Tax

Have a Tax Question? Ask a Tax Expert

Ask an Expert,
Get an Answer ASAP!

Tax
This answer was rated:

My employer has sponsored a 401(k) plan in Puerto rico for

employees working there. Now...
My employer has sponsored a 401(k) plan in Puerto rico for employees working there. Now it is going to terminate that plan and put us in the US plan. We're told our PR funds can't roll over into the US plan and all loans need to be repaid by year's end or be treated as a distribution. Why can't the funds be rolled over? Same employer, same employees, same compensation. Lots of money will be lost to the retirement plan!
Show More
Show Less
Ask Your Own Tax Question
Answered in 8 minutes by:
10/30/2013
Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 30,141
Experience: Taxes, Immigration, Labor Relations
Verified

Lev :

Hi and welcome to our site!
The issue is that 401(k) plans in Puerto Rico and in the US are created under different statutes.
It is possible to have so-called - dual-qualified” plans that qualify under both the Puerto Rico Code and the Internal Revenue Code to provide the Puerto Rican participants with favorable tax benefits.
However - all plans are different - and most likely because that plan doesn't qualify for IRS regulations - funds may not be rolled over to US qualified plans.
To be precised - your plan documents must be examined - but based on your information - that is most likely the reason.

Lev :

All pension plans covered by ERISA, including dual-qualified plans, are required to file a Form 5500-series return. Plans that are qualified in Puerto Rico and not in the U.S. should include on line 8 the plan characteristic code 3C - Plan not intended to be qualified under Internal Revenue Code Sections 401, 403 or 408.
If you request a copy of that form 5500 from your plan administrator - we may verify that.

Lev :

This publication provides details many of the differences between the Hacienda and IRS as that related to retirement plans -
http://www.groom.com/media/publication/1171_BLJ_Puerto_Rico_Qualified_Retirement_Plans.pdf
Sorry if you expected differently.

Customer:

If the plan is dual qualified would we be able to rollover the funds over to the US plan?

Lev :

Yes - that is correct - for dual qualified plans rollover is allowed to the US qualified plan.
See here - http://www.irs.gov/pub/irs-drop/rr-08-40.pdf

Customer:

Is that a costly or complicated process to do? I'm wondering why it wasn't done so this big problem could have been avoided.

Lev :

The transfer itself is not costly - that is a simply transfer of the money from one account to another.
However - if the US plan will be accept funds from - that is based on plan documents - they are not required to accept such transfers.

Customer:

No, I meant for the plan to be dual qualified

Lev :

Yes - that is correct - the IRS allows the transfer but may not require the plan administrator to accept that transfer.

Customer:

if I understand you the problem is that the PR funds are not qualified. that's why the US plan won't take them. But if the PR plan was dual qualified in PR and in the US then the US plan could take the PR funds as a roll over and the loans could follow the funds into the US plan and not have to be repaid in two months

Customer:

so I was asking what the process is to have the PR plan dual qualified. is that process costly and complicated or was it something that should have been done at the start. simply paperwork?

Lev :

I may not say if that is a qualified plan or not - but I suspect that it is not qualified - and that might be reason. But even if that is a dual qualified plan - the 401k plan in the US might not willing to accept the transfer for their internal reasons. We may not know that. But in this case they are allowed to accept such transfers.
To have the plan qualified under the IRS regulations - your employer must apply to the IRS and verify that all requirements are met. That is not a simple application and most employers hire third party providers to do that work. Also - if there are discrepancies in plan documents - that are likely - changes are required - and that changes must be registered with Hacienda. So that would not be a simple paperwork procedure and will take some time - I would estimate at least 6 months.

Customer:

I was thinking more about the time when the plan was created. Whether there were elections or forms to be filed to make the PR plan dual qualified. I understand that it might not be possible now. But whether there was a way then to have avoided this big problem now by better planning. Whether dual qualification is a routine status or does The PR tax authority make it difficult. Try to keep the money in PR

Lev :

That is mainly the issue with your employer - not PR taxing authorities.
While to comply with both laws - means additional limitations on that plan and more difficult procedures to comply.

Customer:

ok so the answer is that theoretically there is such a thing as a dual qualified plan but not much can be said about how that status is achieved and beyond that it's complicated and everything depends on other facts.

Customer:

but that without dual qualification PR funds can't be rolled into a US plan -- I guess that's the only definite answer

Lev :

Unfortunately - that is correct - if the plan doesn't qualify under the IRS regulation - funds may not be rolled over.

Customer:

ok thanks

Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 30,141
Experience: Taxes, Immigration, Labor Relations
Verified
Lev and 87 other Tax Specialists are ready to help you
Ask your own question now
Ask Lev Your Own Question
Lev
Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 30,141
30,141 Satisfied Customers
Experience: Taxes, Immigration, Labor Relations

Lev is online now

A new question is answered every 9 seconds

How JustAnswer works:

  • Ask an ExpertExperts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional AnswerVia email, text message, or notification as you wait on our site. Ask follow up questions if you need to.
  • 100% Satisfaction GuaranteeRate the answer you receive.

JustAnswer in the News:

Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.

What Customers are Saying:

I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response...

T.G.WMatteson, IL

I WON!!! I just wanted you to know that your original answer gave me the courage and confidence to go into yesterday's audit ready to fight.

BonnieChesnee, SC

Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation.

JohnMinneapolis, MN

Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with.

OrvilleHesperia, California

Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help.

Mary C.Freshfield, Liverpool, UK

This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!!

AlexLos Angeles, CA

Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult.

GPHesperia, CA

< Previous | Next >

Meet the Experts:

Wallstreet Esq.

