Belgarath

Can you elaborate a bit on the FICA question? I know that some states don't permit the same deduction for elective deferrals in some circumstances, but I thought FICA was a federal mandate. I didn't realize there was a choice on this. However, I'm probably misunderstanding the question, as well as exposing my ignorance - a fine case of double jeopardy.

Up here in BoSox (God's) country, meaning NORTH of Boston, those are called "backhouses." We're going to build a fortified line from Boston to Buffalo to keep out the Yankee fans. We'll call it the "DiMaginot Line."

I agree. Of course, you haven't mentioned whether there's any possibility of attributed ownership, etc., or whether there's any possibility of an ASG, but on the surface it doesn't appear to be a CG.

Honestly I know next to nothing about it, so I'm really tossing out a random thought or two. This sounds like a proposed sale to a "viatical" settlement company. I wouldn't dream of attempting to explain the ins and outs, because I don't know them, but it does seem to me that these are apparently under increasing scrutiny by the IRS, at least in a non-qualified arena. I recently read a blurb about a Wuliger (sp?) case and whether or not there was a valid insurable interest where the policy was entered into with the apparently sole intention of a subsequent resale. Subject is way out of my limited area of knowledge, so I'll back out and leave further discussion to anyone who actually knows something about it!!

Not in my experience. Unless the financial company accepting the assets is also a TPA, how would they even know the proper information, etc.? Normally, it is prepared by the TPA/Plan Administrator. I say "normally" with the caveat that there's nothing normal about this business...

I have a marginally related question regarding how long the IRS can "reach back" to make you pay tax on a distribution. Let's suppose it was a simple distribution, not a loan. In 1998 the plan pays you $5,000. Never issues a 1099. So you don't report it. 10 years later this comes to light. Since 1998 is presumably a "closed" year, can the participant be forced to even pay income tax? I really don't know the answer to this, but it might have a bearing on what the plan does, and whether the participant cares, in an ancient loan default scenario.

Yup.

Does it matter? If there was a PT on an IRA, and it ceases to be an IRA by operation of 408(e)(2)(A), isn't the PT penalty under 4975© waived so it is just taxed as ordinary income (and maybe premature distribution if applicable) anyway? Worth checking - I'm not a PT expert, so you'd surely want the opinion of someone more versed in these situations.

I was wondering about that 204(h) notice issue myself. If required, that would make things pretty tight for, say, a 7-1-08 beginning of year plan.

Thanks. Tom - FWIW, my line of reasoning is precisely the same as yours.

Ok, let me add a little grist for the mill. Following is from a colleague who is a heckuva lot smarter than I am, who decided to look at it a different way. Opinions? Maybe we're looking at this backwards. I can read 1.401(a)(4)-1(b)(2)(ii)(B) to say that any NEC's, including QNEC's, must be tested under the "general pot" contributions (i.e. the contributions which aren't 401(k) contributions and that aren't 401(m) contributions). So it would follow that QNEC's (or NEC's which aren't Q) could always be used for Gateway. The question is whether these contributions can be used for ADP and ACP purposes. Under 1.401(k)-2(a)(6), a NEC can only be used for ADP and ACP purposes if it is a QNEC. And a NEC can only be a QNEC if the 401(a)(4) testing on NEC's can be met both with and without the amounts which are to be treated as QNEC's. So if 401(a)(4) testing on the "general pot" of NEC's would not be satisfied if the QNEC's weren't used in Gateway testing, that would simply mean that the QNEC's couldn't be used in ADP and ACP testing. Does this analytical approach seem to make any sense to you? Some might observe that this is a distinction without a difference. I would strongly disagree. It seems to me to carve out a path which is consistent with the language of the regulations and which clearly characterizes how the NEC's are treated for 1.410(b)-(7) and 401(a)(4) testing purposes.

Thanks Tom! I'll be interested to see what others think as well.

We're having a little bit of debate on this. One opinion (including me) thinks you cannot use a QNEC toward your gateway minimum, since 1.401(k)-2(a)(6)(ii) requires you to pass 401(a)(4) both with and without the QNEC. Another is that this isn't true, and since 401(a)(4) was around before gateway, then this rule doesn't apply. I don't quite follow that argument. What do y'all think? Can you use a QNEC toward satisfying gateway?

Since it fails one of the requirements, I have to assume the answer is no. But I cannot honestly say, since I would never attempt an EZ filing in this situation. If you are trying to avoid filing if below the $250k threshhold by considering this EZ eligible, I sure wouldn't recommend it.

Link here: http://www.irs.ustreas.gov/pub/irs-drop/a-08-44.pdf

Gary - what if the employee terminates employment before attaining age 21 - not an uncommon occurrence. If you've contributed, now you have an IRA to which an improper contribution was made, which you must then correct. That can be a real bore. IMHO, it would be better to wait until the employee actually reaches 21, then contribute the same percentage that everyone else already got. What do you think?

