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The change made by the new hardship regs was that the safe harbor reason for casualty loss now reads "Expenses for the repair of damage to the employee's principal residence that would qualify for the casualty deduction under section 165 (determined without regard to section 165(h)(5) and whether the loss exceeds 10% of adjusted gross income)." 165(h)(5) is the part that limits the deduction to declared disasters. It still has to be a casualty loss, e.g. a flood, fire, etc.

I agree Luke. I was an early fan of prior year testing when it became available. Once the prior year is done, we'd know the HCE limit for the next year, and excepting any ownership changes we know next year's HCEs as well. For the client who doesn't want to deal with refunds, we can tell them to limit the HCEs to X%. For clients where some HCEs were deferring less than X%, we could help them estimate how much room this created for other HCEs to increase, with the tradeoff of increasing risk of test failure and refunds, especially if any HCEs increased their deferrals late in the game. Most of the time they were content to just limit all HCEs to the max deferral allowed by the prior year NHCE rate. But I seem to have lost this particular battle. I think partly because TPAs are programmed to work backwards on prior year stuff and not forward on future stuff. Oh well.

Thank you for your responses. Just an FYI, I spoke with an IRS agent this morning and she said the IRS receives these requests all the time and that they approve them when an employer can show intent to open the plan with items such as corporate minutes, email discussions, deposit of funds to a plan trust, etc. I explained that it is an owner only plan and she said that didn't change her response. So, here's hoping!

This employer appears to be thinking that the "timely mailing is considered timely payment" rule applies to the funding of withheld 401(k) plan contributions to the trust. It definitely does not, check out the statute at U.S. Code section 7502. It only applies to a return or document or payment under the internal revenue laws. Here, the employer is acting as a fiduciary handling plan funds, and has a duty not to use them to benefit itself (i.e., borrowing from the plan). I agree with all of the other recommendations. If you use a check, you should be able to produce a paper trail to prove deposit dates just as well as you can with wires or ACH deposits.

I take it the argument here was that they did adopt a plan, just that it can't be found. I would say that is factually different than "can I adopt a plan retroactively" for 2019 (which we can now do for 2020), which is how I read the original posting.

yes - I had one. they had an unsigned 401(k) plan document but could not locate a signed copy. There was some back and forth, but it was approved. I don't know if it was just luck or if they tend to approve them if presented favorably. That one was approved last year. I have not tried again since.

Shrug. I don't think I want to opine on how long is reasonable. Just long enough to tell the investment provider he is employed...I don't think anyone else (IRS) cares too much but I would make it the client's call and not my recommendation. Of course that income could trigger unwanted contributions.

We, of course, will withhold at whatever rate they want for the federal withholding. But can the plan restrict it to 10%? I did not do the research, but I'm pretty sure the answer is no and the recordkeeper might be violating Federal law if they don't comply with what was requested on the W-4P. The participant can elect zero withholding with a properly filled out W4-P, or more than 10% if they want. Here is from the W-4P instruction; I think the highlighted last sentence requires compliance: Purpose of form. Form W‐4P is for U.S. citizens, resident aliens, or their estates who are recipients of pensions, annuities (including commercial annuities), and certain other deferred compensation. Use Form W‐4P to tell payers the correct amount of federal income tax to withhold from your payment(s).

Correct. The short answer is that if a DC plan meets certain conditions, it does not have to offer an annuity as the normal form of benefit. In that case, spousal consent is not required for loans or distributions, but it IS required in order to designate someone other than the spouse as the beneficiary. Plans that do not have to be subject to QJSA rules can still be drafted to be subject to them, so the document still rules. I know @Larry Starr is a big fan of drafting his documents using QJSA requirement even if they are not required, but I will let him jump in and explain why if he wants to. Look at 1.401(a)-20 and 401(a)(11) for more technical information

Yes, These are taxable fringe benefits. See Form 1120S, Line 7 instructions. They are included as Officer compensation and their W-2 Box 1 wages, but not Boxes 3&5. See Form 1040 Instructions for the Self-employed health insurance deduction. All Medicare premiums are deductible as long as the individual is not eligible for employer subsidized group health insurance coverage of themselves, their spouse, dependent's or child < age 27. While Medicare supplement plans are not explicitly stated, I would assume those are also deductible.

@Chris123 If an S-corp is the partner, then any guaranteed payments are technically going to the S-Corp. The S-corp can't elect personal deferrals. Only a human person can. So no deferrals should occur from guaranteed payments (or year end income) going to an S-Corp. I think that's the crux of the issue. If an actual person is the partner - then yes, deferrals can generally occur from guaranteed payments. Those are self-employment income, and the person can elect to defer from them. If the S-Corp pays their owner W-2 compensation - that compensation MIGHT be eligible for deferrals/ contributions etc. When we ask if the S-corp is a participating employer in the plan, we mean does the plan's legal document specifically cover (usually by name, often times it gets it own page in the doc under a participating employer heading) that S-Corp. Plan documents are drafted different ways, so it's hard to know without seeing it if the S-Corps are included or not. If the S-Corps are participating employers, great. The W-2 employees of those entities (such as the Docs receiving W-2 comp from those entities) count for plan benefits. If the S-Corps are NOT participating employers, the compensation wouldn't count (but there are lots of exceptions like if a person is paid W-2 wages from both the plan sponsor and the associated S-Corp). There are lots of special rules for related employer groups (control groups, affiliated service rules, etc) and different types of compensation (self-employment vs. W-2) is treated differently as well. Way too much to get into here. If you want to push the law firm on the issue- I would ask for copies of the K-1s. Anyone with deferrals should either have a K-1 in their name directly (not their S-Corp entity), or a W-2 in their name showing the deferrals in Box 12.

