2008 ADP TEST

[Guest Big Al]

Ok, mind is still in Holiday mode. One too many spiked EggNogs. Ok, more than just one too many

calendar year plan. Plan Failed ADP for 2008.

New rules say 2008 corective distributions made in 2009 are taxable to participant in 2009 or does participant get to choose between 2008/2009 ?

3/15/09 still have any relevance any more ?

thanks

[401_4_ever]

Taxable in 2009 regardless of date of distribution.

3/15/2009 still relevant because there is still a 10% excise tax after 3/15, unless of course they are an EACA, and they have a later deadline.

[Guest Big Al]

Taxable in 2009 regardless of date of distribution.

3/15/2009 still relevant because there is still a 10% excise tax after 3/15, unless of course they are an EACA, and they have a later deadline.

Thanks, I suppose the only way it could have been taxable to him in 2008 would have been if we did the test in the last few days of 2008 and hustled to get the distribution out by 12/31/08

[imchipbrown]

I believe all this to be true, but would love a cite, if anyone has one handy.

[Lou S.]

I believe all this to be true, but would love a cite, if anyone has one handy.

PPA §902(e)(2) - Starting with plan years beginning on or after 1/1/08 excess contributions will be includable in the tax year distributed.

PPA §902(e)(3) - Eliminates GAP period income for plan years beginning on or after 1/1/08.

[Guest alifarr]

Anyone else running into total disbelief from recordkeepers on this? No one's forms have been modified and most are carrying on as if the old rules are still in effect.

Lou - I am most grateful for the cite, as we have been looking for it for the last 24 hours! No one believes us!

Alison

I believe all this to be true, but would love a cite, if anyone has one handy.

PPA §902(e)(2) - Starting with plan years beginning on or after 1/1/08 excess contributions will be includable in the tax year distributed.

PPA §902(e)(3) - Eliminates GAP period income for plan years beginning on or after 1/1/08.

[Guest fender5150]

Anyone else running into total disbelief from recordkeepers on this? No one's forms have been modified and most are carrying on as if the old rules are still in effect.

Lou - I am most grateful for the cite, as we have been looking for it for the last 24 hours! No one believes us!

Alison

I haven't seen this information anywhere else, yet.

I'm going to check out the source doc., then make an announcement to my clients.

Thanks Lou S.!

[Guest fender5150]

Am I interpreting these changes correctly?

• Jan 2, 09 Distribution is taxed in 2009.
  
• The company is NOT subject to a 10% Penalty
  
• A March 16th Distribution would be subject to a 10% penalty UNLESS the plan has an Automatic Contirbution Arrangement - 414(w)(3)
  

Details - FYI:

Here's how I'm reading the changes - I integrated the changes into the orginal code below, just to make sure I'm reading it right:

Proposed changes:

(e) EXCESS CONTRIBUTIONS.—

EXPANSION OF CORRECTIVE DISTRIBUTION PERIOD FOR

AUTOMATIC CONTRIBUTION ARRANGEMENTS.—Subsection (f) of

section 4979 of the Internal Revenue Code of 1986 is amended—

(A) by inserting ‘‘(6 months in the case of an excess

contribution or excess aggregate contribution to an eligible

automatic contribution arrangement (as defined in section

414(w)(3)))’’ after ‘‘21⁄2 months’’ in paragraph (1), and

(B) by striking ‘‘21⁄2 MONTHS OF’’ in the heading and

inserting ‘‘SPECIFIED PERIOD AFTER’’.

(2) YEAR OF INCLUSION.—Paragraph (2) of section 4979(f)

of such Code is amended to read as follows:

‘‘(2) YEAR OF INCLUSION.—Any amount distributed as provided

in paragraph (1) shall be treated as earned and received

by the recipient in the recipient’s taxable year in which such

distributions were made.’’.

Original Code:

(f) No tax where excess distributed within 21/2 months of close of year

(1) In general

No tax shall be imposed under this section on any excess contribution or excess aggregate contribution, as the case may be, to the extent such contribution (together with any income allocable thereto) is distributed (or, if forfeitable, is forfeited) before the close of the first 21/2 months of the following plan year.

(2) Year of inclusion

(A) In general

Except as provided in subparagraph (B), any amount distributed as provided in paragraph (1) shall be treated as received and earned by the recipient in his taxable year for which such contribution was made.

(B) De minimis distributions

If the total excess contributions and excess aggregate contributions distributed to a recipient under a plan for any plan year are less than $100, such distributions (and any income allocable thereto) shall be treated as earned and received by the recipient in his taxable year in which such distributions were made.

Code Fusion!

(f) No tax where excess distributed within 2 1/2 months of SPECIFIED PERIOD AFTER close of year.

(1) In general

No tax shall be imposed under this section on any excess contribution or excess aggregate contribution, as the case may be, to the extent such contribution (together with any income allocable thereto) is distributed (or, if forfeitable, is forfeited) before the close of the first 2 1/2 months (6 months in the case of an excess contribution or excess aggregate contribution to an eligible automatic contribution arrangement (as defined in section 414(w)(3))) of the following plan year.

(2) Year of inclusion

(A) In general

Except as provided in subparagraph (B), any amount distributed as provided in paragraph (1) shall be treated as received and earned by the recipient in his taxable year for which such contribution was made.

(B) De minimis distributions

If the total excess contributions and excess aggregate contributions distributed to a recipient under a plan for any plan year are less than $100, such distributions (and any income allocable thereto) shall be treated as earned and received by the recipient in his taxable year in which such distributions were made.

(2) YEAR OF INCLUSION

Any amount distributed as provided in paragraph (1) shall be treated as earned and received by the recipient in the recipient’s taxable year in which such distributions were made.’’.

What a boring exercise! It could be argued that Paragraph (2) (B) stays, but it apears to me that it doesn't.