mbozek

I dont think so because different rules apply for non discrimination purposes. For example, there is no ADP testing in 403b plans and 403b plans are subject to universal availablity for elective contributions. Neither of these provisions apply to 401k plans.

There are grandfathered 401k plans sponsored by governmental employers that were established before Congress eliminated 401k plans for govt employees in 1986. Example: NYC has a 401k plan for all city employees as well as a 457 plan.

But doesnt using a low cost provider result in lower level of services to plan participants such as no call centers, investment education or enrollment meetings. Financal advisors provide additional services such as give presentations to employees on investment options and enrollment because they are paid a fee. DOL thinks plans should provide investment education but most of the low cost providers do not provide investment education to plan participants leaving the question of who provides this service. It is oxmornic to want low cost providers to administer the plan at the cheapest cost and to also want the servce providers to offer all of the ancilary support services that 401k participants need to intelligently invest their contributions.

DOL position on directed brokerage accounts is ambigiious. One one hand the DOL wants them to conform to fiduciary rules but also recognizes that plans dont have to monitor investments and disclose fee information. If plan offers participants opportunity to invest in 1000 or 2000 funds, etf, etc where retail fees will be charged is there a fiduciary obligation to make lower cost funds available? See below link. http://articles.chicagotribune.com/2012-07...les-small-plans

is this a fixed, variable or indexed annuity? I dont know what fees there would be with a fixed annuity other than the commission? I don't see any benefit to listing fees for a product that is not available to a participant who wants to purchase an annuity today.

IRAs have protections similar to the protections afforded to qualified plans in the event of bankruptcy of the participant. Only exception is that the total assets of traditional and ROTh IRAs are exempted from bankruptcy creditors up to $1,093,000 whereas other types of IRAs, e.g., rollovers, SEPs and Simples have unlimited protection from bankruptcy creditors. However, protection of all IRAs from claims of general creditors depends on state law. For example, NJ protects all IRAs from general creditors regardless of amount but CA only exempts 100k automatically. Higher amounts are exempted if there is need. IRAs issued in states that do not provide protection of the account from general creditors should be able to attain protection from general creditors in the owner's state if the IRA is governed by the laws of a state that provides 100% protection against alienation by any creditor. For example, if an IRA issued by X mutual fund is governed by the laws of New Jersey and provides that to the extent protected by law the IRA assets are not subject to the claims of creditors, then a resident of CA who adopts X's IRA could claim exemption of the entire IRA above 100k from the claims of a general creditor because under the full faith and credit clause of the US constitution the IRA is protected by NJ law.

The plan must be amended retroactivley to include all of the ERISA provisions in 2011. Also need to file 5500.

If you cant locate him there is no way to reclaim the funds. Even if you locate him you will need to begin a law suit if he does not voluntarily give it back. Also you will need to trace the actual funds paid to see if they are still in his possession. If he lost the pension plan distribution in Vegas or used it to pay expenses, then its too bad, too sad. Also you will not be able to attach SS benefits or in some states, or any other retirement funds he owns.

Q was this a plan where employer made contributions in addition to employee salary reductions in 2011? As a regulatory matter plan can be amended to comply with ERISA back to 2011.

403b7 provides that amount paid to a custodial account which satisfies the requirements of 401f2 shall be treated as an annuity contract if the amount is invested in a mutual fund 401f2 provides that for the purpose of the IRC, a custodial account shall be treated as a trust if the assets are held by a bank or another person approved by the IRS. Only difference between a trustee and directed trustee is that directed trustee does not exercise discretion and is not performing any fiduciary duties, i.e is a custodian. Its possible that Schwab got the IRS to approve a trust Co that was established for other purposes, e.g., act as a trustee for personal assets of Schwab customers or even qualified plan assets to act as trustee/custodian for mutual funds held in a 403b plan.

Our FT William document includes language along the lines of what you said above. But we have a recordkeeper pushing back saying that you must get participant consent over $5,000 at any age. Can you direct me to the apprpriate IRC section to show them? 1.411(a)-11©(4). Immediately distributable benefits. Also benefit can be distributed without consent after participant's death. see ©(5). Maybe Im old school but when does a recordkeeper get to override the terms of a plan? I thought they were supposed to follow the plan terms. Edit: Ask the recordkeeper what happens at 70 1/2 if plan cant get participant's consent for distribution?

What are the plan rules? IRC only requires that benefits be payable not later than age 65. Participant consent for distributions over 5k is required unless the participant has reached later of normal retirement date or 62. DB plan with required distribution date of 65 could commence distribution age 65 as either single life annuity or J & S annuity w/out employee's consent if employee did not elect to commence distributions. Plans can defer MRD to 70 1/2 for all employees and beyond that date for non 5% owners who continue active employment with plan sponsor. Problen exists for distributon if plan does not know employees current address or know if employee is alive. Check SS registry. Some plans will deem employees benefit forfeited at 70 1/2 if employee cannot be located to avoid violating MRD rules.

