sam2012

Participant is 70 1/2 and in 2016 took an in-service 6 figure distribution that rolled to an IRA. Account balance was $0.00. Participant continued working and contributed a few thousand dollars and then terminated all in 2016. Participant now wants remainder of money to put into IRA. Does the remaining funds need to entirely be paid as a RMD to partially satisfy RMD based on 12/31/15 or can this be rolled over and entire RMD handled from IRA? Participant is aware that additional funds need to be taken from IRA to satisfy minimum based on 12/31/15.

401(k) plan with 150 participants at the beginning of 2015 (80 were eligible but had no balances). In August of 2015 the plan adopted a resolution to terminate the plan but the company is staying in business. As of 12/31/15 there were still around 60 employees employed by the company (had not terminated employment) that still had balances due from the 401(k) plan. My understanding is the employees with no balance are no longer participants since the plan terminated. The count would only be 60 and the plan would not need to be audited in 2016. Per 5500 instructions, Active participants (i.e., any individuals who are currently in employment covered by the plan AND who are earning or retaining credited service under the plan). Since no balance are not earning or retaining credited service.

These refinanced loans can get a bit confusing. I think I know the answers but seeking comment if you agree or disagree with any of my conclusions. 1. We have a participant with over 100K balance who had an outstanding loan of $12,000 due October 2017. The plan only allows one loan. In December 2015 they refinanced and withdrew $25,000 to bring the loan balance to $37,000 still due October 2017. Now, the participant has decided they cannot afford the loan payments. They did pay in a lump sum payment of $9,600. I have been asked if the October 2017 date can be extended out to December 2020 (5 years from the loan refinancing) but my understanding is that it cannot as 10/17 is the latest permissible date for the loan. Does anyone disagree that the maturity date has to remain 10/17? 2. The ironic thing is if the participant had just taken around $10,000 or less when they refinanced they could have had a brand new 5 years and then came back and taken more a week, few weeks, months later as long as maturity date was the same. Am I missing anything? 3. When a loan is refinanced is only the actual outstanding loan counted towards the $50,000 look back? For example, if a participant has a $12,000 loan and refinances and withdraws another $25,000. Then six months later, the participant asks for another $5,000. Was the highest balance in the last 12 months just the actual outstanding balance of $37,000 or due to the refinancing considering both loan outstanding for a total of $49,000. (Replaced Loan $12,000 plus Replacement Loan of $37,000). I believe it is just the $37,000 but wanted to see if anyone had another opinion. 4. Does the entire new loan counted towards the $50,000 look back or just the additional amount being issued? For example, a plan allows two loans and the participant already has two (loan #1 $6,000 and loan #2 $15,000) and the highest outstanding loan balance in the last year was $30,000. The participant wants another $10,000. Since loan #2 has a later maturity they would like with that one but would the new loan balance of $25,000 exceed the $50,000 look back? They are only taking $10,000 more dollars but it appears that the entire new balance of the replacement loan must be taken in to account. If so then the participant could only take $10,000 if it was added on to loan #1. It could not be added on to loan #2. Correct? Thanks!

What is not clear? Plan paid excise taxes on corrective distributions they intended to make before 12/31/14 but never actually submitted the distribution requests to be processed. Now under EPCRS they are making a QNEC to raise the percentage of the NHCEs so no corrective distributions need to be made.

We have a plan that did not issue their corrective distributions by 12/31/14 and now a QNEC needs to be made. The option that is being chosen is resulting in no corrective distributions needing to be made (i.e. not the one-to-one correction). Since no corrective distributions are now being made, could the plan now file an amended 5330 and get a refund of the excise taxes that were paid in? If so, has anyone done this? Our thought is this could possibly be an audit flag that may not be worth the risk.

I would say no and that is how I do it. You should just mark 1a "yes" and in 1b provide who made the required disclosures. If anyone received direct comp and their indirect comp took them over $5K you should report them on line 2.

