mbozek

I have a question as to why you need to maintain a mp plan if you are self employed and have no employees. The max contribution you can make to all DC plans in 2002 is 40k (41 if you are over 50 and contribute $1k to a 401(k) plan) which if you are self employed requires net income from self employment of 200k. In 2003 you can contribute 2k if you are 50. You can make the 40k contribution to the PS plan. If you employ your spouse you can contribute lesser of 100% of pay or 40K to his/her account in a ps plan. Your tax benefit for maintaining a 401(k) plan for yourself is the extra deferral if you are 50 or older. If you have net income of 120K you can have a ps contribution of 24K plus 10K 401 k contribution (11k if you are 50) plus a benefit for your spouse.

There is no reason to purchase an annuity contract unless that is the form required for the distribution. Otherwise a lump sum is sufficient.

The plan is terminated by a board resolution and the employer applies for a favorable determinaton by filing a 5310 form. Forfeitures held in suspense accounts need to be allocated among the participants and all accounts are 100% vested. The distributions can be made under the terms of the plan but if a partiticipant refuses to take a distribution the plan can either distribute a lump sum or if a annuity is the normal form, by purchasing an annuity contract for the participant. If there are missing participants who cannot be locatedby contacting the SSA, the account balances can be forfeited and the accounts allocated among the remaining participants or the plan admin can contribute 100% of the account to the IRS as withholding.

There is no precise answer to this question. An employee can take IRA amounts and roll them to a 403(B) annuity plan prior to attaining age 70 1/2 so as to avoid taking minimum distributions. Also IRS rulings have allowed an individual under 70 1/2 who inherited an IRA and commenced distribitions at the time the decedent owner attained 70 1/2 to transfer the funds to his own IRA to stop minimum distributions. An individual or surviving spouse is permitted to rollover funds after attaining age 70 1/2. The participant needs to consult a tax advisor to determine whether this rollover will allow the participant to defer the mrds. Also there is an estate planning question of whether the participant should cease mrds because of the estate and income tax on estates worth over $1 million. By paying the income tax on mrds before death the IRA owner (1) reduces the value of the estate subject to estate tax (2) can use the funds to purchase a capital asset which will recieve a stepped up basis at death.

The IRC imposes limitations on deferrals of persons who are deemed Highly Compensated Employees (i.e. employees who made over 85k in 01 and owners of more than 5% of the employer) based upon the % of deferrals contributed by employees who are not HCEs. A non HCE can contribute 11k +1k if over 50 without any restriction. Non HCE some time become HCE because of raises or bonus by the end of the plan year resulting in the reduction of the deferral amount and a refund to the participant. By the way the over 50 catch up is 1K above the max deferral under the plan for the HCE.

Troubles: Get a copy of the summary plan description for the plan and see what its says about diversification of investments. Also is you employer publicaly or privately held, e.g. is the stock traded on an exchange?

Most state laws prevent employers from being beneficaries on group life policies issued on their employees lives. Also employer cannot deduct premium cost of LI where it is beneficiary. Key employee life is sold to employers as COLI or some other product.

yes, provided that no one accrues a benefit in the 401(k) plan e.g., through forfeitures, in 2003. When would the final salary reduction contributions to the 401(k) plan be made?

Under the regs the mrd is based upon the participant's account balance under the plan. The source of the funds used to pay the mrd is irrevalent since the funds are fungible, eg., the mrd is the same regardless of the source of the funds used. The offset for the after tax amounts is computed under IRC 72(e) and is subtracted from the mrd to determine the taxable amt. The participant can elect to receive the after tax amounts before commencing distribution so as avoid having to do the tax computation under 72(e).

Under the mrd rules the plan admin determines the amount of the mrd under the plan based upon the account balance from all sources (e.g. after tax, elective contributions, employer contributions). The after tax amount is determined from the table in IRC 72(e) and is subtracted from the mrd to determine the taxable amount. There is no ordering of after tax distributions from a particular source or fifo distribution of the after tax funds. The participant should be able to withdraw the after tax amount before commencing distribution so that only taxable amounts will be received as mrd.

Under IRC 3121(v) nonqualified deferred compensation is generally includible as wages for FICA purposes in the later of the year that the services are performed or the deferred comp is vested, although there are special rules under reg 1.3121(v)(2). You need to review the plan document to determine when the bonus is vested under the regs. There are IRS regs under 1. 3121(v)(2) that provide alternatives for the timing of FICA taxation of certain nonqual. benefits when the deferred amount cannot be calculated by the end of a year. The tax is due when the amount is included as wages.

What kind of distribution are u referring to? If a participant/beneficiary elects to take periodic payments the after tax amt is determined under IRC 72(e) which is the number of expected payments at retirement age divided into the after tax amt., e.g., at age 65 number of expected payments is 260. If the participant elects a lump sum, the after tax amount can be retained and only the taxable amt rolled over. If the after tax amounts are rolled over then they will be distributed under the IRA rules, i.e., the after tax amt is a proportional amount of the value of all IRAs owned by the participant.

