you have potential issues with the DOL if the plan is subject to Title I - i.e. the deposit would need to be made as soon as it can be "reasonably segregated." Now I don't see how you can seriously argue that it can be "reasonably segregated" until the K-1 income is known - but I'm sure there are people who would disagree with me. If not subject to Title I, then I'm not sure that there is any deadline, other than normal deadlines for deductions, 415 purposes, the normal 12 month rule, etc..

Ok, so down to nuts and bolts. For a preparer that isn't signing the return, such as a TPA preparing a 5500, what are the specific 6694 penalties? It seems to me that it is the greater of $1,000 or 50% of the compensation the firm will receive for the preparation of the form? (I'm discounting willful and reckless.) Is that amount correct? Also, any "feeling" as to how the IRS is going to enforce this? I mean, if there's an incorrect entry on a 5500 form, which doesn't even affect the tax return or claim for refund, then it isn't a "substantial portion" and shouldn't even be subject to the penalty at all, right? I guess what I'm trying to get at is that in spite of all the hoopla about us being SUBJECT to the regulations (which is a rant I've made several times already) it seems that it would only be the rarest circumstance where the penalty COULD even be reasonably applied? Example - client gives you income - you calculate 25% maximum - turns out client gave you wrong income - you are not then liable for the penalty, right?

Kevin - afraid I disagree. Section 108(f)of WRERA amended IRC 402©(11)(A)(i) for plan years beginning after 12-31-2009. These are now "eligible rollover distributions" and mandatory withholding does then apply.

The balance is subject to mandatory withholding. However, this can be avoided by the simple expedient of having it directly transferred to the beneficiary IRA, rather than having it paid directly to the beneficiary first.

I don't normally do these - it's embarrassing to get 2 out of several hundred - but based on the earlier comments, I had to look at #122. Is it Christmas in Dixie? Tom - posting these addictive puzzles is one reason why no one likes you.

Has anyone heard anything from "contacts" at either ASPPA or the IRS as to whether the IRS is going to return to sanity on this issue, and not have it apply to 5500 preparers?

Agreed - one interpretation is that it is not attributed in a community property state - it is DIRECT ownership. But we just point this out to the client, and tell them to check with their attorney and let us know what they decide! Honestly, I've never heard of a situation where the IRS disagreed or caused problems one way or the other in such a situation, so I suspect it is a fairly low risk no matter which interpretation you take.

I agree. There are people out there, however, who do not agree that for these purposes a community property state confers direct ownership. They seem to be in a minority as far as I can tell.

See Mbozek's comment from another post on this same subject. http://benefitslink.com/boards/index.php?s...c=47321&hl=

Based purely upon personal experience, a former employee who is savvy enough and "in tune" enough to direct the employer to do an in-plan Roth conversion will also not generally be one of the "disappearing employees" who can't be located. FWIW, I can't offhand think of a defensible basis for not permitting a terminated employee to do the conversion. I think the nondiscrimination issues are a valid concern. Note that the 402(f) notice must disclose this option, although a 402(f) notice is of course given in other situations that have nothing to do with a distribution due to termination of employment. I guess that in the absence of further guidance specifically allowing it, I wouldn't restrict it to active employees.

"While hedge funds are no panacea, they offer the potential for investment returns not subject to stock market ups and downs." And has that proven to be the case? Haven't a lot of them bombed? At any rate, I'm no investment advisor, but our clients don't seem to go for them much, as we mostly do small plans. Personally, I do tend to fall on the conservative end of the spectrum. A few of the old tried and true platitudes seem to work out over the long haul - "Don't put all your eggs in one basket" and "if it sounds too good to be true, it is" and the old Will Rogers "I'm more concerned with the return OF my money than I am with the return ON my money." It does seem that for every success story (and there are a lot of them) there's another disaster. But I find that investing is totally stress free when all your money fits nicely in a piggy bank.

Thanks. It appears that the 3% safe harbor will NOT be made. We'll be getting an opinion from counsel on this, but if the Plan Administrator directs us to not do ADP testing, then it would seem we are safe in proceeding on that basis?

With apologies to Jim Stafford: I was born a turkey (ba dum ba dum) Been a turkey all my life (ba dum ba dum) All my friends are turkeys (ba dum ba dum) Got a turkey for a wife (ba dum ba dum) They say that this Thanksgiving (ba dum ba dum) Is gonna be my last (ba dum ba dum) They want to cut my head off and stick dressing up my a**!!!!

Thanks.