Mike Preston

mbozek, I hate to rain on your parade, but the analysis you present is seriously flawed. One of the hallmarks of taxation (and Roth IRA's) is that if the tax rate stays the same at all points in time, there is no difference between a Roth IRA and a regular IRA. Or, in this case, a Roth and a 401(k). In your example, in order to pay the $900 tax, your couple must have income of some amount, which when taxed, will allow them to write that $900 check to the IRS. That amount is $1,058.82. When added to the original $6,000 and accumulated for 10 years gives you $12,641.27. Which, if you pull it all out at that time and pay 15% tax, you are left with $10,745. What you are saying though is absolutely true about 2006. People who have an interest in seeing one form of retirement savings succeed over another form will concoct examples that favor their pet method. And most people can be easily fooled into accepting such an analysis. I mean, if it can happen to you (I presume you picked up this "example" from somehwere else), someone is obviously much more familiar with retirement concepts, taxation and compound interest, it can happen to almost anybody.

But 99-6 is, as he points out, quite unambiguous. I haven't tried "building the case", but I think I will take a look at it in the near future.

I would accept confirmation from Blinky the 3-Eyed Fish!

Except you didn't find a cite supporting the specific statement that: "If you are an unincorporated business owner (i.e., a sole proprietor or partner), the deadline for depositing your employee salary deferrals is your business tax return due date, including extensions.", did you? Hardly seems irrational to indicate that no cite exists when no cite exists. Unless, of course, a cite exists. Does it?

Correct as to the first comment. Maybe you can even see why. Probably not, though. With respect to the second comment, again you mislead. I didn't say that an ND would NOT qualify. I said that I wasn't sure whether an ND would qualify or not. Which, of course, is completely irrelevant because the R.R. wasn't published as an interpretation of the section I was referencing (213(d)(4)), which is specifically defining a "physician" and that definition is used solely in the determination as to whether certain lodging expenses satisfy the definition of medical expenses.

1. Due date of your tax return. If you go on extension, that would be 9/15/2004 2. Yes 3. You set up the SEP-IRA at a single institution. That institution will have separate IRA accounts for all participants. Once you deposit money into those IRA's the IRA owners can transfer the monies to any IRA they want.

Years beginning after 12/31/86, generally. Before then, non-deductible employee contributions (after-tax) did not count up to the first 6% of pay and, in any event, were limited to 50% of the amount contributed.

I believe it can be amended to remove it only for 2003.

Yes, you did. By implying strongly that it was inappropriate to assume an amendment was required, you made it clear that an amendment might not be required. That is, that there was some other legitimate method of implementing what was desired. That is very, very bad advice.

You really can't read, can you? The first quote you picked up from my post is with respect to the provision of services under 213d1A. The second quote you picked up from my post is with respect to lodging expenses under a different section (213d2). Yes, there are qualifications that apply in the case of the latter cite. That was my point. I was pointing out that the Code does apply a standard of some sort specifically to one type of expense (lodging) and that there was no such requirement on the type of expense the OP was asking about. Do you understand the implication? The fact that the Code spells out the requirements for one type of expense and doesn't for another type of expense SCREAMS that there is no such requirement where it isn't spelled out. Get it?

Well, if you think that it can be done via the description you just gave, you have proven yourself more dangerous than I thought. To even assume, for a moment, that such a course of action is rational is beyond the pale. It is horrible advice. If you don't see that, you should be ashamed. It would clearly disqualify the plan and I'm hopeful (but not very) that you can recognize that. I'm waiting for Kevin to come back and inject some rationality to this thread by continuing the discussion on discrimination.

Since my post appears to be consistent with the IRS Rev. Rul., would you care to point out what part of my post you think did not get it "right"?

Still waiting for that mechanism, GBurns. None forthcoming?

His numbers seem correct if you are going to mandate a lump sum at the end of the 13th year and if you are going to assume the 15% rate applies uniformly and you are going to mandate a lump sum, and pay tax on the full amount, at the end of the 13th year. Most of the time, though, the qualified plan's $1,771,298 would be rolled to an IRA and contiinue to enjoy shelter from current tax. Further, when dribbled out of the IRA, the effective tax rate might be less than the presumed 40%. In general, the CPA is correct, though: the 15% tax rate is definitely a disincentive to the retirement system.

OK, maybe $5.95 in Houston.

Good to know they got it right! Seriously, thanks, Kirk.

I don't think there is any guidance on this. The closest I could get was Q&A 2 of the 1999 Grey Book. Maybe somebody else knows of something more on point. Nonetheless, that Q&A basically said if there is no guidance, do something reasonable. What you have suggested seems quite reasonable to me. That, and $4.95 will get you a Frappucino at some Starbucks.

cjangelmine, the answer to your question is found in 213(d)(1)(A) of the Code. The answer is that as long as the visit was for the "diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body" the expense should be covered. That is a pretty loose standard. There is no reference to the qualifications of the individual providing services with respect to the above. The only reference to qualifications has to do with whether or not lodging expenses incurred in finding your way to the above services (and, I might add, requiring such services to be provided at a hospital or equivalent facility) are covered. In such a case, the services must be provided by a physician as that term is defined by section 1861® of the Social Security Act. I don't have access to that cite without a bit of research beyond my desktop, so I'm not sure an ND would qualify. I don't think your question was about reimbursing expenses related to lodging while away from home anyway. Hope this helps.

