We are in the process of completing a 5330 for a client who did not make corrective distributions due to a failed ADP/ACP test by the 2 1/2 deadline. Total ROEs were $5000. One of the HCEs who had termed, took a rollover distribution and moved the money to an IRA account before the 2 1/2 month deadline. He was due $1000 of the $5000 in total ROEs. We have notified him that the $1000 was not eligible for rollover and the money needs to be removed from IRA account.

My question is: what amount needs to be reported on the 5330? Is it the full $5000? Or would it be $4000 since $1000 was removed from the plan before teh 2 1/2 month deadline?

Any thoughts would be appreciated!

My vote would be that the excise tax would be based on $4000. I think that as long as that $1000 left the plan within the 2 1/2 months, then it is considered a correction. Regardless of whether it was rolled over or not.

I can tell you that this is how we operate at my company. Of course, that doesn't mean it's right. I wish there was some more guidance on this...

Does your total include earnings? The amount that goes on the 5330 is the GROSS amount, exclusive of earnings...

The question has to do with a distribution that occurred within 2 1/2 months - and I think it's a great question. I think the OP knows that the excise tax is based on the gross only.

Assume this is for a 1/1 plan year - which means the 2 1/2 month deadline is 3/15. There are 5 HCE's all due a $1,000 refund - for a total of $5,000 (gross). One of the HCE's has taken a distribution and rolled his money out of the plan into an IRA and another financial institution. This occurred on 3/1.

Is the excise tax based on $5,000 or $4,000? I can see the argument that because the $1,000 left the plan prior to 3/15 then the excise tax is only based on $4,000.

Does anyone agree? Disagree?

I say $4,000; send a letter to the guy to have the money returned to him out of the IRA and make sure the proper 1099's are issued from the plan.

(BTW: I asked about earnings because the OP said "total" ROE's.)

Hi,

Yes, the $5000 is the amount of the ROEs not adjusted for gains/losses...(of course mostly losses these days).

So, it sounds like most people would pay the excise on the $4000 taking the position that the other $1000 was distributed prior to the 2 1/2 month deadline.