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Here’s a question to ponder: If a corporation invites an arm’s-length investor to purchase 100% of the corporation’s original-issue shares before the corporation has any customer, any business activity, any franchise right, any intellectual property, any other property, any money, or any other asset (beyond the corporation’s right to be a corporation), how much should the investor pay for the shares? If your answer is anything more than $0.00, why?

As I understand it the logic goes this way regarding the FMV. I start AB corp and put $1 of capital into the company and issue 1 share. What is its FMV at that point? They say the answer is $1 for total enterprise value and $1 per share. I roll $100k into AB corp's PSP. The PSP buys 100k of newly issued shares from AB corp for $1 each. So now AB corp has $100,001 and 100,001 shares issued. The FMV per share is still $1 with total enterprise value of $100,001. Now AB corp uses that money to start a franchise (it is this industry that seems to push this idea more then anyone else) and maybe the value drops but that is AFTER the transaction with the PSP. Not saying an appraiser would sign off on the above but that is my understanding of the logic. From what I can tell the IRS doesn't seriously dispute the above logic. Their problem comes after this point more then this part of the transaction.

I don't do them either but I know some local attorneys who do. From what I understand, it isn't the plan itself that causes the problems its all the circumstances around the plan. Also, I think the IRS still REALLY doesn't like them, because most of them are not done right and are pushed by some seriously flawed promoters... Nothing wrong with them if properly done though.

I've done some work in comparing pre-tax and post-tax savings on retirement income. The math is straightforward, the devil is in the assumptions, but the effect is dramatic. Assume a 50 yr old HCE can defer only $14K instead of $24K due to the ADP limit. Assume 6% net of expense investment return, 50%/35% combined pre/post-retirement tax rates. Ignore attributable match, the ACA 3.8% investment tax, any cap gains tax rate or timing preferences. Assume equal investment expenses either in or out of the plan. $10K for 15 yrs grows to $232,760 at 65. This may be withdrawn @ $18,208 for 25 years, pay income tax each year on the withdrawal and you're left with $11,835 cash flow. If the $10K is refunded or not deferred each year, $5K is available to invest and the earnings are taxed each year. This will grow to $92,995 at 65. Withdraw $5,890 per year for 25 years. No further tax to pay as it is after-tax savings, so $5,890 of cash flow. The ADP limit costs this participant $5,945 per year in retirement cash flow from age 65-90. Even if you make the pre/post tax rates the same, say 50%, the pre-tax savings produces over $3,200 net after-tax cash flow.

How about b. Fiscal Plan Year: ending: Last day of February. or b. Fiscal Plan Year: ending: February 28/29. Mike

I neither agree nor disagree. There is such a universe of facts and circumstances that could affect the final outcome that I wouldn't dare to generalize. (How's that for a non-answer?)

in other words, if the plan is safe harbor and the contributions aren't made, there is still no testing. however, since the document wasn't filed then I suppose possible plan disqualification, or participants complaining to the DOL they didn't receive what they should have, but thank heavens, no ADP test to worry about

You should consider the rules for determining whether an employee "normally works fewer than 20 hours per week". There is an overriding caveat for employees who have worked 1000 hours during a previous year. Good Luck!

Wouldn't spousal consent to such a "disclaimer" be absolutely necessary for it to be effective? If spouse has "other ideas", it ain't happening!