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Q: Terminated vested participant turns 70 1/2 at 10/1/12. Minimum required distributions are due to start by 4/1/13. Monthly benefit is $100.
She is due $300 for 2012 (Oct-Dec). In March, we will cut a check for $600 and begin regular payments of $100 on 4/1/13. Is that correct, or is the very first $100 actually on 4/1?
A: The very first $100 is distributed on 4/1/13, and thereafter $100 must be distributed each month, until her entire benefit has been distributed. §1.401(a)(9)-6, A-1(c)(1) provides that "The first payment, which must be made on or before the employee's required beginning date, must be the payment which is required for one payment interval. The second payment need not be made until the end of the next payment interval even if that payment interval ends in the next calendar year."
Q: We proposed a cross-tested Defined Benefit/401(k) plan for a medical group. The contributions were good for the doctor with reasonable employee costs.
Another TPA did a competing proposal bringing the owner's 12-year-old twin kids into the mix, giving them each a $5,000 salary with a $50 benefit in the pension plan, thus allowing him to pass 401(a)(26) just by covering the owner, spouse and two kids. The employee cost dropped by about $10k. Our firm has never allowed children this young in our plans, especially when it is obviously designed to alter the non-discrimination testing. What are your thoughts on this?
A: Let's see. First, it would have to be legal in the particular state for 12 year olds to be employed by a parent's business. The children would have to actually perform services for (in this case) the medical group, as employees. And the amount of compensation paid to the children would have to be reasonable for the services performed. If those requirements are satisfied, they can include the children in the plan. Otherwise, they cannot.
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