Owner/participant to take 67% of plan assets as a 59 1/2 w/d.

[Guest le190]

If the owner takes his assets out of a straight profit sharing plan (67%), does this qualify as a partial plan termination? are there any other negative aspects of this move that I should be aware of? tx!

[Guest RARogers]

It doesn't looklike a partial termination (which occurs when you lose a # of participants).

It would still be top heavy - there's a 4 or 5 year lookback for distributions.

If the owner stopped making contributions, you'd have a supsension of contributions, which would require 100% vesting.

[Guest Dook]

Partial plan terminations are not based on the percentage of assets leaving the plan but rather on the involuntary termination of plan participants as a result of the sale of a division or layoffs. This is not a partial termination situation.

You don't say what your relationship is to the plan.

The biggest negative impact could be the impact of this large withdrawal on the remaining assets in the plan. If this is a daily valued individual account plan it should be of less consequence. If it is a pooled account plan which is periodically valued, the valuation date vs. payout date could have a huge impact. In this situation, daily fluctuations in the investment markets could lead to a windfall or loss to the other participant accounts. Not that there is much you can do about it, but I would check into that just to know what to expect.

Also, depending upon how the plan assets are held, a large withdrawal could up the asset charges against the remaining assets.

[Guest LARRY]

If this is a profit sharing plan with individual accounts, it shouldn't matter except the plan would be viewed as top heavy for the year after the withdrawal.

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[Guest gpr]

Top-heavy look-back is five years, including for profit sharing plans with individual accounts.

The net income gain or loss can have a HUGE impact on the remaining participants if the plan is non-daily-valued, particularly if you are doing cash-basis accounting.

Example: Your plan is valued quarterly, and the income allocation base is opening balance + 1/2 contributions - withdrawals. Total plan balance at end of prior quarter is $100,000, and Owner A's portion is $50,000 of which he is going to withdraw all of it. No contributions were made during the current quarter. Net Income is a $10,000 loss.

If Owner A withdraws his $50,000 near the end of the current quarter, nearly $5,000 of that loss is attributable to his balance. However, with the allocation base outlined above, he will incur none of that loss, and the remaining plan participants will be burdened with it. If Owner A takes his money out right at the beginning of the quarter, then the loss won't be so largely attributable to his balance.