ldr

@Larry Starr, Ok, I can easily buy that.

For the record, I did look through our basic plan document, which happens to be the Datair volume submitter, and I can't find anything that addresses any limit to the number of times a person can retire. There doesn't seem to be any language about it one way or the other.

@ESOP Guy Well thank you once again for your reply. Unbelievable. The very next plan I picked up to work on is an integrated profit sharing plan with a participant who meets the retirement requirements, who worked for the company for many years, but in the last couple of years has only done project work just like what you described in your message. In 2017, he was "rehired" in April and terminated before the end of the year. Normally if people don't have 1000 hours and are not there on the last day, they don't get a contribution. But this man is considered retired (again), not merely terminated. If you hadn't written what you did in your message, I don't think I would have known to put this guy (and the document) under a microscope to see if indeed he is due a portion of the contribution. I can't unknow or unsee what you wrote - so now I have to go check it out!

@Tom - LOL - I mean the situation is not funny, but it does show the line of thinking of employers....

Hi ESOP Guy, I was already convinced that this was the case. The adoption agreement clearly spells out that the NRA is 65, provided the participant has passed the 5th anniversary of participation in the plan. Check. The NRD is the date the person meets those 2 requirements. Check. The allocations go to those who have 1000 hours of service and are there on the last day, UNLESS they are dead, disabled or retired, in which case both restrictions are waived. So to me, it was a done deal - the guy retired and is eligible for a contribution for his one month of service in 2017, no matter what the employer thinks. I was asked to see what the rest of the community thinks about this and is doing, and you answered it beautifully. Thanks!

Thanks again to all of you. As a matter of office policy, it has been decided that fees are on top of, not part of, the taxable distribution. For example, yesterday we processed a request for an in-service distribution designed to net the participant $25,000. We filled out a request form for $31,250, so that when the 20% is withheld for the Feds (and nothing for the state of Texas), the lady will receive $25,000. The record keeper is instructed on the form to also charge her account $70, which is our fee for processing. Her 1099-R should reflect a withdrawal of $31,250 and taxes paid to the Feds of $6,250.

We recently received a census from a client where she indicated that all terminated employees separated from service. No deaths, no disabilities, no retirement. She reconfirmed this by phone. At least in her mind, nobody was retired. However, one person who quit fit the parameters to be considered "retired". He is well over age 65 and had 5 years of service. Our computer software is picking him up as retired instead of just separated from service. In this plan, he will be eligible for a match and a profit sharing contribution he would not otherwise have received. Does it make any difference that the employer considers him to be a person who merely quit? Is it correct that once a person has satisfied the age 65 and 5 years of service this plan requires, and he leaves, he is retired, regardless of the circumstances when he terminated employment? Thanks as always for any help here.

Thank you to everyone who answered. Luke Bailey hit the real question here. The expenses are incurred by the participant, not the plan. The participant could have chosen to leave his money in the plan indefinitely, as he has over $5,000. So does the decision to take the taxable distribution mean that he incurred the fees by choice? Is he perhaps liable for taxes on the full $10,000? But then what about the hapless participant with under $5,000 whose money is forced out of the plan? He doesn't get to pick, and indeed, it seems impossible that he would be taxed on the full gross instead of the net after fees are subtracted. I feel like I have seen this done both ways in the past. Just looking to see what you all are doing so we can come up with something consistent.

We are having a discussion in our office about how distributions are or should be processed. Just for simplicity take a termination distribution. Say that the participant has $10,000 and he's fully vested, to make it easy. He doesn't want a rollover, he wants a taxable distribution. The form he filled out calls for 20% federal withholding taxes and no state withholding taxes. The recordkeeper charges $100 to process the distribution, and our office charges $70. One of us thinks that the 20% federal withholding applies to the full $10,000. The participant has $8,000 after taxes, out of which he pays the fees, and ends up with $7,830 in his pocket. Another of us thinks that the fees come off the top, and the taxable distribution is $9,830. The participant ends up with 80% of $9,830, or $7,864. It matters because we are trying to develop a consistent way of "grossing up" when requesting in-service or hardship distributions. The amount we should request depends upon how the taxes are applied. Thanks in advance for any help you can give!

Thank you both for your answers. Yes, this is an actual situation. It hasn't been an issue in the past with this client, but suddenly, HR Lady is worried about it. We would have just assumed that the entire semester's tuition could be counted toward the hardship withdrawal, whether or not the semester had begun before the student paid the bill. We really can't see going through the headache of trying to pro-rate the bill.

TPA and client agree that withdrawals for tuition under hardship provisions must be for upcoming, unpaid tuition. Client is worried that if a student begins a semester, let's say, September 1 and starts attending classes, but the tuition bill isn't issued, mailed and due until, say, October 1, then the tuition is "old" business and may not qualify, or at least might need to be somehow pro-rated such that the September expenses are not included. TPA takes the position that the timing of the billing does not matter; the bill is for the whole semester and the fact that it didn't have to be paid to the penny up front is immaterial. We can't find a chapter and verse anywhere that addresses the exact timing of the bill. What say all of you? Thank you.

