New plan for older doctor - does this work?

[Guest]

I am working with a 73 year old Doctor who has never had a DB plan and is making approx. $130,000/ yr. I was contemplating a plan design which would have a NRA of age 65 or 1 Year of Participation and would allow for in-service distributions after NRA.

I would calculate the value of his max 415 ben at his age, he would make the contribution equal to that amount (ie:pure Unit Credit w/ funding assumptions equal to current GATT rates) and immediately roll the contribution out to his IRA.

All Min. Req. Dist's would be paid from his IRA's.

Does anyone see anything wrong with this? I realize that it may not be the traditional way of doing it, but I can't put my finger on any real problem with it?

[david rigby]

Problems big time! See Revenue Ruling 85-131.

The 415 maximum is subject to phase-in.

Try this to link to that revenue ruling:

http://www.taxlinks.com/rulings/findinglis...evrulmaster.htm

[Guest]

When I said "max 415 ben" I meant the phased in piece. I should have been clearer about that.

Assuming his comp was greater than the 415 $ limit, I would be determining the present value of 10% of the 415 $limit in effect during that year at his attained age, and that would be the contribution.

[Everett Moreland]

You might consider whether the permanence requirement will be satisfied

[Guest]

I didn't think to much about perminancy because I'm not going to terminate the plan anytime soon. It's just paying a distribution to a participant who would be eligible to receive it. Each year the client will make a contribution and then make a distribution.

What makes this design any different than the plan which commences distribution of benefits at age 65 (or NRA) even though the participant is still working? At NRA the participant receives a distribution of their current accrued benefit, then each year thereafter they receive a distribution equal to the amount of benefit which they accrued during that year. I have seen a number of plans that operate that way. I'm not sure I see any difference.

[Larry M]

why roll money immediately?

why not maintain plan, continuing contributions and distributing the minimums from the plan itself?

If the situation is appropriate, have deferred vesting, with nra = the later of (1)65, and (2) 5 years participation - which defers the mrd.

[Guest]

By rolling immediately I (client) avoid the complex MRDs from the DB plan, I avoid 5500 (1 life w/

[AndyH]

Interesting idea.

But,for 415, wouldn't you have to add back in prior distributions (calculated at different rates), convert them to current accruals at the current GATT rate, pay out the difference (total accrued less converted prior distributions)? Just a thought. That could get tricky.

I'm not sure that would equal the current contribution.

[David]

I believe you would have to take the current yrs MRD out before rolling over, after that the IRA can do the MRD's.

[AndyH]

Yes, but the current MRD is a part of the prior accrued benefit, which has already been fully paid out.