mbozek

The 69 ruling deals with payments to a former employee for FICA purposes. Why can't the employee be placed on a paid leave of absence in order to continue participation in the plans like any other employee on paid leave?

The answer is really an accounting question to determine what would be the minimum tax ultimately paid-disqualfication would result in a tax to the employer on all plan assets if it is a C corp and then a separate tax to the owner when paid by the corp. If the business is not taxed as a corp then the 35% max income tax & state tax will apply. If the plan purchases benefits for the owner and then sells the surplus assets the tax due may be only a capital gains tax on the sale price. The financial disadvantage of disqualifying the plan is the loss of investment income on the amount of plan assets that will be needed to pay fed and state tax.

One thing that is overlooked is that the fmv of the surplus assets is part of the value of the business interest included in the gross estate of the owner which is taxed at a estate tax rate of 45% if the taxable estate exceeds 1.5m (2.0m in 06). If the spouse inherits the business interest the tax is postponed until the spouse dies. It is better to sell the surplus assets as part of the sale of the business at discount (if the business is incorporated) because the net profit will be taxed as capital gains and the taxes will reduce the value of the estate. If the surplus is not sold it will be included in the estate of the owner or spouse at its fmv and will be taxed at a rate of up to 113% for income, estate and reversion tax. The 100% survivor annuity will be be excluded from estate tax as a marital deduction.

KJ: There is no definite authority for concluding that the the employer cannot make the employees pay for the entire cost of the plan by assessing the amount due for the year at termination because the risk shifting requirement of Q-7 is only a proposed reg which cannot be enforced by the IRS. The requirement that all participants must pay their entire contribution for the year is consistent with the non discrimination provisions of IRC 125 which is why some advisors have opined on the legitimacy of this approach. Also some advisors believe that a 125 plan is not subject to ERISA becaue only contribuons are collected by the employer - The benefits are provided under a separate health plan.

Requiring employees to pay the remaining amount of the annual salary reduction contribution agreed to by the employee from the last paycheck is inconsistent with the provisions of the proposed reg 1.125-2 Q-7 that state that the employer cannot shift substantially all of the risk of loss in the FSA to the employee, since the employer would only be at risk for claims of deceased employees. Statements by IRS officials at public meetings are alway accompanied by disclaimers that they are rendering their own opinions and not that of the IRS. Second taking the payment out of the employee's last paycheck could violate state labor laws limiting the amount that the employee can deduct from the employee's paycheck. ERISA may not prempt state law because the FSA plan may not be regarded as an employee benefit plan under ERISA.

Isnt the real issue how can the PBGC collect a judgment on a foreign corp that has no assets in the US. ERISA 4003(e) authorizes law suits by the PBGC against all member of the controlled group under 4062 if the plan is under funded but collecting is another matter.

The IRS welcomes the opportunity to collect more taxes than it would collect if the taxpayer received less taxable income. But I dont know any financial planners who would recommend that a taxpayer increase his taxable income in a current year in order to increase the possiblilty of being able to avoid taxes in a future year because of the loss of income due to the time value of money, e.g, the $1660 that is paid in extra taxes would be worth $2457 in 10 years if it earned 4% on an after tax basis and $3637 in 20 years. Besides MRD is taxable as ordinary income whereas the tax money saved can be invested in a capital asset which will be taxed at a maximum rate of 15%.

He can only contribute the over 50 catch up of 3k to a 457 plan maintained by a public university.

In case 2 If the taxpayer is married he will be in the 28% fed bracket for taxable income in excess of $114,650 (110 + 70 = 180k- 20 deduction and 10 exemptions = 150k taxable income). In case 1 if taxpayer filing joint return did not withdraw 75k from IRA to fund roth he would only be in 25% fed tax bracket for amounts withdrawn from IRA (110-20 -10 = 80k). Withdrawing 70k in IRA funds to replace roth withdrawal in Case 2 will cost him $1060 in extra tax (3% x (150,000-114,650)) because additional 70k withdrawal pushes him into higher tax bracket. In addition taking the additonal 70 k from the taxable IRA will result in a loss of 3% of the itemized deductions because the taxpayers agi will be above 139,500 resulting in additional tax of $600 plus the 1060.

What does the taxpayer achieve by following this strategy? It seems that the taxpayer is substituting funds which are exempt from tax in a Roth IRA for funds in a deductible IRA which will be taxed at the taxpayer's marginal income tax rate. Whether the taxpayer removes the funds from the IRA to pay for current expenses so as not to reduce the amount in the Roth IRA or uses the IRA funds to replace the funds withdrawn from the Roth IRA the taxapyer will incure the same amount of tax on the withdrawal of the IRA funds. Its a wash.

An employee who is over 50 can contribute an additional 3000 to the 401k/403b by salary reduction under IRC 402(g). If the employee participates in a 457b plan of a public university, an additional 3000 can be contributed to that plan as well for a max contribution of 32,000.

What if the employer is a Professional corp and the partner is a shareholder of the PC? Anyway where does FAQ post apply to a partners wife?

