Larry Starr

The auditor has an immediate credibility problem when he says no one can get more than 25%. That is NOT the 415 limit (100% of pay is the limit). Just take a simple integrate plan with two participants at comps of $100k and $10k. Contribute 25% of that total comp, and the one who is at $100k will get MORE than 25% allocate and the other will get less. The auditor has significant "shortcomings". Now, if the employer contributes 30% for the two participants in a non-integrated plan (comp to comp allocation), they will each get 30% and the employer will have a non-deductible amount for which an excise tax will be due. But it is still allocated so long as 415 is not violated.

You need to be careful; see my language example. No allocation in excess of the MPA has been made, so no correction needs to be taken. If you stopped allocation at the max, nothing to fix. My language works just as you would want it to .

As Mike noted, unless your document is wacky, it should have language like this in the Maximum Annual Addition section: Annual Additions can ceases when maximum permissible amount reached. If the Employer contribution that ouwe otherwise be contributed or allocated to the Participant's Accounts would cause the Annual Additions for the Limitation Year to exceed the maximum permissible amount, then the amount that would otherwise be contributed or allocated will be reduced so that the Annual Additions for the Limitation Year will equal the maximum permissible amount, and any such amount which would e been allocated to such Participant may be allocated to other Participants. (emphasis added). If you plan has that normal language, then your "auditor" is an idiot, but many are! Making up his own rules. The easy solution: tell him you disagree and ask him to request "tech advice". He HAS to do that, but probably will just talk to his boss and come back and agree with you. Tech advice means he has to write it all up with his analysis as to why he's right (when he tries to do that, he'll figure out that he's wrong), his boss has to agree, and then they have to submit to the National Office (which they hate to do). Hope that helps. What does your document language say?

Yup (for tax deduction purposes).

Slightly different way to look at it: I ask the client if they would LIKE the employee who bought the practice to be 100% vested. In cases like this, very often the answer is yes so we don't have a problem just doing the 100% vesting and then not having to worry what the IRS will think about it. Has the client been asked if they would like the employee to be fully vested?

Being able to take a full power of attorney (I'm an Enrolled Agent) tends to solve these things since I just get the POA signed and then I deal with IRS and solve the problem. I tell the client it's just normal IRS screw ups; it happens all the time and we always resolve it so don't worry. That tends to solve the problem as it relates to the client side of the controversy. But granted, it would be great it ASPPA could get them to realize they have a systematic problem and solve it, but I'm afraid it's just one of many items on their "fix it" list.

FWIW, I KNOW that RELIUS handles the calc; sounds like you just need some assistance in getting it into the system. I'd offer but I haven't run the software in 20 years (I'm not even licensed to get into it any more - that's why I have employees! :-) ). Call support if you need help.

It's probably a systematic failure in their system. This is the kind of thing that it might make sense to forward to Craig Hoffman at ASPPA for him to help determine if it's a systematic problem that we need to inform IRS about to prevent excess work by way too many people. Go ahead and let Craig know if you wish to pursue.

Have not seen this particular error, but this is one that a correspondence with the reviewer should clear up. Not reporting on the personal return a zero taxable direct transfer DOES NOT make the transfer taxable. And not reporting an amount that doesn't change the taxable income or the tax due does not change the tax aspect of the transfer. So something else is going on. I would try calling the reviewer first if this was my client, but the bottom line is that IRS will eventually concur, it's just real annoying to have to deal with it, but then again, this is the stuff I get paid for on an hourly basis! :-)

I still don't understand the proposed transaction. Let's start with this: how do they "fund the LLC with the assets in their respective plan accounts". What do you mean by "fund" and how do you get the assets from their plan accounts (under what mechanism)?

It was you that posted the original question about distributing the policy. The bottom line is that the PT doesn't apply, and the methodology provided to making the distribution. Ray Johnson got what he needed from all the responses combined.

What are you talking about? The original issue was how to get the contract out. We gave the rules for how to do it. Someone decided to argue a peripheral issue that has nothing to do with the issue of getting the contract out. The question never was "is this a prohibited transaction"; the question was how to make it happen. If it WAS involving a disqualified person, it still wouldn't have been a PT as it would have been ok because there is an exemption for a PT in this case. If it isn't a PT, then they can still distribute out the contract using the method suggested. The original poster has an answer to his question, and it isn't a PT (either because the people involved don't rise to that level, or if they do, because it is exempted from the PT rules). The client got the right answer to the question asked; why do you insist on making it a different question?

Folks, at request of Ratherbegolfing, I have checked my resources. Without a doubt, the 10% withholding applies at the plan level unless waived by the PARTICIPANT, which would be stupid, since the total dollars would still go to the child and the participant would have NO CREDIT towards his ultimate tax liability. At least this way, he gets a jump on his tax liability. One of my reference sources on QDROs has substantive discussion of this very issue. The author called it an "ironic twist".There also is reference to IRS Notice 89-25, Q3 which appears to be right on point. Hope this helps. Larry.

The problem is that you are confusing terms. A distribution (as used in the reg) is NOT a rollover, A rollover is actually when the participant gets the money in their hand and THEN transfers to an IRA within 60 days. In this situation, the plan made a direct trustee to trustee (or custodian) transfer, which is NOT a rollover, Therefore, the plan MUST make sure it distributes the RMD before transferring the rest of the funds via a direct transfer. There is no such thing as a "rolll over by the plan". Does that help?

I have extensive resources regarding QDROs (including child support issues) in my office but won't be back until 8/20. If you have not received a useful answer by next Monday, just repost in this thread and I will see it and see what I can find for you.

Thanks Belgarath. Today is a sea day; heading to Norway landfall in about 10 hours.

One of my pet peeves is people who think we need to know what their irrelevant pet peeves are. No one is forcing you to read these messages, but you might want to read my substantive answers to questions raised.

JPOD: we don't care if it is allowed by a PTE or not; it is allowed and I have given him the process. Take YES for an answer means just that.

What you say makes no sense. Please be very explicit about what the transaction is. Employees who set up an LLC have no access to the plan assets just because they happened to set up an LLC. What is actually being contemplated. Be specific, and then we can tell you why it's probably illegal! :-)

Ray, bottom line is that the process I gave you will work in any situation, which is what you were looking for. Take YES for an answer! :-)

Luke, This is one of those times where I tell the lawyers I work with: "Trust me, I (we!) are right." The RMD HAS TO COME OUT before the rollover. It is well established and everyone on the site is telling you the same thing.

BLUSH! Thanks Peter; do I owe you another $10? ;-)

Jpod: what kind of comment is that? Ok, if YOU are not so sure, what is it that makes you say so? No one can refute or agree with you when you throw out something that is not backed up by any real information. For what it is worth, I am sure! Now tell us why I am wrong. Larry.