mbozek

In additon to barrys correct analysis, there is no econiomic rationale to transfer stock which is subject to a maximum tax rate of 15% to an IRA which is subject to ordinary income taxation and the inability to use a capital loss to reduce capital gains. Also the sale or exchange of stock between the IRA and owner is a prohibited transaction under IRC 4975 which will disqualify the entire IRA.

The plan administrator should tell the parties that either they settle the dispute between themselves and provide the plan with the necessary release and waiver of liability signed by each party or the plan administrator will commence an interpleader action to determine who is the beneficiary. Since an interpleader action costs money the plan admin could tell the parties that no benefits will be paid unless they settle which may force one of them to commence an action for payment. Under no circumstance should the PA make a decision as to who is the legal spouse becaue the loser could always sue the plan for benefits.

Is this the only IRA ? If not then the 2003 MRD must be satisfied from other IRAs. If there is only 1 IRA and the stock is worthless because the co is in bkcy then the mrd amount that is payable from the IRA can only be 0. The taxpayer doesnt have many options- either file the return without paying the 50% excise tax on the theory that all IRA assets have been paid out under IRC 401(a)(9) since the value of the account is 0 or pay the 50% excise tax and ask for a refund on the grounds of reasonable error. Look at this situation as no different than an IRA owner who outlives the account balance. Even though there is an MRD due no amount can be paid if the IRA has no assets.

What is the distribution event under IRC 403(b) that allows the 403(b) annuity accumulations to be rolled over to a 401(k) plan after the loss of c3 status?

The participant should consult a tax advisor to determine whether a lump sum distribution of the stock can be taxed as capital gains for the portion of the distribution that is net unrealized appreciation with a tax rate of either 5 or 15% as the stock is sold. This could be more advantageous than electing installment payments which will be taxed as ordinary income which starts at 10%.

See Reg 1.72(p)-1 Q 4 and 10. default after cure period results in income taxation of outstanding balance. Tell the lawyer that the participant can avoid default by continuing the loan payments. You could also tell the lawyer that the bankruptcy ct has no jurisdicton over the taxation of any amount in an individual's account.

Arent there two different types of excess contributions. Under IRC 401(a)(30) the maximum salary deferral from all plans maintained by employers in the same controlled group cannot exceed the annual limit, e.g., 12,000 in 2003. Under 402(g) the amount that an individual can defer from all plans, whether or not in the same controlled group, is limited to 12,000. By following the rules for 402(g), the refund of contributions which exceed the 401(a)(30) maximum by April 15th of the following year will avoid plan disqualification. Reg. 1.402(g)-1(e)(1). However, if an individual has contributed to 2 or more salary deferral plans of unrelated employers where the total deferral exceeds the annual limit, e.g., 8,000 to a 401(k) plan and 6,000 to a 403(b) plan, there is no requirement that either plan make a refund because only the participant will be taxed on the excess deferrals. The participant may request that the excess amount be removed and if the refund is made by April 15th the amount is only taxed as income in the year it was contributed and is not subject to the 10% penalty tax of 72(t). Reg. 1.402(g)-1(e)(8). Corrective distributions made after April 15th are taxed again as a taxable distribution and are subject to the 10% penalty of IRC 72(t) but the 401(k) plan's qualified status is not affected since the annual limit for the plan has not been exceeded. Also a distribution of excess deferrals cannot be made after April 15th of the following year unless there is a distribution event permitted for a 401(k) plan. Reg. 1.401(g)-1(e)(8)(iii). I have never seen a 401(k) plan that did not automatically provide for a refund of amounts that exceed the the 401(a)(30) limit to avoid a disqualfication of the plan.

How do you know that it was not reported on the participant's 1040? Is it possible that the participant rolled the distribution over to an IRA and reported the distribution as a tax free rollover?

Contributions can't be plan assets if they are made by an ineligible person and if leaving them in the trust could disqualfiy the plan. Since the IRS doesnt allow distribution of the deferral via a 1099 the only way to correct the problem is to refund the amount to the employer.

I thought that a refund of excess contributions is available only for eligible participants. If an employee is ineligible then the contribution should be returned to the employer who will issue a payroll check to the employee for which federal and state income tax will be withheld since accepting contributions from an ineligible employee is a mistake of fact. Having the trustee refund the excess contributions does not satisfy state labor law requirements that the employer must pay the wages earned by the employee and may result in underwithholding of income tax.

why is this any different from the establishment of a 401(k) plan at the beginning of the year with low participation by the non hces at year end?. Under the 410(b) rules all employees are deemed to benefit from the plan if they are eligible to participate, regardless of whether they do. I dont think this is a BRF problem since the non hces are not subject to the ADP and the HCES will be limited to the ADP%. If no non hces contribute then the ADP for the HCEs will be 0.

plan can provide for hardship withdrawals.

