Leaderboard

Nobody, and I mean nobody, uses the $10,000 provision you indicate, because it involves using non-plan assets as collateral. I've read about it in books but in my lengthy career I have never seen it done.

Or "Well, we have a couple of employees we have never told you about because their employment agreement excludes them from all benefits so they were never eligible for the plan anyways...."

similar to the one we get a lot from our small employers..."We hired a new: 'CEO/Controller/or insert title' and put in the employment contract that she/he can participate immediately in the 401(k) plan even though we require a year of service. Is that going to be a problem?" Happy New Year All!

Perhaps the Plan has its own limitations. You need to take your questions back to Vanguard for real answers.

I've seen it, and agree it is a bad idea. Under certain circumstances, it might be do-able, but it's certainly ignorant to put that in a contract with no input from the plan side.

Karoline - What you might be thinking of is for a shareholder-employee in an S-corporation, they receive income both from their services as an employee (W-2) and from their investment as a shareholder (K-1). For that scenario you would only use their W-2 compensation. For partnerships, including LLPs, compensation is defined as net earned income, which is calculated in the usual way: K-1 earnings less one half of self-employment taxes, yadda yadda. Be certain to account for the portion of FICA taxes that were paid on their W-2 in order to accurately calculate the self employment taxes.

It's not going to be a 'deemed distributed' when there is a distributable event. It's going to be an 'offset' after the failure to repay. Under the new rules (assuming the bill gets signed), the participant would have until their tax filing deadline (for the year of offset) to roll the loan amount into an IRA. This used to be 60-days. Again, this is merely my understanding of the new bill that just went to the President's desk. Good Luck!