Belgarath

You might want to take a look at Revenue Procedure 2006-27, Appendix A, .06, which I think exactly addresses your situation.

Yeah, I saw that too - in fact, my initial reading was exactly the same as yours. I guess we'll just agree to disagree on this - after re-reading it, I still remain of the opinion that 402(g) language would have referred to (ii) if there was intent to limit the overall limit to the 2,500. 414 has to throw in (ii) because it is dealing with individual plan limits. Your interpretation is certainly safe, and may well be the correct reading. Of course, wantstolearn probably has the only actual such case in the entire USA, so this is unlikely to generate a lot of controversy at any practical level.

jevd - please take a look at 402(g)(1)©. For purposes of the 402(g) limit, the limit for catch-up contributions specifically refers ONLY to 414(v)(2)(B)(i). It does not reference (B)(ii). If it referred to (B)(ii) I would agree with you, but since the limit is (currently) specifically $5,000, then that's your answer. 414(v) and the accompanying regulations are dealing with individual plan limits, and the individual SIMPLE IRA must indeed limit any catch-up to the 2,500. But, if they are unrelated employers, then the total limit reverts to the limit specified in 402(g)(1)© - and hence to the 5,000 in 414(v)(2)(B)(i). That's how I read it, anyway.

My interpretation is that the 5,000 limit would apply (2,500 per plan). Do you actually have such a case with unrelated employers where a 50+ participant wants to double the catch-up, or is this merely an academic exercise?

Now that the IRS has opened up the submission program, it occurs to me that I haven't seen anything on the DB LRM's. I checked their website and couldn't find anything - did they get published and I missed, it, and if not, anyone have any info on a tentative timeframe for when they will be published?

Basically, each allocation rate is treated in a manner similar to BRF test under 1.401(a)(4)-4. This requires that each group would have to pass the nondiscriminatory classification test under 1.410(b)-4. And that's the first part of the average benefits test under minimum coverage requirements. We don't use it ourselves, but I recall reading something by Sal which said that it was largely useless, because generally anyone who could pass this could pass on a contributions basis and therefore wouldn't need to use cross testing anyway. Which makes sense to me, and I'm guessing is one reason most of us don't deal with it.

Your client is out of luck (assuming the plan/SPD is properly drafted). As Stephen mentions, there is no requirement to allow distributions prior to NRA. See IRC 401(a)(14). If the $15,000 limit were discriminatory in favor of the HC, that would be a problem, but it isn't - it favors the NHC, so no discrimination issues. Some plans prohibit any distributions prior to NRA, for various reasons. In our small employer market, this is chiefly becasue they don't want to encourage turnover, and they don't want to provide easy access to funds for an employee to leave and set up a competing business. And although your client can attempt to get the plan to change this provision, the plan sponsor/Administrator is under no obligation to give the reasons for this policy.

Many thanks!

I don't have all details yet, so I'm just asking a question in general, since I know practically nothing about ESOPs. We have a PS plan, sponsored by an S-corp that has been around for many years. They just sent us data to do the 12-31-06 valuation, and informed us that they "established an ESOP as of 1-1-2006." Based upon verbal communication to one of our analysts, which may not be accurate, they assert that they made no contributions to the ESOP in or for 2006, yet the ESOP owns 100% of the S-corporation. We're attempting to get some clarification. In the meantime, I have two questions. 1. Is the above situation even possible? I mean, how can 100% of the ownership be transferred to the ESOP without this being considered a contribution? 2. I know there has been a lot of press about "abusive" ESOP/S-Corp situations, which I honestly haven't folowed much becasue we don't administer ESOPs. In general, I understand that this deals with not allowing an allocation to "disqualified persons" during a "nonallocation year" and that this becomes effective in, I think, 2005. Although the ESOP isn't our responsibility, I wondered if there was a specific red flag that I should be aware of to instruct the client to double check wth their legal counsel? Presumably they have already done this, but I'm often amazed at the crazy schemes that cleints buy into because some "advisor" convinced them it was a good idea, and they didn't seek competent counsel before digging their grave. Thanks for any input!

Sorry Gary, I'd love to help if I could, but we never sponsored a SEP prototype. I will say that most of the SEP prototypes that I've actually seen, and that isn't very many, are nearly identical to the IRS Model SEP except that they allow for maintaining another plan at the same time. [THXs for checking.---GL]

This is interesting. I went back and looked at this again, and I stand corrected on my previous statement. I forgot that a strict reading of the statute would cause the 100% ownership attributed to the minor child to create a CG, overriding the spousal noninvolvement clause. However, it does seem nonsensical for the exception to have been created in the first place, if it could be defeated merely by the accident of having a child, 'cause the exception clearly refers to no DIRECT ownership. If this isn't a community property state, then I'd be interested in anyone's best guess as to how many practicing attorneys would tell their clients that they had to treat this as a CG if all the exceptions in 1563(e)(5) are otherwise met. I'd tend to agree with MJB, but then, I'm not an attorney, and therefore wouldn't be putting my neck, or my client's neck, on the line, so it's easy for me to have a casual attitude about it. Any attorneys out there care to unoficially opine? Thanks!