I was curious as to opinions as to how on the income statement of the 5500 the lost earnings that an employer deposits to the plan due to late deposits of employee contributions and loan payments (or any type of restorative payment) should be shown? We have been showing as “other interest” or I suppose since we are now doing more calculations using highest performing fund and not DOL calculator maybe this should go under “other income” or possibly lumped in with earnings of the type of investment in the plan (e.g. mutual funds). Perhaps this could be shown as an employer contributions? Does anyone do this? This is not an employer contribution from the corporate side of things as not part of the 404(a) limit and the IRS has said it is just a business expense. Thoughts and opinions? I tried to find some formal clarification but could not find anything so if anyone has anything definitive that would be helpful too.

I would be very careful about filing a 5500 (long form) without a schedule C. You can do that way but when you really look at a plan, chances are that there was indirect fees received by someone. In fact a the DOL last year sent out a number of inquiries to filers who had not attached a schedule C. We file a schedule C with every plan. I can only think of a few sceanrios where you woul dnot file a Schedule C (e.g. a new plan just starting up, a very small number of active participants).

I am doing a review of our state tax withholding and related practices and was curious if anyone had any comments/information on the following: The state tax withholding for Mississippi (MS) used to be mandatory on premature distributions at 5%? Now I am seeing some record keepers refer to this being optional. Does anyone know anything more about this that this may have changed?As a preparer of a 1099-R is there anything that needs to be done to the state copy for states where the retirement distribution is not taxable or does the participant/tax preparer need to know this. For example, retirement distributions to participants of retirement age in Mississippi and Pennsylvania are not taxable. The employer source of distributions to residents of Hawaii are not taxable while employee contribution source of distributions are taxable. Is it correct to show as taxable and let the participant/tax preparer figure the nontaxable amount out? I noticed some providers round state tax withholdings? Does anyone else do this? Do you round federal taxes too? I noticed some states require the withholding to be a round dollar amount. Rather than try and keep track of what states require rounding and when they change it seems best to just round all state withholdings.A few providers also will not hold if the amount of state tax to withhold is less than $10. This makes sense especially if a smaller plan and the withholding is for a state that may not have any other withholding deposits that would need to be made. Does anyone else adopted this practice. Any ramification if do this?By the way, the 1099-R coding for a qualified plan distribution of before tax funds rolled over directly to a Roth IRA (code G but put taxable amount in box 2a) is a bit confusing. I would think it would be best to come up with a new code. It used to be code G meant nontaxable. It seems like TurboTax and some other software programs at one time were treating as nontaxable too.

I was curious on thoughts as to how to correctly complete the Schedule H, line 4a attachment-“Schedule of Delinquent Participant Contributions”. There is surprisingly very little instructions on how this attachment should be correctly completed and auditors opinions of how to complete seem to vary. Should the schedule reflect the status as of plan year end or the filing date? For example: 5500 filing for 12/31/12 is audited by IQPA and late contributions are discovered for 2012 in 2013. Plan sponsor elects to file VFCP so in June 2013, lost earnings are deposited and VFCP is filed. The 5500 for 12/31/12 is filed in July 2013. For 2012 attachment, would the late contributions go under “Contributions Not Corrected” or “Contributions Pending Correction in VFCP”? As of 12/31/12 they technically were “Contributions Not Corrected” but as of filing date they are now pending correction in VFCP. I suppose it does not matter that much, the latter gives greater clarification as to what is going on. If I use the former, I usually add a footnote to the schedule that VFCP was filed. Would you agree that “Total Fully Corrected under VFCP” should not be used until the letter of “No Action” is received from the DOL? As lost earnings were not deposited until 2013 the late contributions would have to be reported again on line 41 for 2013 and that attachment if “no action” letter is received then it seems “Total Fully Corrected under VFCP” would be used. Thanks!

We have been using the DOL calculator without filing VFCP. If you do not file VFCP it seems to be unclear what performance should be used. Does highest performing fund need to be used or can the overall plan return be used? It seems like there are stories of DOL auditors upon auditing using highest performing fund? If you use plan return is there the possibility upon audit that would be changed to highest fund return? In 2012 a health care funds for example returned over 30%. This year returns are very good too. Has anyone had any bad experiences with the DOL doing a VFCP? It seems fairly straightforward. Do you prepare for you clients? Time commitment does not seem that bad although a few of the narrative questions (#4 & #5) seem a bit too much. Is everyone in agreement that if you self-correct, the DOL calculator can be used as the basis for the 5330 excise tax? Thanks!