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if you recharacterize, the deferrals are treated as after tax, so you get a 1099r and you pay taxes - in your example - 2016, the year they "took place"(as ETA indicated). otherwise, by your logic, such contributions would be ignored entirely in 2016, but then show up in 2017 in testing! by the way, let's say your plan has a last day rule or hours requirement for match. normally, people who fail such requirements would not be included in ACP testing, but once you add after tax, since those people could have made after tax at any time during the year, they are included in ACP testing, which of course puts more 0s on the test, making harder to pass ACP testing. plus you have move an amount from ADP test to ACP from HCEs, making it harder to pass ACP testing, so you might not be accomplishing anything with such a strategy.

Not going to happen. Unlike qualified plans, SEPs have no provisions to exclude 'related employers (e.g. members of a controlled group). In fact, the instructions to the SEP typically have language saying '.... be careful if you have a spouse who owns a business'. Good Luck!

This may not require a plan amendment, since gross pay is already eligible. Your change may simply be to provide a separate one-time election to each participant to be completed before bonuses are actually paid. That 'election form' would explain that it's a one time election for the upcoming bonus, and a failure to complete would result in the current deferral election being used. Point is, there doesn't appear to be a need to amend the plan, but merely facilitate a separate election. Good Luck!

I agree with ETA, the rules are very clear. Do some less honest practitioners disregard rules because their clients don't like the end result? Sure. Have I lost clients/prospects because I refuse to break the law? Sure. If you are finding yourself in a position where you are contemplating breaking the law or intentionally overlooking regulations in order to obtain a more favorable (and incorrect) result for your clients, it is time to take a serious look at your practice and why you are struggling.

I'm not sure how to answer this. The rules appear to be very clear. I haven't seen many, if any at all, cases where the client intentionally rejected the rule simply because it wasn't what they wanted to hear. That's not to say it doesn't happen, but I wouldn't go as far as believing it's commonplace. Good Luck!

I do not believe that is correct. I believe recharacterizations must occur within 2-1/2 months after the plan year end and would be taxable for the year they would've been included in income had they not been deferred. In your case, they would be taxable in 2016. Good Luck!

What does the service agreement say as to the service provider's responsibilities? Right or wrong, the employer has made the decision that this is no longer an employee, which has created a severance from employment. The service provider should caution the employer about the possible ramifications if there is a determination that a severance of employment did not actually take place, and should recommend that the employer seek a legal opinion. Beyond that, I don't think the service provider owes a duty to investigate the employer-employee relationship.