To me, this logic equates to the same kind of tenuous logic used to conclude that forfeitures cannot be used to reduce Safe Harbor contributions and QNEC's. OK, I can see the basis for the conclusion (401© refers to 404, 404 to 414, 414 to 401a17), but that seems way too indirect to ignore commonly accepted understandings of the rules which have been consistently applied for the same 30 year period you reference, UNTIL the IRS issues formal guidance to the contrary (as they chose to do with QNEC's/forfeitures). In fact, Line 6 of the worksheet reads "Multiply $230,000 by your plan contribution rate (not the reduced rate)" which I believe supports our position that no reduction below the max comp limit is required. Wait a miniute, if you put $650,000 on Line one of the worksheet, won't you get the outcome we are suggesting?? Please let me know how the worksheet comes up with a different result here. Answer: You have to complete steps 3 to 5 first to find out if amount on line 5 is less than line 6. Determine the contribution using the calculation in step 3 and 4 and enter contribution amount on step 5. Note step 4 says use rate from rate table (rt. col on P23 ),not plan contributon rate. Highest rate is 20% (.20) for plan contribution rate of 25%. step 6 multiply 245,000 by plan contribution rate, (left column on p 23), not the reduced rate step 7 (employer contribution for SE) is lesser of amount on step 5 or 6. Your question reminds of what Yogi said: If you come to fork in the road, take it. by the way 230,000 is 245,000 in 2011.

I don't have any, other than experience and knowledge; and as Austin notes, there isn't any real dispute about it. The time I want to spend on this was used up a while ago; readers will have to make their own decisions. But just looking at the text posted from the Pub, I can see that they are short-cutting the calcs and telling a self-employed that they are assuming equal (and maximum) contributions and basing the calcs on net earnings from self-employment before the self-employed's contributions, and the applicable percentage indeed is 20%. If there is no dispute that you are correct and the IRS is wrong why cant you or Austin provide any authority for your position? Should be easy to prove the IRS is wrong since IRC 401© has been around for 50 years and there would be a lot of professional comment on why the IRS is wrong. See below quote from attached link to IRS publication on Avoiding Incorrect Self employed Retirement deductions: "Deduction limits for the self employed If you contribute to your own SEP-IRA, you must make a special computation to figure your maximum deduction for these contributions. When figuring the deduction for contributions made to your own SEP-IRA, compensation is your net earnings from self-employment which takes into account both of the following deductions: Deduction for one-half of your self-employment tax. Deduction for contributions to your own SEP-IRA." http://www.irs.gov/newsroom/article/0,,id=188218,00.html If 1/2 of the SECA tax must be deducted from net earnings from self employment then the contribution to the owners SEP must also be deducted.

Every text follows IRS methology. However, tax preparers like to do their own thing and disregard IRS rules. For example some CPAs deduct retirement plan contributions for SE persons on sked C with contributions for employees instead of on Line 28 lof 1040 because this reduces SECA tax on net earnings on form SE. I dont prepare taxes so I dont care what they do.

What is your substantial authority for saying the IRS methology in Pub 560 P22-23 is wrong. Example: P23 if plan contribution rate is 13%, rate for SE person is 11.5%. At bottom of rate table for self employed on P 23 has this statement for 25% plan contribution for SE: column A If plan contributon rate is 25%* Column B your contribution rate is 20% *The deduction for annual employer contributions (other than elective deferals) to a SEP, a profit sharing or money purchase plan cannot be more than 20% of your net earnings (figured without deducting contributions for yourself) from the business that has the plan.

IRC 401©(2)(A)(v) refers to earned income determined with regard to IRC 404 deductions which means that the Q plan contributions are deducted from net earnings not exceeding the 414(s) (limit (245k)) to determine earned income. See step 6 of work sheet for SE, P 22 of Pub 560. Pub 560 P 22-23 defines a 20% contribution based on net earnings to be equal to 25 % of earned income. So if a SE contributed 49k on 245k net earnings from SE the contribution rate is 25% of earned income (196k). My understanding is that if contribution for SE is 25% of earned income then contributions for W-2 employees must be 25%, not 20%. The IRS calculation in Pub 560 has been around for many years. What I asked is what is the gateway % for W-2 employees if employer PS contribution for owner is 15% of earned income?

I think perhaps AJM missed the comment above. Lets do a little math. If 245 is comp and 32,5k is the employer contribution then the PS contribution rate for partner would be 13.25% which under the 401© rules in Pub 560 is 15.3% after taking the 32.5k deduction. (32.5/212.5) What would % be for the two non owners?

