Distributed more than vested balance......

[K-t-F]

Upon termination of employment, a client paid out his son from a plan more than his vested balance ($7k more). The client wants to stick to the amount distributed and suggests that the payout amount be determined by the current end of year value which would bring the sons account up to the amount paid (and a little extra, $300+/-). I indicated he couldn't.

Can the client calculate the amount of the distribution on a trust valuation which is not an end of year date? and if so would he be setting a precedence for future distributions? (small company, 2-3 EEs at best including owner)

[imchipbrown]

Rehire the son?

[Guest jhilliard]

Isn't it amazing, kids continue to be a financial burden well into their life!

[RCK]

My daughter will be off to college soon. I'm sure that she has stopped being a financial burden.

But back to the question--I don't suppose that the son took the distribution as a rollover, so that you could contact the receiving firm and explain to them that a protion of the rollover was not rollover eligible?

RCK

[Appleby]

I don't suppose that the son took the distribution as a rollover, so that you could contact the receiving firm and explain to them that a protion of the rollover was not rollover eligible?

Wouldn’t it be more appropriate to contact the son and ask him to return the excess amount to the plan? If the amount was rolled to an IRA, the IRA Custodian may be able to return the amount only after receiving written instructions from the son…

[david rigby]

My daughter will be off to college soon. I'm sure that she has stopped being a financial burden.

That's funny! Let me assure readers that "off to college" has nothing to do with "stopping to be a financial burden". In fact, "out of college" is not much different.

[RCK]

Wouldn’t it be more appropriate to contact the son and ask him to return the excess amount to the plan?  If the amount was rolled to an IRA, the IRA Custodian may be able to return the amount only after receiving written instructions from the son…

I guess that I thought that approach had already been tried.

RCK

[Alf]

Are you questioning the distribution timing/valuation? The plan should be very specific on this point and you should confirm which approach to the valuation is correct. To do otherwise, you should amend the plan and that would change how everyone else is treated. If this son is an NHCE, the amendment may be ok. If you can't there with the document, the fiduciaries have to ask for the funds back and notify the custodian of any IRA that received a rollover I believe.

[K-t-F]

I will inform the client that he is going to have to ask for the $ back. ... Do you think I could get away with calling it a "Mistake in fact" and carry the over payment as "Receivable" on the balance sheet until it is returned?? I will also read the doc. more closely.

I am still waiting for a return call from the client. Maybe he gave me wrong information and of the 2 withdrawals (which I was told were both distribitions to the son) one is not a distribution at all. My fingers are crossed!