|
Posted by Bhoot Nath on November 21, 2007, 1:55 am
Please log in for more thread options
[Resending; the previous copy was accidently mailed without running a
spell checker)
First some background:
1. For the tax year 2004, my company's 401k plan failed the non-
discrimination test. A portion of my 401k contribution (since I was
tagged as HCE) was refunded. Mass Mutual, the plan keeper ran the non-
discrimination tests in early 2006 (no typo), 14-15 months after the
plan year ended. So, all HCEs had to file amended tax returns for
2004.
2. For tax year 2005, they ran the non-discrimination test before
April 15, 2006, and the plan passed. No impact on 2005 tax returns.
3. For tax year 2006, Mass Mutual ran the test around March 2007, in
advance of the April 15, 2007 filing deadline. This time the plan
failed in a BIG way -- almost 50% of the contribution was returned. I
took care of this in 2006 tax returned, filed by April 15, 2007.
4. Fast forward to November 15th ... Mass Mutual informed our company
that "[...] as a result of subsequent analysis, [...] a larger
corrective distribution was made than was necessary". Basically, they
goofed up the calculations, and the corrective distribution was about
25% larger than warranted. I think this, along with other poor service
from Mass Mutual, could be one reason why the company is switching to
Fidelity as the plan keeper starting in December.
I have now received a letter that says "[...] Under IRS Rules, the
company is obligated to request return of the return of funds.
However, participants are not obligated (not obligated underlined) to
return the amount...." Further, "[...] if you elect to return excess
portion of your corrective distribution to the plan, you will receive
a corrected 1099R showing a smaller taxable distribution from the
plan. This will require you to amend your 2006 tax return..."
So, tax pros and financial experts, and do-it-yourselfers, I am seeing
your comments and suggestions.
1. Why is IRS being generous? Why am I not obligated to return the
excess distribution?
2. It seems that by returning excess, I effectively increase my 401k
contribution for 2006 (e.g., contributed max of 15K; after HCE excess
distribution, was allowed to contriute only 8K, but after the return
of excess distribution, it will be back to more like 10K). This will
also reduce my taxes.
The downside is redoing both Federal and California taxes, a hassle.
In prior years, I did my taxes with paper and pencil; last year I used
TaxCut. How easy or difficult would it be to do amended returns with
TaxCut? Worth $500?
Is it trrue that filing amended returns increases the DIF score, and
increases chances for audit. I have only been audited once in 20
years, by mail, for not including AMT (6251), and it resulted in an
extra few hundred, but I am (perhaps irrationally) afraid of ever
being in audit, even at the cost of paying a bit extra taxes :)
My 2006 tax was unusual in that the family AGI, doubled for that year
(extra bonus, all W-2 income, paid at the highest tax rate :(). But
for 2007, I am back to the normal wage, about 10% higher than 2005,
and half of 2006.
3. Has anyone else faced this? The math for the non-discrimination
test seems simple enough ... I can't believe a large company like Mass
Mutual messed up the calculations. (I can't do it myself, as it
requires knowing the salary and 401 contribution of everyone in the
company). I wonder how many other mistakes they make in record
keeping...
Bhoot Nath
|
| Similar Threads | Posted | | 401K beneficiary distribution | April 11, 2007, 11:28 pm |
| Question on 401K Distribution | October 19, 2007, 10:20 pm |
| 401k distribution..Local tax owed? | February 17, 2008, 5:10 pm |
| Re: Are Employer Plans REQUIRED to perform 401k to Roth IRA Distribution if Requested? | April 21, 2008, 9:46 pm |
| Re: Are Employer Plans REQUIRED to perform 401k to Roth IRA Distribution if Requested? | April 23, 2008, 10:37 am |
| Re: Are Employer Plans REQUIRED to perform 401k to Roth IRA Distribution if Requested? | May 2, 2008, 10:53 pm |
| How to handle 1099-R with distribution code P (taxes paid on 2006 return) | April 5, 2008, 2:44 pm |
| How to handle 1099-R with distribution code P (taxes paid on 2006 return) | April 5, 2008, 2:44 pm |
| Roth 401k - Income Tax Return Reporting | May 7, 2007, 1:29 pm |
| Return of 401k contribution - highly compensated employee | February 29, 2008, 4:08 pm |
|
|
Yahoo! 
Google 
Windows Live 
del.icio.us 
digg 
Netscape 
XML Sitemap