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You also need to consider the nature of the income. Earnout payments from the sale should be capital gain, not compensation. Consulting or receivables would be a different story. Obviously, there needs to be a W-2 or K-1 to the individual for 415 purposes.

Jakyasar, I agree with you. I believe you get to use the full $200,000 or $12,000 PS.

I do not think 404n states that, it simply say, deferrals are not part deductions (n) Elective deferrals not taken into account for purposes of deduction limits Elective deferrals (as defined in section 402(g)(3)) shall not be subject to any limitation contained in paragraph (3), (7), or (9) of subsection (a) or paragraph (1)(C) of subsection (h) and such elective deferrals shall not be taken into account in applying any such limitation to any other contributions.

You can only count compensation for the 6% or 25% limit from employee's that are receiving an allocation. So in your case, only Joe. Look at Code Section 404(n). It excludes including deferrals in calculating deduction limits.

Hi Sorry if was asked before. DB/DC plan combo, covering 2 owners only (no PBGC). Each has 100k of salary DC plan has 401k and PS provisions only - no SH match Owner Joe has deferral and PS Owner Mary has only deferral and no PS What salaries are included to determine the maximum 6% PS deduction? Assume DB contribution is 500k so will never satisfy 31% rule. Thanks

To clarify, you are using a single LLC which covers different business activities? I am guessing it is taxed as a partnership. How much each of you can contribute depends on how the income flows through the entity. In theory that is governed by some kind of agreement; in reality I'm guessing you haven't thought about it. If the agreement, formal or not, means that your wife shows $1000 of income, then that is all she can contribute as a deferral (401(k)). If you can direct some of your own income to her, then she could contribute more. I'm not saying that is ok to do if she has no involvement in your side of the business. Partnership accounting can be horribly complicated. Do you have an accountant?

Yes this. Depends on whether you are doing cash or accrued accounting on the contributions, and if cash, the timing. You are basically skipping the 2021 reporting so you can have a 2022 beginning balance even though it is the first return filed.

The employer contribution limit for a calendar year plan for 2023 for each individual is the lesser of: A) 100% of Compensation, or B) $66,000. The overall deduction limit for employer contributions is 25% of Compensation (exclude Compensation over $330,000 in 2023). Compensation is defined in your plan document, but if the business is taxed as a sole proprietorship, then the term Compensation is the net earned income from self-employment (NESE), which is a simple circular calculation. For example, if your spouse is self-employed and has $1,000 on line 31 of her Form 1040 Schedule C, then you subtract 1/2 of the 164(f) deduction (normally that would be a subtraction of $1,000 x .9235 x .0765), then you subtract your spouse’s employer contribution to the plan to get your spouse’s NESE. That NESE is the limit under section 415 for the total allocation your spouse can have under the plan, excluding any catchup deferrals. 401(k) salary deferrals, other than catch-ups, are also included as counting toward that limit. Keep in mind, deferrals can only be withheld from Compensation, so if your spouse only has $1,000 of income, then the 401(k) deferral and any catchup deferral for you spouse has to limited to fit under the Compensation limit. Just a reminder: once you have the NESE you yourself and your spouse, to multiply that by 25% since that gives you the maximum deductible contribution that the company can contribute for the year.

no, the IRS will have a record of filed extension.

We established an LLC at the beginning of this year, with just two members – my spouse and myself. We reside in a community property state and file our taxes jointly as a married couple. Throughout this year, we've utilized our LLC to carry out business activities. My spouse has been working on a separate project, having earned about $1k, while I undertook contract work in the IT field, earning roughly $200k. Both of us were actively involved in the LLC's operations, each contributing more than 500 hours of work (met material participation test). However, we've encountered conflicting information regarding the tax filing status for our LLC and contributions to our 401k plans. Can we both contribute to the maximum allowable amount for our 401k plans, which is $66k each, or is my spouse only allowed to contribute $1k, reflecting their earned income?

I take it that "our plan eligibility computation period is anniversary/plan year" means the second ECP shifts to the plan year that begins during the employee's first 12 months of employment. We will look for 3 (for 2014) or 2 (for 2015 and later) consecutive years to determine whether an employee is LTPT. The shift will happen before the employee reaches an entry date, so the entry date will always be after the end of a plan year, so I agree it will always be January 1. It is worth observing that the shift can result in an LTPT entering your plan after 2 yrs + 1 month (for 2014) or 1 year + 1 month (for 2015 and later). Consider a new hire on December 1, 2014 who works between 500-999 hours on or before November 30, 2015. They get 1 year under the anniversary ECP, and then 1 year under the ECP shifted to the calendar year 2015. The entry date would be January 1, 2016.

401k Safe Harbor Plan is effective 1/1/22. Plan deposits 2022 Safe Harbor in 2023. Plan pays fee for 2022 in 2023. Understanding that the 2022 contribution applies to 2022 taxes, I think the fee paid in 2023 applies to the 2023 taxes, but wasn't sure. I'm even more confused about which year the Contribution credit for the safe harbor would apply to - 2022 or 2023 taxes?

