QRP disqualfied
It is my understand that when a QRP is disqualified and checks are sent to the participant, this is a deemed distribution.
If a QRP ceases to be qualified under §401(a), income tax would cease to be governed under §402(a)…
Does anyone know if participants who receive the checks are still eliglbe for a 60 day rollover in any circumstances, or is this just taxable money that there are no options with?
Thanks in advance..
Permalink Submitted by Alan Spross on Tue, 2009-03-03 04:44
This area is not my strong suit, but my impression is that there is no rollover available for the participants for the vested value distributed. It may also be possible that a prior IRA rollover becomes taxable if a plan is disqualified retroactively, but I think that rarely occurs. There are now more corrective procedures than ever, such as those included in EPCRS that allow errors to be reported and repaired to prevent disqualification of plans and severe damage to innocent participants.
I guess this subject comes under the heading of “what else can go wrong?” 🙁
Permalink Submitted by mk foss on Tue, 2009-03-03 07:04
Wnen a QRP is disqualified it loses its exempt status and is subject to income taxes using trust rates. When the after-tax funds are distributed to the participants, they are taxed again – no rollover because the plan isn’t qualified.
As Alan implied, you need to do everything possible to avoid disqualification.
Permalink Submitted by Joseph Arsenault on Tue, 2009-03-03 13:36
I had a feeling good news would not come out of this one.
Thanks for following up on my question, I appreciate it.