WDIK - I'm rather slow on the uptake. I just barely noticed, after all this time, that your acronym is taken from your "What Do I Know" statement. I always thought it meant "Works Diligently If Kicked." I seem to be having more and more of these "DUH" moments when I realize I've been singularly stupid on something for a very long time. It doesn't bode well for the future...

You've been given a lot of good advice already, and if you listen to even half of it, you'll do very well indeed. I'd like to put in one little observation about Roth IRA's which makes them even better, IMHO. (I'm a big fan of Roths) That is, the flexibility to withdraw your CONTRIBUTIONS without penalty. The Roth withdrawals are on a FIFO (first in first out) basis, so any withdrawal is considered to be a return of your contributions until your full contribution amounts have been withdrawn. Since it is hard to see too far ahead in life, this flexibility in an emergency, or to take advantage of some tremendous opportunity, can be a wonderful thing.

"If so, is there any other way to increase my tax-deferred contributions toward returement? I had been led to believe the Plan at work disqualified me from contributing to an IRA (since W2 box 13 has "retirement plan" checked). Is that really true, and does being 50 make any difference in my eligibility for tax-deferred IRA contributions?" You can still contribute to an IRA, but it may or may not be deductible, depending upon your income level. However, I'd certainly instead consider setting up a Roth IRA based upon your apparent situation. Although not deductible currently, the earnings will be income tax free if you handle the distributions properly (generally, wait until age 59-1/2). You can currently contribute $4,000 plus a $1,000 catch up. Check IRS publication 590 for details.

I respectfully disagree. If all of the requirements of the spousal noninvolvement exception apply, then attributed ownership from a minor does not cause a controlled group. It requires DIRECT ownership to negate the "no ownership" portion of the noninvolvement exception. See 1563(e)(5).

Is it a community property state? Depending upon which legal argument you accept, (whether or not this creates direct ownership and therefore negates the spousal noninvolvement exception) this could create attribution and throw you back into controlled group status. I'd take PIP's original recommendation and seek the advice of counsel.

$10,000.00

See Revenue Procedure 2006-27, particularly Appendix A (.05) which will also refer you to specific examples in Appendix B. I think this takes a lot of the "gray" out of some of the prior debates, for me as well. I think this will give you the specific fix that you are looking for. I also second 401's advice to check your plan document, as the document may already specify a fix. And yes, assuming the participant made a valid election under whatever reasonable requirements established by the Plan Administrator, then it needs to be fixed.

In your return e-mail to the Doctor, why not give him the code references, with the applicable excerpts, so that he can show them to his own tax counsel? Maybe that will save you some of the back and forth. If after reviewing the applicable citations the CPA still hasn't seen the light, then you might suggest nicely to the Doctor that you are a professional as well, and you simply do not agree with the CPA. If he doesn't come around to your position, make sure to put in writing that you absolutely refuse to accept any liability for his decision to ignore the appropriate mandatory withholding. Sometimes you just can't save people from themselves, no matter how hard you try! I'm betting that the CPA will agree once the appropriate info is stuck under his/her nose.

I second the prior responses. I will say that the Code and Regs are both available for free over the internet. On a personal level, I'm a little old fashioned, and I need a hard copy - much easier for me when looking up all the darned cross-references - trying to do it on a monitor is slower and tiring on the eyes! - so I get the CCH hard copy of Pension and Employee Benefits. Gives the applicable Code, Regs, and ERISA in two volumes.

I agree - the distribution you describe would be subject to the mandatory withholding.

The plan sponsor is not required to provide notification that they will not be adopting this optional provision. If the plan sponsor amends the language to permit such rollovers, they would either provide a Summary of Material Modification, or a new Summary Plan Description. Either way, it is possible/likely that the plan sponsor won't make a decision prior to February 15th. I suspect that many/most plan sponsors will ultimately allow this, but they often aren't in any particular hurry - it is one more potential added complexity/expense that they may not want to bother with.

Probably not. Stock can only be attributed once through family members. (IRC 318(a)(5)) But, for example, if the owner is not a 100% owner and the spouse owns any stock directly, or there are options involved, then it is possible that the father-in-law would have to receive a RMD.

IMHO, and assuming that the new company is truly independent, no attributed ownership through options, etc., and none of the employees are shared: 1. I agree. 2. Yes.

Depends upon the periodic payment. Many periodic payments are "eligible rollover distributions." If so, then mandatory withholding applies. If not an ERD, then as B2kates mentions, recipient can elect out of withholding.