The benefits of a missing particpant can be forfeited if they cant be located after termination subject to reinstatement if the participant turns up later which is almost never. See reg. 1.411(a)-4(b)(6). You dont have to wait until terminaton of the plan. Anyway the sucessor would be obligated to restore the benefits if the missing participant ever appears .

How does the plan define the amount that is to be distributed to a Participant on a distribution date? Is the fmv of the account on the last valuation date? Is it the fmv on the date of distribution?

IRS officials are not allowed to be quoted for attribution. However, the rules for IRA distributions require that MRDs be taken each year after the employee attains 70- 1/2 based upon the account balance as of 12/31 of the prior year. A rollover of IRA assets to a Qual plan or 403(b) plan will result in an account balance of 0 as of the end of the year which will require an MRD of 0 at 70 1/2. After the funds have been rolled over to a Q plan or 403(b) plan they are regarded as assets of such plan subject to the distribution rules for such plans and not assets of the IRA. See reg 1.401(a)(9)-7 Q/A 1 to 4. Note: after tax funds cannot be rolled over from an IRA to a Q plan or 403(b) plan.

Why would the plan want to give up the funds when it can charge former participants the admin costs of maintaining the funds in the plan. Maintaining a larger asset base can lower fees paid by the plan. The plan can be amended to limit involuntary cashouts to accounts not in excess of $1000 so as to avoid the automatic rollover requirement.

Martha could also make a gift of a portion of the IRA to Mary Jane. The difference between a gift and disclaimer is that a disclaimer is not considereed to be a gift subject to the federal gift tax because the donor is deemed to predecease the donee. If the transfer is considered to be a gift then Martha will use up part of her $1,000,000 lifetime allowance of property which can be transferred free of the gift tax after reduction for the $11,000 annual exclusion. Also Martha doesnt need a lawyer to make a gift- She only needs to file a 709 form if the value of the transfer exceeds $11,000.

You need to check with counsel to see if disclosure of this information would violate state privacy law. Some states prohibit disclosure of an individuals HIV status without consent. These laws may not be preempted by ERISA because they do not relate to the operation of the plan. I am not sure that the regulation would apply to HIV.

Under IRS rules an er does not have to make discretionary contributions to a PS plan in years where there is no profit or in which a contribution has been made in the last 5 years. Under 408(p)(2)(D) a simple plan cannot be established where the employer maintains a qualified plan in which contributions were made or benefits accrued for service in any year the simple plan was effective. Thus a Simple plan can be maintained in any year that no contributions are made to a quaified plan.

An employer can provide for lodging of employees which is not subject to income taxation if it is on the business premises of the employer, it is furnished for the convenience of the employer (e.g., the employer needs to have employees on call on the premises 24/7) and the employee is required to accept lodging as a conditon of employment. IRS reg. 1.119-1(b). This benefit can be provided regardless of any other benefits provided by the employer. The use of automobiles for business purposes is also exempt from taxation but the personal use is subject to income taxation under very complex rules. These benefits can be provided for employees who perform services without regard to the number of hours performed. Employee can be retired for benefit purposes and provide services for the employer which will permit exclusion of housing and automobile. You should consult the IRS web site ( irs.gov) for the IRS publications which govern the taxation of these benefits. Even if benfits are taxed the maximum rate on taxable income is 10% of the first 7000 (14k for a married employee) and 15% on the excess up to 28k ( 56k for married employee). A married couple can exclude 16k in income (more if over 65).

Tribal governments are soverign nations, not local governments. There was a similar problem in the 1990's when tribal school districts adopted 403(b) plans. Congress fixed the problem by making the plans eligible for 403(b) status and a tax free rollover to a 401(k) plan. See section 1450(b) of the 1996 Tax act.

How is the plan going identify the participant properly to pay the distribution if the person has used false identity to accumulate the benefits? What makes you think that the imposter will make a claim for benefits? People terminated for identity theft usually disappear and leave no forwarding address which allows the plan to forfeit the benefits.

Cases that are settled are dismissed by the fed ct. The settlment is a private agreement that is not part of the ct record and the claimant agrees not divulge the terms of the settlement. The claimant merely files a stipulation of discontinuance with the ct. This is done precisely to prevent other parties from finding out what is paid to a claimant.

PP: Are you for real. The spouse has more important things to worry about than consenting to a loan and email is not universally available to deployed troops in forward areas. The spouse signed the POA as recommended by the military legal officers advising deployed troops to avoid the hassle of giving written consent while deployed. 401: Acceptance of a POA is also a matter of state law. In NY all banks (but not brokerages) are required to accept the NYS statutory short form POA.

In order to prevail under 510 the employee must prove that the employer action was taken with the intent to prevent the employee from getting a benefit. The fact that the employee is denied a benefit because of the employer action (e.g. termination one day before the benefit accrues) is not sufficient to prevail under 510. Otherwise every employee who is terminated before accruing full retirement benfits could claim a violation under 510.