In-Service Distribution

[austin3515]

Participant takes an ISD and within 60 days they realize they didn't need it. Can they roll the mone back into the Plan? Wouldn't it just be a regular rollover? I get that they need to make up the 20% withholding.

[Belgarath]

Sure, assuming the plan allows rollovers. I'm assuming it was an eligible rollover distribution to start with.

[austin3515]

It was...

[BG5150]

I looked at two different plan documents and they both say the plan will accept rollovers from "another 'eligible retirement plan'."

To me, "another" doesn't mean "same."

[austin3515]

My documents say the same thing so I'm sold. No can do.

BUT, let's say he rolled it to an IRA for a day or two, and then rolled it back. I think it would be allowable at that point.

[BG5150]

I have no idea. Would it look odd to a PITA auditor who notices the person who took a $10,500 in-service distribution and then did a rollover in for the exact same amount? (Well, if it was in an IRA for a couple days, the amount would be slightly off).

Rollovers from conduit IRA'a go into Un-related rollover accounts. However, since the money originally came from the same plan, would it be treated as a related-rollover?

It would affect the TH test, depending on if th money coming in was processed as related or unrelated rollover.

[GMK]

And just as a reminder (of something you probably already have under control): properly account for pre-tax vs. after-tax moneys if they can be rolled back into the original Plan.

[BG5150]

And why can't the guy just leave it in an IRA? Trying to hide assets from creditors?

[Belgarath]

Ah, our document is a bit less restrictive. It allows rollovers of "amounts attributable to a qualified plan described..." then goes on to list all the choices/exceptions. So in your situation, the money could be rolled back into our plan with no difficulty.

[austin3515]

Once it goes into an IRA, I'm not sure how you could call it a related rollover. IT's been scrubbed clean as far as I can tell...

And obviously, I told the client he could just roll it to an IRA and leave it there, but he's got his life savings in one spot right now--in the Plan.

[Belgarath]

I know you can't offer advice on this basis, but if such funds were rolled back into the plan, I would be TRULY shocked if an auditor would care. As long as the adoption agreement or document clearly allows rollovers, and as long as it could be clearly demonstrated that this amount came from a qualified plan, I think it would just sliiiiide through.

However, I do understand that you can't tell the client that.

[BG5150]

How does it affect the TH test?

First year, probably not. Adding back in the in service withdrawal nets with removing unrelated rollover.

But in years after, you will be taking out the unrelated rollover with no offset from the withdrawal.