Active participant rules re ESOP

[Guest Trirod]

Is an employee considered an active participant for IRA contribution purposes when the only plan his employer has is an ESOP? The corporation is an S corporation and it made distributions to its shareholders, including the ESOP - these are the only contributions it made in the year.

I think the answer must be yes since the ESOP is a qualified plan, but I am not all that sure. By the way, the "Retirement plan" box was not checked on the employee's W-2.

[Appleby]

For defined contribution plans, in which the contributions are discretionary, you are considered an active participant for any year you actually receive a contribution… Note that this is so even if the contribution is being made for another year.

[Kirk Maldonado]

Appleby:

I think that Trirod is raising a very fine point. (Putting words in Trirod's mouth.)

I think Trirod is asking whether distributions to the shareholders of a S Corporation are treated as contributions for purposes of the active participant rule.

My guess is that it is not, because those amounts are not treated as employer contributions for purposes of the IRC provisions relating to retirement plans. However, I've never researched this specific issue.

[Guest Trirod]

Kirk,

Where can I find the definition of employer contributions for active participant purposes in the code or regs? I've been scouring vairous code sections and can't seem to find it.

[Kirk Maldonado]

Try looking at Announcement 91-4 and Notice 87-16.

I'm out of the office, so I'm just relying on some notes on my computer, which may not be right.

[Appleby]

Kirk, you are right about Notice 87-16.

I could not find anything on Announcement 91-4 .

Another reference is Announcement 86-121

Documents are attached

[Appleby]

Apparently the attachments must be done one at a time

[mbozek]

Try IRS Pub 590 or the reg 1. 219-2