But watch out for 415 limits. Both are included in the 415 limitation.

I've seen some of these in the past. A cursory look at some of the statutes (ERISA 408(e), 407(b)(1). 407(d)(3); IRC 4975(d)(13), 4975(e)(8), probably others I've missed) would seem to indicate that it might legitimately be possible. I wouldn't dare opine any further than that, however - a lot of what is involved is outside of my experience. I'd want expert ERISA counsel involved if I were the client.

As far as I know, there isn't any other guidance on this. For anyone who is interested, the PLR follows. LTR-RUL, PEN-RUL 17,378 P, IRS Letter Ruling 8919052, February 15, 1989. IRS Letter Ruling 8919052, February 15, 1989. Individual Retirement Accounts: Additional tax on early distributions: Substantially equal periodic payments Distributions from an IRA that were part of a group of substantially equal periodic payments made over the joint lives of the taxpayer and designated beneficiary were not subject to the 10% additional tax on early withdrawals. Back reference: See "Finding Lists". [Reproduced below is the text of Letter Ruling 8919052, relating to the taxation of substantially equal periodic payments from an IRA. The ruling carries the stamped legend: "This document may not be used or cited as precedent. Sec. 6110(j) of the Internal Revenue Code."] This letter is in response to your request for a ruling on behalf of Taxpayer P and Taxpayer J as to whether certain proposed distributions from an Individual Retirement Account (IRA) owned by Taxpayer P are part of a series of substantially equal periodic payments and are therefore not subject to the 10% additional tax imposed under section 72(t) of the Internal Revenue Code on early distributions. The original ruling request, dated November 17, 1988, was subsequently modified in phone conversations with our office and by a letter dated January 12, 1989. According to the facts, Taxpayer P, following termination of his employment on June 21, 1988, at the age of 55, received a distribution from his retirement plan. The distribution was paid in two installments both received on July 28, 1988. The entire distribution was rolled over into a self-directed Individual Retirement Account (IRA) on August 3, 1988. Taxpayer J is Taxpayer P's spousal beneficiary on the IRA account. Taxpayer P decided to start receiving distributions from his IRA in 1988, with the annual distribution amount to be determined by amortizing the IRA account balance over the joint life and last survivor expectancy of Taxpayer P and Taxpayer J (obtained from Table VI in section 1.72-9 of the Income Tax Regulations), using an assumed interest rate of earnings of 9%. Beginning within 60 days from the date of this letter and continuing thereafter, the annual distribution amount will be paid in the form of equal monthly payments. Section 408(d) of the Internal Revenue Code provides that amounts paid or distributed out of an individual retirement plan must be included in gross income by the payee or distributee in the manner provided under section 72 of the Code. Section 72 of the Internal Revenue Code provides rules for determining how amounts received as annuities, endowments, or life insurance contracts and distributions from qualified plans are to be taxed. Section 72(t)(1) of the Internal Revenue Code provides for the imposition of an additional 10% tax on early distributions from qualified plans, including IRAs. The additional tax is imposed on that portion of the distribution which is includible in gross income. Section 72(t)(2)(A)(iv) of the Code provides that section 72(t)(1) shall not apply to distributions which are part of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the employee or the joint lives (or joint life expectancies) of such employee and his beneficiary. Section 72(t)(4) of the Code imposes the additional limitation on distributions expected from the 10% tax by section 72(t)(2)(A)(iv) that if the series of payments is subsequently modified (other than by reason of death or disability) before the later of (1) the close of the 5-year period beginning with the date of the first payment, and (2) the employee's attainment of age 591/2 , then the taxpayer's tax for the first taxable year in which such modification occurs shall be increased by an amount determined under regulations, equal to the tax which would have been imposed except for the section 72(t)(2)(A)(iv) exception, plus interest for the deferral period. Section 1.72-9 of the regulations provides tables that are to be used in connection with computations under section 72 and the regulations thereunder. Included in this section are tables giving life expectancies for one life (Table V) and joint life and last survivor expectancies for two lives (Table VI). The proposed method for determining periodic annual payments described in the ruling request is to first obtain a monthly payment and then multiply this monthly payment by 12 to obtain an annual payment. The monthly payment is an end of month payment derived by amortizing the account balance (as of one month before the first payment) over a number of months equal to the joint life and last survivor expectancy of the account owner and his spousal beneficiary (obtained from Table VI of section 1.72-9 of the regulations) in years multiplied by 12, and assuming a nominal annual interest rate of return equal to 9%, compounded monthly. Under the proposed method the annual periodic payment, once determined, will not change except in the case of the death of Taxpayer P or Taxpayer J. Should either Taxpayer die, the survivor may elect to have the annual distribution amount for the year following the year in which such death occurs, and continuing thereafter, recalculated using the survivor's life expectancy only (obtained from Table V of section 1.72-9 of the regulations). The original request provided that the annual payment would be distributed in one or more installments which, when aggregated for the distribution year, would equal the annual distribution amount. Pursuant to discussions with our office, this payment schedule has been modified such that beginning within 60 days from the date of this letter and continuing thereafter, such annual payment will be distributed on a monthly basis. Furthermore, such annual payments were determined as a level amount payable over the joint life and last survivor expectancy of Taxpayer P and Taxpayer J. The joint life and last survivor expectancy and the interest rate used to determine the periodic payments are such that they do not result in the circumvention of the requirements of sections 72(t)(2)(A)(iv) and 72(t)(4) of the Code (through the use of an unreasonably high interest rate or an unreasonable life expectancy). Accordingly, we conclude that the proposed method (as modified) of determining periodic payments results in substantially equal periodic payments within the meaning of section 72(t)(2)(A)(iv) of the Code. Accordingly, such payments will not be subject to the additional tax of section 72(t) unless the requirements of section 72(t)(4) are not met.

