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Numbers789, when you asked other TPAs, did you make clear that your situation is not about a partner of a partnership or a member of a limited-liability company treated as a partnership, but rather about a shareholder of an S corporation? If your client (whichever person that is) asks you to perform services assuming the plan administrator’s reckoning of compensation, consider, with your lawyer’s advice, whether to ask your client to indemnify you against your losses and expenses from having followed your client’s instruction—if such a provision is not already in your service agreement. This is not advice to anyone.

That legislation is proposed does not mean it will be enacted. Before 1984, people complained about New Jersey law’s income tax treatment of § 403(b) participant contributions. Criticisms became more focused when New Jersey enacted an exclusion from income for § 401(k) deferrals, but not for § 403(b) or § 457(b). After 42 years’ asymmetry, one might wonder about the legislative prospects. If the NJ-burdened employee prefers non-Roth elective deferrals and the charity is amenable to helping her, the charity might consider establishing a plan with a § 401(k) arrangement. That plan might be available to an employee who is a resident of New Jersey. Conversely, a § 403(b) plan might exclude an employee who is eligible for the employer’s plan that includes a § 401(k) arrangement. An employee who is eligible to make a § 401(k) cash-or-deferred election under a plan of the employer may be excluded from § 403(b)(12)(A)(ii)’s universal-availability condition. 26 C.F.R. § 1.403(b)-5(b)(4)(ii)(B) https://www.ecfr.gov/current/title-26/part-1/section-1.403(b)-5#p-1.403(b)-5(b)(4)(ii)(B).

The doctors have historically paid themselves W2 wages above the compensation limit. Each doctor has a different CPA. One of the CPAs wants to lower their doctor's wages below the compensation limit but I told them that could negatively impact the retirement calculations. In turn, the plan administrator said they will include their K-1 income which makes the W2 amount moot for the calculations. I feel like I must be missing something as I've asked this same question to four different TPAs. Two said they only use W2 wages and two said they would include K1 income (including the plan administrator on the plan).

When the Internal Revenue Service had some humans who would read a few individuals’ income tax returns, one might look at an S corporation’s tax return information about the business and an individual’s description of her occupation to consider whether a shareholder-employee’s wages was reasonable compensation for her work. I imagine now many tax preparers, even some Certified Public Accountants and Enrolled Agents, no longer worry that the IRS might challenge the reasonableness of a shareholder-employee’s compensation. If a shareholder-employee is tempted to declare wages less than reasonable compensation, does it make sense to declare at least the amount that supports her desired retirement contributions?

OH, OH, OH!!! NY 3329 (February of 2026!) is a new bill which would extend the state (New Jersey) income tax exclusion to employees of non-profits with 403(b) deferrals! The Bill is in Committee in New Jersey. "Specifically, it excludes elective contributions made by these employees to their retirement plans from New Jersey's gross income tax. This includes contributions to plans authorized under section 401(k) of the federal Internal Revenue Code for private sector workers, and now extends similar tax deferrals to employees of governments and non-profits who contribute to elective deferred compensation systems allowed under federal law, such as those established under section 403(b) for charitable, educational, and religious organizations,"

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Plan Sponsor adopting new 403(b) plan and has a New Jersey Employee. The Employee has discovered that 403(b) deferrals are not pre-tax in New Jersey (Pre-Tax Federal but not NJ taxes). What can be done for this employee?

Self employment income could be an issue soon for limited partnerships and LLCs - even if they are active in the business and have received SE income for years. The Fifth Circuit (including Louisiana, Mississippi and Texas) recently defined the term “Limited Partner” for Purposes of the 1402(a)(13) Exception to Self-Employment Tax in Sirius Solutions, L.L.L.P. v. Commissioner. While the opinion indicated LLCs were not considered, you can be sure they will soon be a case involving LLCs.

Believe me, this is where I started the argument against even considering this. This is what I was afraid of. I mean, not "afraid", since I'm glad to not have this as a recommended option.

It's a game accountants like to have their clients play to minimize their FICA and Medicare payroll taxes, which often screws them out of the ability to make maximum retirement contributions (not to mention limiting their ultimate Social Security benefit if below the SSWB). If W2 is already over the SSWB then it's only 2.9% Medicare taxes they are saving, which is not smart when the retirement contribution percentages missed out on are typically much higher. S-corp plan comp is W2, K1 is not included, that is not an item open to plan administrator interpretation and if they insist on doing so I would likely resign from that engagement.