I dont know if there is any way to correct this failure because a 403(B) plan is not a qualified plan, hence all participant's accounts are not taxed because of the failure to comply with a requirement for 403(B) plans. The penalty for not making salary reduction available to all employees who work at least 20 hours a week is that the employees' salary deferrals are included in the employees compensation for each year the plan violates the universal availability rule. You need to check the IRS correction procedure for 403(B) plans.

Under reg 411(a)(11)-11©(2) a participant's voluntary consent to a distribution of a benefit in excess of $5,000 is invalid if the plan imposes a significant detriment on a participant who does not consent to such a distribution. Ceasing to pay interest on a participant's CB account balance after termination would be considered to impose a significant detriment in violation of the above reg. See Rev. Rul 96-47 - paying only mm rate of interest on participant's CB account after termination instead of rate stated in plan for active participants violated the 411(a)(11) regs. Failure to comply with the regs is a disqualifing event.

I think the reimbursing the IRA owner is a close question but shuld not violate the PT rules because it is not a sale or exchange of assets nor is it a transaction for the benefit of the owner since the legal fees were incurred to provide a recovery for the IRA because of the actions of the broker. Since the IRA and not the owner benefits from the recovery the owner should be able to collect legal fees advanced toward the recovery action. However, it is up to the custodian to decide whether such expenses should be reimbursed.

b2 is correct-- for most plans (other than certain non qualified plans) only the state of residence can tax a retiree's pension benefits. If an employee who earned a pension in CA moved to Nev after retirement (Nev has no income tax) CA cannot tax the retirement benefits.

Keep the plan open until all forfeitures have been rellocated, e.g., 2002 and 2003 plan years.

$31,000-$17,000 to the 403(B)/401(k) under 402(g) and 14k to the 457(B) plan

You need to read the custodial account agreement to see if it permits the use of IRA assets to pay expenses relating to the investment of assets. Most IRA agreements permit the disbursement of plan assets to pay expenses, e.g, annual fee, with the consent of the custodian. I dont know whether the custodian will allow the reimbursement of the IRA owner for expenses already paid on behalf of the IRA. You need to read the agreement. Also what kind of a lawsuit has been initiated against the broker? I thought that all claims against a broker are subject to arbitration. Under Rev rul 84-146, the IRA owner can take a deduction for expenses incurred for the IRA as a misc. deduction subject to the 2% AGI limit.

Any nondiscriminatory method is ok. Account balance may not be ok if HCEs have the largest account balances. Better to allocate on the basis of each ee's comp to total covered comp.

The attribution rule only applies if the 5% owner continues to be an employee of the employer whgo maintains the plan. If the employer is sold to an unrelated employer and the former sponsor ceases to exist then the employee is not a 5% owner under the regs.

I dont think any insurer can project 9% return under NAIC guidelines without a lot of caveats and in any event it 9% is not guaranteed. I dont know of any insurer that could produce a 9% return for 15 consecutive years. Caveat emptor.

I have been involved in several situations where the parent of a deceased IRA owner has been the beneficiary of an IRA because the beneficary designation was not updated after marriage. ( in once case the death was 15 years after marriage.) Sometimes the spouse sues the custodian or the mother for the benefits but if the bene designation is valid the funds go to mom. I dont know of any IRA custodian who would change the IRA beneficiary designation due to a change in marital status without receiving the owner's request because the custodian does not want to become entangled in personal beneficiary designations, e.g, why would there be a presumption that the owner wants the spouse to be the bene after marriage? I dont know of any state law that makes the spouse an automatic beneficiary of an IRA. State laws, e.g., New York, permit the IRA owner to designate a beneficary in writing that is enforceable under state law. The IRA provides default options in the event the participant dies without a designated beneficiary. In this case the spouse is usually the default beneficiary if the participant is married. If the participant is not married the estate is usually the bene. The only way a spouse attains rights to an IRA under state law is if the IRA owner lives in a community property state where 1/2 of all assets acquired during marriage is owned by each spouse and the non owner spouse can assign the rights to 1/2 of the IRA.

There are some ins co that pay a commission of 100% of the first yrs premiums. I doubt that any ins co would project 9% dividends in this investment environment when annuity rates are between 4-5%. Also Ins co cannot guarantee dividends beyond the current year. Springing cash values are also prohibited but this an audit risk. The real question is what would be the $ benefit to the owners when the plan is terminated, the assets are paid out and taxes are due. One tax issue to consider is the tax benefit rule- A taxpayer who recieves a tax benefit, e.g., deductible contributions, may be required to recapture a portion of the deductions as taxable income in the year the plan is terminated under IRC 111(a) if there is any "recovery" of the amount deducted in any prior year.Although this rule appears limited to a return of plan assets to the employer, the client should consult with a tax advisor to determine the potential tax risk of entering into this transaction.

Since SEPs are employer contributions to an IRA, SEP benefits are not subject to spousal benefit rules for qualified plans under ERISA. (see in re Groff 234 B.R. 153) Seps are not subject to QDROs rules.