Rollover of a death benefit needs codes 4G on the 1099-R. It's mentioned starting at the bottom of page 14 of the instructions. As mentioned, depending on the ages of those involved, it may or may not be to the surviving spouse's benefit to roll over the distribution into an account in her name. We had a couple of these recently where the deceased was older than the surviving spouse and rolling the death benefit into an account in the surviving spouse's name significantly reduced the RMDs going forward. Our plans allow distribution of rollover accounts at any time, so they still have access to the funds after the rollover. We've also had a couple of cases where the surviving spouse was under 59.5 and better off keeping it as a death benefit.

It's kinda hard to follow but I think this gets to the heart of it. and is probably (?) what is happening. If you (Chris123) are saying that the 401k withholding is coming from partnership income that is really going to an S corp(s) then that is problematic. The confusion comes because you seem to be describing a scenario where withholding is in fact coming from S corp W-2s, but the pension person is describing something else. It might help if we knew your role in this.

Let me see if I understand this correctly - please tell me if I'm wrong There is a partnership (is this an LLC taxed as a partnership?). The partners(owners) in the partnership are the S-Corps. And then each Doctor owns an S-corp. Income from the partnership is paid/reported to the individual S-corps as partners. Which Entity sponsors the retirement plan? Are the S-corps participating employers in the plan? If the S-corps are participating employers, then each Doc should be receiving W-2 compensation from their individual S-corps, and it is that compensation that the deferrals should be processed from.

While it may not help at this point, as others note, we have several clients who offer prevailing wage contributions and they all limit the PW contributions to non-HCEs in the plan document to avoid this exact issue. Anyone on a PW contract who is an HCE has to be provided the required fringe amounts another way. This seems to be the accepted means of addressing the issue, so (hopefully) shouldn't cause too much pushback from the plan sponsor.

thanks Bill! Does that same definition of qualified startup cost apply to the EACA credit? Sec 45T does mention the "eligible employer" as defined in 408(p)(2)(C)(i). but it doesn't seem to reference the definition of Qualfied startup cost from 45E, probably because the EACA credit isn't dependent on actual costs (unlike the startup credit, which do require actual costs).

JAA, I asked Ms Ilene to clarify. She was just talking about the credit. Here's her response. Section 45E of the Code (which controls the Credit) says: (1) In general The term "eligible employer" has the meaning given such term by section 408(p)(2)(C)(i). BUT: Section 45E(c)(d)(1)(B) (which discusses the definition of Qualified startup costs) says: (B) Plan must have at least 1 participant Such term shall not include any expense in connection with a plan that does not have at least 1 employee eligible to participate who is not a highly compensated employee. So, while a plan covering just an owner or just HCEs is technically eligible for the credit, there are no expenses that qualify for the credit. This provision was in the law before SECURE. Sorry ….

Since plan contributions of Davis-Bacon amounts are only one way to meet the employer's obligation to meet the Prevailing Wage, I'd suggest reviewing whether or not the employer (in the future) might simply *opt* to provide the benefits to the HCE in any other manner besides a plan contribution. Unless it's spelled out somewhere else, why not pay the amounts to the HCE as additional wages instead of as a plan contribution? Sure, there are payroll taxes, but it sounds like those might be less than the contributions necessary to bring the plan into 401a4 compliance.

If it hasn't been combined I would think about not doing so. Often times the two sets of money have slightly different rights and benefit attached to them. For example, she can mostly take their late husband's money at any time as a beneficiary and her money she might not have any in-service withdrawal rights. There is a good chance both are over 59.5 but if she isn't she could take those funds and get a death code on a 1099-R and not her money. I see this situation about once every couple of years and we always leave the two accounts separate. We might rename the one into her name as beneficiary to make it clear whose money it is but I think mixing the money is a bad practice. The exception would be if she actually signed a distribution form that gave her the option to take the money, put it in an IRA and she specifically said she wants it rolled to her account in the plan. But I wouldn't just tell her the plan is going to merge the two accounts.

If the wife is rolling it from her late husband's account in the plan to her own account in the plan then yes a 1099-R with code G will be required. Possibly 4G I haven't double checked the instructions on death benefit rollovers.

By any chance are you using a pre-approved plan document? In ours the default for prevailing wage excludes HCE. You may have to check the basic plan document (if your plan has one) for this provision. For our document - we have to specifically mark a section to allow HCE to receive PW. If the plan document excludes the HCE from PW and they received one - you have a different kind of error. I would remove the PW from their account as an impermissable allocation. I apologize I don't have the citation - but there is some limit to how much of the PW can used as ADP QNEC - I believe it's 10%? If my recollection is accurate, you'd still have 14% subject to general testing, which sounds like would still fail, even if the HCE isn't an excluded class from PW. For plans with PW we try to make sure their discretionary employer contribution allocation method is everyone in their own group, then anyone who needs to receive extra to pass the testing can. If the HCE received 24% PW, and is allowed to receive it, I'd say you need to allocate enough profit sharing to the other folks to pass testing.

Yes. Prevailing wage contributions are employer contributions subject to nondiscrimination testing.