You may find this useful. http://benefitslink.com/boards/index.php?s...mp;#entry146275

They could always find another brokerage house. It isn't generally all that difficult to find an institution that will take your money. As to the 30 day deadline - it seems to me that this is an unnecessarily rigid reading of the DOL regulation 2510.3-102(b)(2). I reproduced it below. To me, the "otherwise payable to the participant in cash" - in the case of a S/E or partner, can't reasonably be interpreted to be determinable until tax/income has been calculated! (2) With respect to a SIMPLE plan that involves SIMPLE IRAs (i.e., Simple Retirement Accounts, as described in section 408(p) of the Internal Revenue Code), in no event shall the date determined pursuant to paragraph (a) of this section occur later than the 30th calendar day following the month in which the participant contribution amounts would otherwise have been payable to the participant in cash.

Thanks to you both.

In the situation I'm questioning, he is 100% owner, and I have no question about the deferral portion - it is aggregated. One could argue, however, that he is NOT in charge of his 403(b) in terms of an employer's contribution. Say there were no deferrals at all - just employer (hospital) contributions to the 403(b). Does your answer remain the same? If the hospital instead had a profit sharing plan, then there would be no aggregation of THOSE employer contributions, so as I said, it seems like an unjust result, but it seems to be where the reg is leading me.

Ok, here's my question. Suppose you have a Doctor in private practice. He owns the practice, sponsors a PS plan, and receives a maximum contribution for 2007 of $45,000. He also works, as an employee, for a local hospital. And he makes elective deferrals to a 403(b), AS WELL AS receiving employer contributions to the 403(b). Clearly, the elective deferrals must be aggregated with his PS plan. What about the hospital employer contributions? While it seems an unjust result, it seems like the regulation could be read to require aggregation of any 403(b) amount, and not just the deferrals. What do y'all think? (2) Special rules under which the employer is deemed to maintain the annuity contract -(i) In general. Where a participant on whose behalf a section 403(b) annuity contract is purchased is in control of any employer for a limitation year as defined in paragraph (f)(2)(ii) of this section (regardless of whether the employer controlled by the participant is the employer maintaining the section 403(b) annuity contract), the annuity contract for the benefit of the participant is treated as a defined contribution plan maintained by both the controlled employer and the participant for that limitation year. Accordingly, where a participant on whose behalf a section 403(b) annuity contract is purchased is in control of any employer for a limitation year, the section 403(b) annuity contract is aggregated with all other defined contribution plans maintained by that employer. In addition, in such a case, the section 403(b) annuity contract is aggregated with all other defined contribution plans maintained by the employee or any other employer that is controlled by the employee. Thus, for example, if a doctor is employed by a non-profit hospital to which section 501©(3) applies and which provides him with a section 403(b) annuity contract, and the doctor also maintains a private practice as a shareholder owning more than 50 percent of a professional corporation, then any qualified defined contribution plan of the professional corporation must be aggregated with the section 403(b) annuity contract for purposes of applying the limitations of section 415© and §1.415©-1. For purposes of this paragraph (f)(2), it is immaterial whether the section 403(b) annuity contract is purchased as a result of a salary reduction agreement between the employer and the participant.

As to what the plan can allow or be amended to allow - what kind of a plan is it? If it is a profit sharing plan, then yes. If it is a pension plan, then no, unless they have reached normal retirement age. Subject, of course, to 401(k) restrictions if it is a 401(k).