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After seeing the follow up posts, I reread the OP and have a couple other items to note. The prior recordkeeper is doing what is required under the Regulations. I don't believe they have a choice "to change their mind." As previously noted, the defaulted loan must be taking into account in determining the limits on any new loan but I omitted the requirement that "phantom interest" also must be taken into account for those purposes. See Treas. Reg. §1.72(p)-1 Q&A 19 ("A loan that is deemed distributed under section 72(p) and that has not been repaid...").

A participant had a Missed Deferral Opportunity in 2025. There were missed match contributions associated with the Missed Deferral Opportunity. Should the Missed Match be included in Compliance Testing? Thanks.

For the calculation, no. For understanding the calculation and not screwing it up that one year the w-2 IS lower? Yes.

You would also want to review the plan loan policy in place. Most loan policies that i see say that if a participant defaults on a loan, that participant cannot take another loan.

In that case it does not, but unfortunately many accountants are against paying Self Employment Tax or payroll taxes on wages, so we often see a client incorporate as an S Corp and pay little to no wages and seriously reduce or eliminate their ability to make pension contributions.

That's actually not true, there is no notice required. There are tw rules relating to 3 months or less. You guys are referring to the newer 3 month rule, but there is an old ancient 3 month rule called the "Brief Exclusion" rule that has been on the books since the early days of EPCRS (well I just know it predates all the 45 day notice stuff). This one is found in Appendix B of EPCRS and says there is no MDO correction if the participant can contribute for the LAST 9 MONHTS of the plan year. So the failure has to be limited to the first 3 months of the plan year. Still of course 100% of missed match is due. Appendix B, Section 2.02, in this (F). I could not figure out the precise citation because of how the formatting shows up. But this text is there. (F) Special Rule for Brief Exclusion from Elective Deferrals and After-Tax Employee Contributions. An Plan Sponsor is not required to make a corrective contribution with respect to elective deferrals (including designated Roth contributions) or after-tax employee contributions, as provided in sections 2.02(1)(a)(ii)(B) and (C), but is required to make a corrective contribution with respect to any matching contributions, as provided in section 2.02(1)(a)(ii)(D), for an employee for a plan year if the employee has been provided the opportunity to make elective deferrals or after-tax employee contributions under the plan for a period of at least the last 9 months in that plan year and during that period the employee had the opportunity to make elective deferrals or after-tax employee contributions in an amount not less than the maximum amount that would have been permitted if no failure had occurred. (See Examples 6 and 7.

Beyond tax law, consider whether a suggested plan provision would result in participant loans that “[a]re available to all . . . participants and beneficiaries on a reasonably equivalent basis[.]” 29 C.F.R. § 2550.408b-1(a)(1)(i) https://www.ecfr.gov/current/title-29/section-2550.408b-1. That’s a condition of the statutory prohibited-transaction exemption.

If an S corporation pays its shareholder employee wages no less than $360,000, does it matter whether another element of income is or isn’t countable?

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Assuming your post is accurate, the w-2 comp from the s corp is the only earned income for the docs and the person saying otherwise is wrong and needs to start over in pension school.

I've been receiving mixed opinions on this topic. Working with a medical practice. The practice is a partnership where the employees are paid. The partners of the practice are each of the doctors' S Corps. The S Corps are adopting employers of the plan. The doctors don't receive any W2 income from the partnership. K1s are issued to each S Corp. In turn, each S Corp issues a W2 and K1 to the owner. The plan administrator is stating that they will consider both the W2 and K1 issued by the S Corps as compensation for retirement plan calculations. I was under the impression that you can only use W2 compensation when looking at a S Corp but apparently the partnership overrides that rule? Thoughts?

Since you do not have HCEs this should be doable. The Plan docs would have to be amended to provide for this. Usually, this would be a BRF as loans should be available to all participants on a reasonably equivalent basis and, as such, offering one to some and two to others would need to be tested. But if NO HCEs this difference would satisfy BRF testing (not sure "if no HCEs in that situation" means something else). Just have this rule set forth as an objective rule. The outstanding loan is still count for maximum loan purposes. (Just note that some commentators have stated that any loans after a deemed distributed defaulted loan is also considered a deemed distribution, but I have never seen authority for that statement. Plus that never made sense to me... just say if have deemed distributed defaults loan can't give another loan... but that isn't said anywhere either.)

Just to be sure, any reduced correction requires a notice (0% or 25%)