20% withholding

[Santo Gold]

Small PS plan, making a cash distribution in January, 2013, for a participant who has terminated employment. 20% withheld will total $1,500.

Client is not set up to remit 20% electronically. Is the only other option that he sit on this $1,500 until next January, 2014 and then remit it with Form 945?

Thanks

[EBDI]

Why don't they get set up to do it electronically? That would be better than being late with remitting the withholding.

[Santo Gold]

I advised to set up electronically, but I do not know the mechanics of doing that to advise on specifics. I assume they remit payroll taxes electronically, but that is being pulled from a business account when it is transmitted to the IRS. Would they have to establish a plan checking account just for this one distribution, deposit the 20% into that account, and then transmit that to the IRS? Seems like overkill for very small plans.

What is the penalty for being late?

[masteff]

The trustee doesn't provide tax remittance as a service (even if it's for a small fee)?

[david rigby]

Just guessing, but it's likely the trustee is not a separate financial institution.

[K2retire]

Many record keepers will handle it.

[Santo Gold]

The investment accounts for the plan are all brokerage accounts and they do not receive much in the way of admin services from the brokerage office. They have had someone at their office preparing the 5500, maintaining the plan document, and trying to do the admin. Very likely that lots of admin issues are being missed (although it does not sound like they have a closet full of failed 401k tests or 415 limit violations or anything like that). I'm assuming this is the first cash distribution that they have had to handle, leading to the 20% withholding.

[Bird]

We handle some plans like this and as the TPA, we are set up to handle the electronic deposit of withholding. I think your best bet on this is to run it through Penchecks. They'll handle the payment to the participant, withholding and 1099-R.

Of course we're all cringing when we read "They have had someone at their office preparing the 5500, maintaining the plan document, and trying to do the admin."

What do you do for the plan, if I may ask?

[Santo Gold]

Nothing right now....they inquired about using our firm last Fall and then nothing. Now we got this call this week. Just trying to help out for now.

[masteff]

I have no personal experience with Penchecks, which Bird suggested above, but I do know it gets recommended a lot on here by a variety of people. Certainly worth the time for the plan sponsor to get pricing.