Wallstreet Esq.

Tax Attorney

586 satisfied customers

10 years experience

Mark D

Mark D

Enrolled Agent

1,300 satisfied customers

MBA, EA, Specializing in Business and Individual Tax Returns and Issues

Richard

Richard

Tax Attorney

4,310 satisfied customers

29 years of experience as a tax, real estate, and business attorney.

Robin D.

Robin D.

Senior Tax Advisor 4

13,695 satisfied customers

15years with H & R Block. Divisional leader, Instructor

Megan C

Megan C

Certified Public Accountant (CPA)

8,651 satisfied customers

Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level

jgordosea

jgordosea

Enrolled Agent

2,885 satisfied customers

I've prepared all types of taxes since 1987.

R. Klein, EA

R. Klein, EA

Enrolled Agent

1,839 satisfied customers

Over 20 Years experience

< Previous | Next >

Related Tax Questions
Question for a Tax Attorny who Knows US tax Laws regarding
Question for a Tax Attorny who Knows US tax Laws regarding Foreign Companies ? My company is a Cayman Company (#1) (Foreign) owned by USA Citizens (2). Company (#1) filed IRS Form 8832 to be Taxed as … read more
taxmanrog
taxmanrog
Master\u0027s Degree
698 satisfied customers
Planning for s-corp wage/distribution/SE 401k to minimize
Planning for s-corp wage/distribution/SE 401k to minimize 2017 taxes. I have the estimated numbers and a simple excel model, but would like feedback.… read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
I have an NR4 Income Code 49 Pension Plan Beneifts - does it
I have an NR4 Income Code 49 Pension Plan Beneifts - does it need to be recorded on the 1040 form.… read more
Chad CFP ®
Chad CFP ®
Certified Financial Planner(R), Pro
Master\u0027s Degree
727 satisfied customers
I have a situation with the tax authority in the U.K. who
I have a situation with the tax authority in the U.K. who require me to pay £ 31,500 made up of 26,192 in tax and £4,850 in interest and penalties. … read more
Barbara
Barbara
Enrolled Agent, Paralegal
3,466 satisfied customers
Miss are social security benefits taxable by the irs. Are
miss Wilson are social security benefits taxable by the irs … read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
I have an old 457b retirement plan from a county government
I have an old 457b retirement plan from a county government job. I have not worked there in over 14 years. Is it possible to roll the money in it into an existing IRA, or 401k? Dwight, Maricopa, AZ.… read more
Mark Taylor
Mark Taylor
Certified Public Accountant
Masters
2,217 satisfied customers
I have a summary of my retirement plan balances. MGH says
I have a summary of my retirement plan balances. MGH says they do not owe me the money. It doesn't say projected or estimated, it says my balance as of 12/31/13 is 14, 698.00. Don't they owe me this m… read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
Retirement Plans S-Corporation has one shareholder. Through
Retirement PlansS-Corporation has one shareholder. Through 2016, retirement plan was a SEP and the only qualifying employee was the shareholder. As of September 1, 2017 another employee will qualify f… read more
PDtax
PDtax
Owner
Master\u0027s Degree
1 satisfied customers
I am trying to find out about a retirement plan Tax code
I am trying to find out about a retirement plan Tax code 702j retirement account? … read more
Barbara
Barbara
Enrolled Agent, Paralegal
3,466 satisfied customers
Generally, 403()9 church retirement plans are not subject to
Generally, 403(b)9 church retirement plans are not subject to SECA taxes on ministerial salary reduction contributions. In other words, ministers will save almost 15 percent in SECA taxes by using a c… read more
Mark Taylor
Mark Taylor
Certified Public Accountant
Masters
2,217 satisfied customers
Rules on Rollovers (Return of a non-taxed IRA Distribution).
Rules on Rollovers (Return of a non-taxed IRA Distribution). Over 70-1/2 years old) … read more
PDtax
PDtax
Owner
Master\u0027s Degree
1 satisfied customers
IRS said the Roth IRA reported distribution was not held for
IRS said the Roth IRA reported distribution was not held for at least 5 years. It was. I was told I needed to send in a 8606 with my 2014 tax return. How do I go about doing that so I don't own the $1… read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
I contributed 18000 dollars to my 403b retirement plan by
I contributed 18000 dollars to my 403b retirement plan by June 30, 2017. From July 1, 2017, I am eligible for a matching contribution from my employer upto 5%. Given the annual limit of combined contr… read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
I have money in a pension plan where a portion of the money
I have money in a pension plan where a portion of the money is post tax (he is clergy) he would like to roll that portion into a Roth. is that possible.… read more
Matthew Breecher
Matthew Breecher
President
MBA (Graduate Legal Studies)
285 satisfied customers
The IRS sets the limit for 401k contributions. My employer
The IRS sets the limit for 401k contributions. My employer sets a much lower limit than required by the IRS for 401k contributions, plus they make what we are allowed to contribute a negotiable item d… read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
In Pennsylvania, a have a retirement plan administered
In Pennsylvania, a have a retirement plan administered through Metlife. On the tax form they ask about classification and if it is qualified. … read more
Lev
Lev
Tax Advisor
30,141 satisfied customers
Have you had any distributions from a retirement plan after
Have you had any distributions from a retirement plan after 2013 and before the due date of your 2016 return?....... the due date is that the deadline of April that they are referring to when asking t… read more
Mark D
Mark D
Enrolled Agent
Master's Degree
1,300 satisfied customers
I have an S corp with a defined benefit retirement plan --
I have an S corp with a defined benefit retirement plan -- single person for both … read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Show MoreShow Less

Ask Your Question

x