The IRS has mandated that all qualified plans that use a pre-approved plan document restate their current plan to include the Economic Growth and Tax Relief Reconciliation Act of 2001 (“EGTRRA”).
Plans must be restated on an approved plan document by April 30, 2010. If you haven’t made plans for updating your plan, be sure you do soon.
In other news…
Unused Leave Transfers
According the IRS, the value of an employee’s unused leave can be transferred to a 401(k) or profit-sharing plan annually instead of being paid to the worker in cash.
This can help the employee who has “leave” that can’t be carried over, so she will not need to accept additional taxable pay.
A similar amendment can be made to allow the value of the unused leave to be contributed to the plan when an employee separates from service.
In both situations, however, consideration must be made to contribution limits.
Hardship Distributions
Over the past several months, we have received many calls from client employees requesting a distribution from their retirement plan.
Unless your plan allows for a “hardship” distribution or participant loans, the ability for an employee to obtain money from their account balance is not possible unless the participant is of retirement age or has separated from service.
Keep in mind that when making hardship distributions, such distributions are permitted only when the employee has an immediate need for the money. Also, the withdrawal must be limited to the amount of money needed to satisfy the hardship plus any tax and penalty.
Payouts are taxed as income to the participant and unless the recipient is 59.5 years of age or the funds are used for deductible medical costs the payout is subject to an additional 10% tax penalty.
If your plan includes a 401(k) option, the employee must also suspend from making contributions to the plan for a set period of time.
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