EE terminates & closes account; er sends in ee deferrals after the fact

[Guest amfam2]

Hi there,

Quick survey: what does your financial institution/custodian typically do?

ER establishes SIMPLE IRA, ee establishes SIMPLE IRA at your institution. EE quits and closes account. ER sends in SIMPLE IRA deferral [on a timely basis] after the account has been closed.

What is your financial institution practice? Do you:

1. Reopen closed account, deposit funds, then close account & issue check?

2. Open new account, deposit funds, then close account & issue check?

3. Forward funds directly to ee? (If so, do you handle 1099R reporting)

4. Return funds to employer?

I am interested in anyone's input. thanks, jlg

[Appleby]

Cannot handle as a distribution, unless you receive written instructions, including the necessary withholding election from participant.

I vote, take instructions from the employer to either reopen the existing account or open a new account…unless you can find the employee in time to provide the instructions.. The employer is allowed to open a SIRA on the employee’s behalf, in the even[t] the employee cannot be located or refuses to sign necessary paperwork to establish the IRA

[Guest amfam2]

I like your reply, Appleby. I hadn't even considered the w/h aspect.

Question though: a very long time ago I recordkept for a profit sharing (401(a)) plan which provided for allocations to terminated ees. It was common to find a year end allocation to a terminated ee who had since distributed their p/s account. What the system was programmed to do was follow the distribution elections on file.

According to page 3 of IRS Form W-4P under nonperiodic payments indicates that "a choice for no taxes w/h may be applied to any later payment from the same plan".

Thus, I would conclude that perhaps I may be able to distribute the SIMPLE IRA funds w/o ee election, and follow the same w/h election.

Your thoughts?

[Appleby]

I am inclined to agree to some extent -especially since the request was for the total balance in the account. However, if it has been more than 6-months since the employee/participant requested the distribution, I would be cautious, as it appears that the withholding notice for a Nonperiodic distribution should not be more than 6-months old. See Temp Treas Reg § 35.3405-1, Q&A D9