In additon to the Yates case that will be reviewed by the US Supreme Ct, the US. District ct for the Eastern district of NY recently ruled that a physican who was the owner and shareholder of a three person medical corp was not an employee under ERISA for the purpose of the claiming disability benefits, even though the disability policies were governed by ERISA. Pearl v. Monarch Life Ins. Co., No 03-CV-2788, 10/30/03. The Ct rejected the decisions of the 6th, 8th, 10th and 11th circuits that owners with employees are are protected by ERISA and instead excluded the owner because he was not a common law employee within the meaning of ERISA since he could not be hired or fired, had no superior, supervised his own work and had at least 1/3rd influence on his organization. This decison acknowledges that that a plan may be subject to ERISA even though the owner is not an employee for ERISA purposes.

See Reg 1.404(a)-13(a).

Since a 403(b) annuity is not a qualified plan, there is no loss of tax deferred status for contributions and attributable earings for prior years when the employer met the requirements for c3 status. The only consequence is that contributions in a year the employer is not a C3 entity are subject to income and FICA taxation. See flush language at end of IRC 403(b) (1). For distribution purposes, the contributions made in a year that the employer is not a c3 entity will be treated as after tax contributions to be taxed under the annuity rules of IRC 72. Reg. 1.403©-1(a). There is no distributable event because of the loss of c3 status and since the employees own the annuities, the contracts can be maintained indefinitely.

try 1987

Why dont you do the obvious and contact the new company that you want to transfer your IRA to and ask them these questions. No one on this web site can answer those questions since they are specific to the investment that your chose.

Dan: Every person has an estate for property owned at death. If there is no will then the decedent's property will be disposed of by an administrator appointed under state law who could be a public official. If there is no claim by the adiminstrator then check the plan document to see if the benefits are forfeited back to the plan if there is an inability to find the beneficary after benefits are payable.

The question of whether a retirement plan that covers both a sole owner and common law employees protects the owner's benefits as an employee under ERISA will be argued before the US Supreme Ct this term. The Ct will review a decision of the 6th circuit, In re Yates, 287 F3d 521, that a sole shareholder of a corporation with common law employees was not an employee under ERISA entitiled to protection from creditor's claims under Paterson v. Schumate. In many partnerships the amount of the partners draws cannot be determined until well after the end of the firms's tax year which delays the contribution of the deferrals to the plan. The actual salary reduction contribution may not be made until the date for filing the partnership's tax return.

I think the CPA adage of not paying a tax today that can be paid later is not good advice for persons who are eligible for Roth accounts. Under current tax law a married couple with $72,400 in income will be in the 15% tax bracket. A Roth IRA contribution of $3,000 for each spouse would require the payment of $900 in fed tax. After 10 years at 6% interest the account would be worth $10,745 with no income tax due. If the same amounts are contributed to a 401(k) plan for 10 years at 6%, the $10,745 would be be subject to $1611 in taxes (@$15%) leaving the accounts with a net value of $9134. The viability of pre tax deferral will move to center stage in 2006 when Roth 401(k) and 403(b) plans will be available for participants.

After an employer files for bankruptcy, the plan falls under the control of the bankruptcy ct. The ct will appoint a trustee to administer the bankruptcy estate who will be responsible for disposition of the plan. You need to find out who is the bankruptcy trustee to discuss the dispositon of the plan. The plans ERISA attorney may no longer represent the plan after the filing since all advisors must be approved by the bankruptcy ct. It is assumed that the employer has filed for liquidation under Chapter 7. If the employer has filed for bankruptcy under Chapter 11 then the plan will still be the responsibility of the employer.

The deadline for filing the determination request is no different than the filing deadline for any other tax form , e.g., 1040, the date of post mark is deemed the date of filing.

Attorneys are not required to reveal the identity of their client who could be a participant or the employer. But that is not ithe issue. Initially your client needs to hire an experienced advisor to review the issues, retreive information, identify risks and prepare options for the client. Skillful counsel can use intermediaries to get necessary information without triggering an inquiry. This not possible if the clients primary goal is to minimize the cost of expenses to correct the problem. I have not looked at the EPCRS procedures lately but I thought that it was only available if the client had received a favorable determination letter for the plan. So the starting point is to find out if the IRS issued a determination letter. There is a primary question of the loss of a tax deduction for open years if there is no plan document and determination letter.

I think the 401(k) regs would require that the contribution be made by year end.

Why not have an independent service or an attorney make the inquiry to request the SPD so as to protect the clent's identity?