Why are you assuming employee is being set up for large taxes? Married couple who claim standard deductions and have $90.2k in taxable income would have an effective rate of less than 11% which is about half of 20% withholding on distribution. Income less than 90k will have lower effective rate. Employee can make estimated tax payment if needed. If the employee itemizes large med bills, taxes owed will be less. No reason not to inform employee of opportunity to make direct rollover to avoid 20% withholding but tell employee to check for estimated tax payments. Employee may be able to defer part of distribution until 2013 which will reduce tax for 2012. As for custodial fees, VG charges $10 annual fee on IRA accounts below $10,000. 0 on larger accounts. Maybe cheaper accounts available. TD employee can withdraw IRA w/out 10% penalty.

Mabye the accountant doesnt like to read the 1065 instructions. There are accountants who deduct the self employed owners own contributions to a qualified plan on Sked C instead of the 1040. It doesnt make it right just because they do it. There is a case where the owner of an S corp tried to deduct his own contributions to the qualified plan on his 1040 even though the regs require that deduction be taken by the S corp. Tax ct said no way.

So you would disregard the instructions for line 9 of the 1065 that instructs the partnership to deduct 401k elective contributions on line 18? Please explain the duplication in#1 that would result. Why not follow the instructions since the IRS has told you what to do and following the IRS instructions does not result in higher taxes and reduces the amount of time spent thinking about this question?

OK... That's really what I was saying too. (My emphasis on "employer contributions.") But Nate asked about "401(k) contributions" which I took to mean "elective deferrals" which should be included in wages. Elective contributions to a 401k plan are deducted on line 18 as employer contributions to a retirement plan, not as salary or wages, because the IRS needs to keep track of the amount of deductible contributions to employer retirement plans so Congreess knows the amount of the tax expenditure for employer retirement plans in each tax year.

Bird: I dont understand what you are saying but I agree with Masteff. There are separate deductions for salary and wages and employer contributions to retirement plans for common law employees. The instructions to the 1065 form states that only salary and wages of employee are deducted on line 9 and contributions to retirement plans deducted elsewhere are not reported on line 9. Line 9 instructions state that salary and wages does not include amounts reported elsewhere on the return such as elective contributions to a 401k plan and salary reduction SEP and SIMPLEs. Line 18 instructions state that the partnership is to enter all contributions to qualified plans made for common law employees on line 18 and that contributions to partners are not to be entered on this line. Contributions made by the partnership to a retirement plan for each partner are entered on box 13 of the partners k-1 using code R. Partner deducts contributions on his 1040, line 28.

Joel: You are comparing apples to oranges in what investments can be provided in a 403b plan vs. qual/457 plans. Under the IRC qual plans such as 401k plans and 457 gov. plan assets are held in a trust which can invest in annuities, mutual funds, separate accounts, ETFs, collective trusts, stocks, bonds, etc. The Thrift Savings plan is considered to be a 401k plan. 403b plan assets are generally not held in a trust and under 403b the only permitted investments are annuities and mutual funds. Rev. Rul 82-102 held that 403b as amended by ERISA limited investments in a 403b annuity to annuities and mutual funds and other investments such as CDs were not considered to be annuities even if paid periodically. The Rev rule grandfathered 403b plans established as trusts by PERS that the IRS had previously approved as 403b plans. Corbin v. US, 760 F2d 234, upheld RR 82-102 limiting 403b investments to mutual funds and annuities. http://law.justia.com/cases/federal/appell.../760/234/76086/. After Corbin was decided 403b was amended to permit church 403b retirement income accounts defined in IRC 403(b)(9) which can be held in a trust. See reg. 1.403(b)-9(a)(7). Use of any new type of investment such as a separate account to fund a 403b plan established by a non profit or public school would require an amendment to 403(b). You havent answered the question of why there is a need for the SD to establish a 403b plan with separate accounts if SD employees can invest in a 457 plan that invests in separate accounts. Employees can invest up to $22,500 in the 457 plan.

Not so fast. Just like Revenue Ruling 67-387 permitted an annuity issued by a Public Employee Retirement System to substitute for a commercial annuity under section 403(b)1 why is it unreasonable to argue that Separate Accounts should be allowed to substitute for mutual funds under section 403(b)7? Because by adding IRC 403(b)(7) to the IRC in ERISA in 1974 Congress made it clear that only annuity contracts and mutual funds that are regulated investment companies under IRC 851(a) are permitted investment vehicles for 403b contributions. That conclusion was the basis for the Rev Rul 82-102 determintion that prohibited establishment of 403b annuity plans that were funded by non annuity type providers such as trusts and CDs. The existing 403b PERS type funds such as the NYC teachers trust and NJ collective annuity trust were allowed to continue in existance.