GBurns, hang it up. You have been outed again. Whether you like it or not, an individual that rents an office needs a lower outside threshold of competence to establish credibility. At least with most people. cjangelmine was well within the bounds of political correctness to state that should an individual practice from their house the absence of outside credentials casts a shadow on their credibility. By way of example, cjangelmine was indicating that the practitioner in question was not dogged by that shadow. There was nothing to pick on. Nothing to save the internet from.

Oh, definitely the latter. Except for my wife, of course. BTW, would it be too much trouble for you to actually read what I wrote? You seem to be oblivious to what I was referring to as your irrational comment. If you try real, real hard I think you can suss it out. Then again, maybe not. But I stick to my guns as it being "not endowed with reason or understanding"; or, if you prefer: "lacking usual or normal mental clarity"; or, if you prefer: "not governed by or according to reason." They all fit. But only if you can find the specific comment I was referring to. And, oh, BTW, you have yet to provide any mechanism for accomplishing the original goal, legitimately, without an amendment. Coincidence? Unless you can provide some mechanism for accomplishing the original poster's objective without an amendment it is completely irrational to challenge somebody else's supposition of there being an amendment! But do NOT be confused by this last statement. It has nothing to do with the first paragraph. See, there were actually multiple irrational statements, but I only pointed out one before. I know, I know. I'm making it too easy for you. All these clues and everything. I'm so kindhearted. Gotta love this guy.

I wasn't talking about the HCE determination, which is always based on the prior year's compensation, except, as you noted, for those considered to be 5% owners. Instead, I was just pointing out that if they joined in 2003 and were HCE's in 2003 you would look to the ADP for NHCE's in the prior year if the plan is basing its ADP test on prior year. You have it right, so forget what I said about prior year stuff.

I'm not sure that is an accurate statement. There are two overriding principles to keep in mind, IMO. First, is whether the IRS would consider it an appropriate method. The IRS has no prohibition against the use of the aggregate method in years after the plan is frozen. I don't believe that the IRS Revenue Procedures on automatically approved changes in funding method allow you to change to the aggregate method if the plan is frozen, however. The only time that the IRS forces you to change funding methods is when the method develops negative numbers where negative numbers make no sense (a most imprecise statement, I admit, maybe somebody else can identify the issues more precisely off the top of their head). The second is whether it is appropriate under the actuarial standards of practice. The current standard does not prohibit the use of Aggregate by a plan that has frozen benefits. That standard is currently being redrafted and while I have my own opinions, I feel it is best to keep them to myself while the standard is being considered. I'm interested in what others feel about this, though.

You need to ask yourself the following questions: Are they legitimately employees of the company? Are they treated the same way any part-timers would be treated? If yes and yes, then you are forced into including them in the ADP test. If they happen to have zero deferral percentages, so be it. Be sure that you run the right test, though. That is, current year or prior year.

Ahhhh, much better. Thanks. What you are describing is the normal sequence of events when a plan is frozen. Frequently, the plan enjoys a funding holiday with respect to the regular funding method. You haven't indicated the plan size, but if it is subject to the Deficit Reduction Contribution you can find a required contribution might be in the cards, notwithstanding the full funding limitation you described so nicely.

As long as the document allows it, an individual can voluntarily elect to not be covered by the plan. However, with the myriad of non-discrimination requirements that a plan faces these days, it is generally not in the Plan's best interest to vest the employees with the power to have a plan disqualified, which is what would happen if "too many" NHCE employees decided to elect not to be covered. One of the more legitimate reasons I've heard for allowing individual employees to elect not to be covered is religious beliefs, although there are others. Nonetheless, the IRS makes no concessions to any of these legitimate reasons, so a plan is exposed if it puts its fate into the hands of its employees. Therefore, the sorts of provisions that would allow an individual to elect out of a plan aren't very common any more. And, to the extent they exist, they usually allow the plan sponsor to reject such an election if it would jeopardize the plan's qualified status. So, let's assume that you have a plan that allows an employee to voluntarily elect out of the plan and that if the individual decided to elect not to be covered, no problems would ensue under any of the various IRS rules (401a26, 410b, 401k,411d6, etc). In that case, there would be no problem with allowing the individual to elect out, from a qualification perspective. There are other perspectives, however. For example, if the plan design isn't set up to recognize such waivers they may not have the effect intended. For example, a fractional accrual plan without a minimum period over which accrual takes place might not work very well. So, in short, it is doable. But only if all the tumblers fall into place and it makes sense from every angle. And there are lots of angles. Too many to mention here. It really needs to have the blessing of an ERISA attorney, and the Plan Administrator and, to the extent there are other advisors familiar with the effect a waiver can have on benefits, other advisors.