We're a bit confused on how the 5500 filings work for a retroactive plan. Background: We created a Defined Benefit Plan for 2021 by the clients corp due date in 2022. We're now working on the 5500 Tax Forms for the plan for 2021 and 2022. Please note we use Relius Gov't Forms. Question 1: Our understanding is we will need to do two separate forms using the 2022 5500 SF. One for 2021 and check off the retroactive option on the SF. However do we enter 1/1/2021-12/31/2021 as the plan year for this form? (this is what we do when we're using a prior year form to complete a final tax form so it makes sense). Question 2: the instructions are a bit confusing because they state that the prior year SB (2021) must be attached as an external attachment as well as the 2022 SB. Does this mean we should only complete one tax form and carry forward to the ending balance as of 12/31/2022. In other words do one tax form for 2022 mark off the retroactive box attach the 2021 SB as an external attachment and the 2022 SB. However, the 5500 SF would have a zero beginning balance and include all contributions for both years and ending balance as of 12/31/2022 (hope that maks sense :)) if this is correct, please ignore question one!

For LTPT it looks to me like entry date is always 1/1.

Certainly ERISA counsel input would be warranted. As others noted, any prior service component would create discrimination issues, in my opinion, and I think a 2023 short plan year may also be pushing the envelope. A totally prospective plan beginning 2024 would appear safer to me. This wasn't a "I fired everyone so I could start a plan" situation, there was a business transaction and such events regularly give rise to changes in retirement programs.

That is the key difference - in these instances you have unrelated employers, so each is viewed separately. With a CG, it's deemed a single employer.

Our plan eligibility computation period is anniversary/plan year. Assumptions: Calendar plan year Normal entry is 1000/12: Monthly entry Over age 21 For LTPT entry with 500-999 hours / 12 months over 2 or 3 consecutive years. When will the plan entry date not be January 1 of the following year that the employee met the requirements?

Hello - I reached out to CMS with the exact same question last week and they confirmed that, YES, they do expect the employer or TPA to attest for the self-insured period (even though the webform does not specifically address a partial reporting period). This was the response: "You are correct - the employer plan sponsor of the group health plan should attest on its own behalf for the pre-fully-insured period of time from 12/27/20-12/31/21. And while you are also correct that the GCPCA webform does not have a specific place to enter the dates covered by the attestation when it is less than the entire period from 12/27/20-12/31/23 (or whatever date in 2023 the GCPCA is submitted), the Departments understand that any given attester may only be attesting for a portion of the time covered by the attestation. Similarly, the attestation may be made by an issuer or TPA for reporting entities that were only a client of the attester for a portion of the attestation period, or may only cover a subset of covered plan benefits or agreements covered by the written agreement with the plan, such as when the attester was not under contract with the entities listed on its reporting template for the entire attestation period (the case here when carrier attests for your client), or when the attester only covered some plan offerings while other entities provided the network for other plan offerings. In any of these cases, other entities may attest for the same plan for the remainder of the time period covered by the attestation, or for other product offerings of the plan, as the case may be. That said, if you client wants to indicate in the "Other" column of the webform the dates covered by its attestation, it may do so. We plan to address this when we update the Instructions in early 2024 as we are getting asked this question a lot. We will also address it during our upcoming GCPCA webinar on September 28." Hope that helps!

If they are late, see Rev. Proc. 2015-32 and Form 14704 for the IRS's Form 5500-EZ late filing corrections program. $500 per year/return with a maximum of $1,500. This may be your client's best penalty mitigation option.

New name is Inspira Financial. Website as of now is still at mtrustcompany.com

It may be worth asking ERISA counsel before proceeding, but personally I would be comfortable with it assuming you accrue the benefits based on comp and service after the employees were gone. If you can have a conversation with the plan sponsor and explain the potential risk and they are willing to take on that risk then I would be comfortable administering it.

Company has always been under 100 participants but has been filing 5500s for its H&W plan. Now saying that its broker filed those in error and doesn't have a wrap plan in place. Should they correct the 5500s even though they didn't have to file in the first place?

Even if a delay might be unstated in a Form 5500 and otherwise not a big deal, a fiduciary that can work to push itself and its recordkeeper to prompt processing of contributions and other payroll payments should try to do so, if it does not detract from higher-order fiduciary responsibilities.

Before sorting out whether a creation of a new pension plan might have a minimum participation, coverage, or nondiscrimination issue: Consider suggesting that the former business owner seek, if he hasn’t already done so, his lawyers’, accountants’, tax advisers’, investment managers’, and financial-planning advisers’ advice about whether creating a pension plan fits his interests and the considered integration of the whole of his planning. What to do after an operating business’s sale of its assets often calls for full-picture advice, involving everyone who might advise or handle useful information.

I would be OK starting the Plan in 2024 but no so wrt 2023.