Thank you all for your input and feedback especially Mike Preston for the suggestion of a firm the client could use. I think you might find that many small plans in the deep south, especially those held by professional firms such as attorneys, doctors, and dentists, have significant holdings in limited partnerships. It was even more prevalent 20-30 years ago but there are plenty of them still around. In my research, I learned that many, many TPAs and CPAs believe that values can be taken from the K-1 but I found hard evidence saying that this approach is flatly wrong. I know for a fact that my predecessor here was using K-1 values, or cost, each year, as directed by the Trustees, or in the absence of any other information being provided. I will let the client know that he needs an appraisal service familiar with such matters.

Does anyone have advice about how to determine the market value of limited partnership investments? Case: A profit sharing plan with pooled assets (no individual direction) of a law firm with 3 partners and 10 rank and file employees has investments in real estate limited partnerships among other assets. Taking one of the limited partnerships as an example: The plan paid $250,000 four years ago for an 11% interest in a group of limited partners who bought a shopping center. The center has tenants who pay rent, the partners incur expenses, etc. etc. and a K-1 is issued each year. My research has indicated that K-1s are great as a snapshot of cash flow but do not have any information regarding market value at the end of the year of the limited partnership. The underlying asset has been appraised at $36,000,000. But the market value of the limited partnership itself is nowhere near 11% of $36,000,000. In fact, one of the other partners who also paid $250,000 for their share recently wanted to sell out. They offered their share to the other partners. Nobody wanted it except one, who offered 10% less than the original purchase price, and the seller declined and kept it. However, the seller would have let it go for the full $250,000 he paid for it originally. We have to have something provided to us that we can "hang our hat on" when we produce an annual report with account values as of December 31st. The client has tried to push the broker who sold them the limited partnership into providing a market value, but all he can come up with is the appraisal of the real estate parcel as a whole. All this is to say that my client is completely baffled at how to come up with a reasonable value for this type of asset. I wondered if anyone else has had this problem and how you resolved it? Thank you.

@ETA Consulting, LLC Again we are thinking alike! I have to learn, even after years of experience in this field, not to be intimidated by CPAs. They are great for what they do well, and that isn't qualified plans, normally speaking. :) Thanks!

@ETA Consulting LLC, thank you for your response. I had pretty much come to the same conclusion. As far as I can tell, they are a controlled group. The husband owns the sponsoring corporation, the wife owns her LLC. By virtue of stock attribution rules, each other is deemed to own each other's company, to the best of my knowledge. A participating employer agreement was prepared on a timely basis but was never returned to us, executed. We will press the sponsor for a copy of that document. Meanwhile, we are taking the position that if the wife who owns the participating LLC is getting a profit sharing contribution, then the lone rank and file employee has to get one too. If we are wrong, we have erred in favor of the participant, which I hear is always the best policy! @Bird, thank you for your response as well!

A client with a 401(k) plan has only 3 participants, consisting of himself as owner, his wife, and one rank and file employee. I am just now finding out that the owner and the rank and file employee are employed by the sponsoring corporation, while the wife is technically employed by her own LLC. For many years all 3 of them received deferrals, Safe Harbor, and profit sharing contributions. However, for 2017, they want to give only the wife the profit sharing contribution. I say this is discriminatory and they can't do that. The CPA says that because the wife's contribution is made by her separate LLC and not by the sponsoring corporation of the plan, it's ok for her to have a profit sharing contribution while the rank and file employee does not. I am thinking that the sponsoring corporation and the LLC are a controlled group belonging to the husband and wife and that they are still running afoul of non-discrimination rules. I am also thinking that a participating employer addendum to the plan's adoption agreement should have been in place for the LLC all these years. 1) Can they give the wife a profit sharing contribution and nothing to the rank and file employee and 2) Can a retroactive participating employer agreement be created dating back to the time that the LLC started making contributions on her behalf? Thank you for any comments!

Thank you so much! This is very helpful.

Hi, I am relatively new to this site and if I am asking the wrong question in the wrong place, I hope someone will say so! I thought I posted this question yesterday and it seems to have disappeared. If a client's 2016 corporate tax return is on extension from March 15th of 2017 to September 15th of 2017, normally speaking, the client would have until September 14th of 2017 to make the final 2016 contribution deposits such as match, profit sharing and Safe Harbor. Now, with Hurricane Irma relief, the client's corporate return does not have to be filed until January 31st, 2018. Does that mean that the client now has up until January 30, 2018 to make his final 2016 contribution deposits? Thanks in advance for any advice!

His CPA kindly called to discuss this and admitted that he doesn't know anything about it either. He is questioning whether the preparer of the K-1 has any basis for issuing a statement with the K-1 announcing that the plan is subject to UBTI. He says the preparer of the K-1s for the limited partnership investments has no way of knowing whether or not the plan is subject to the tax. He is also of the opinion that as long as the client doesn't have to (yet) answer the new question on the 5500 form about UBTI, then he is taking the position that they don't have to report it and that it needs to be reviewed next year. It's out of my hands, whether he's right or he's wrong.

My guess is that nobody on here knows, or nobody on here cares to risk making an error in giving an answer. So- I handed the ball off to someone else. I told the client that I believe that he owes tax on UBTI, provided him with what information I could, and sent him off to see his CPA or to find one familiar with such matters.

Two questions: Are TPAs preparing Form 990-T for the retirement plans of their clients, or are they deferring to the client's CPA? and If a K-1 (1065) has an attachment for Part III, Item 20 (Other Information), letter 'V" (UBTI), does the figure on the attachment reflect the net UBTI or the gross UBTI? Thank you in advance for any assistance!