Gee, I wish the client told me before doing this!

[richard]

We've successfully trained most of our clients to ask us before doing most things --- to avoid unpleasant surprises. Boy was I surprised to find out what this client did!

This is a 1 person DB plan, covering a married owner, about 45 years old. About $160,000 in plan assets. Nonstandardized prototype.

I find out that his business is doing poorly, so over the last 6 months, he paid about $80,000 from the plan to himself. Gee, that's nice, but now I'm not happy (and he's gonna be less happy when I tell him how deep he is in it).

Let's see. There is a loan provision in the plan (it's a C Corp), but I'm not aware of any loan documents being prepared (let alone spousal consent). Besides, $80,000 is greater than $50,000. And, he hasn't repaid any of the payments, if it even was a loan.

If he is considered to be actively employed, he's made a benefit payment before NRD. Oops!

Maybe he terminated employment before the first payment. (he hasn't taken a salary for several years). Well, the plan does allow for installment payments (as well as a lump sum and QJSA), but the actual payments were in random amounts at random times --- doesn't sound like installments to me. (Again, there's that spouse consent issue.)

So, let's talk about damage control. Disqualifying defects. Penalties. EPCRS. By the way, the brokerage firm is issuing 1099's for the $80,000 just about now.

(How did this happen, you might ask. I figure he called his broker and said "I need $_____ from my pension plan. Please transfer it into my personal brokerage account that you also have. Did they tell him it's not that simple? Did they tell him they'd be issuing 1099's? What do you think?)

So, before I break the good news about all this to him, what alternatives and ideas can we come up with. Yeah, I know they're all bad --- I'm just looking for the least objectionable ones available!

Like I said, we've trained MOST of our clients!

[Kirk Maldonado]

Tell him that the penalty he would pay on Walk-In CAP would be about 10% of what he would pay if they caught him on audit!