Employer Contributions to IRA

[Guest Thomas2006]

Employer maintains a 401(k) plan and offices throughout country. Employer, in a collective bargaining agreement, agreed to make contributions to the IRAs of 5 employees (in one of its offices) on a weekly basis several years ago. Employer continues to make contributions each week for the employees. Based on eligibility, maintaining other plans, written plan document requirements, etc., this cannot be a SEP, Simple IRA, SARSEP or 408© plan. Should contributions be stopped? Any glaring corrective measures jumping out at anyone? Thanks!

[JanetM]

Employer money can't be contributed to IRA. IRA rules only allow the contributions of wages, bonus etc, or net earnings from self employment.

These contributions were problably deductictible to the employee on income that isn't reportable to them.

I would seek ERISA and tax council for advise. Employer/ee could be charged with tax evaison. You could amend the years W-2s for the 5 people who would then have to amend tax filings. I would suggest employer help with this cost.

If you want to keep it going forward IMHO, I would open new IRA accounts, give employee taxable wages that can be deferred to IRA subject to IRS regulations limit on plan participation and income.

[BPickerCPA]

I don't see a problem with this arrangement IF everything is properly documented.

There would be nothing wrong with an employer making direct contributions to an employee's IRA, as long as the employer treated it as normal wages and it was included as income on the employee's W-2. The employee would then either take a deduction on their personal 1040, or file Form 8606 indicating that a non deductible IRA contribution was made.

Since the original post does not indicate the tax reporting/handling of the arrangement, I cannot say for certain whether there is a problem (as JanetM suggests), or not. Further information would be needed.

[Guest mjb]

Under IRC 408© a union can establish a trust to provide IRAs to members. IRAs are subject to the rules for traditonal IRAs. See Pub 590 P 7. The employer contributions are included as W-2 income to the employees which the employee deducts on his 1040.