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I used to work for a custodian that dealt primarily with Self-Directed IRA, so I take a more aggressive approach to this. Looking at various Opinion Letters, the DOL seems to point to 3 elements in determining a PT, is there a Plan, is there a disqualified person, and is there a transaction. If you don't have all three, then to me, there is no PT. In this case, I think you have 2 of the 3 elements (the IRA and the Transaction) but you don't have a disqualified person. I had a situation where a client had lent money (via Mortgage) to her son's then girlfriend (say her name was Jill). Jill kept making regular payments on it but then her son and Jill got married. It was determined that the PT did not occur until a payment (i.e. transaction) was made by Jill as the client's daughter-in-law. So all the payments prior to Jill being the client's girlfriend was fine because she was not a disqualified person, only after Jill was married was she considered a disqualified person and the PT then occurred and was reported in the year in which we received the first payment from Jill as the daughter-in-law. From my perspective, until the IRA is married, any transaction with the soon to be spouse (as long as it is not self-dealing) would not be a PT.

I personally would recommend erring on the side of caution, partially for the reason you point out, Peter. Even if you don't have a prohibited sale of property under 4975(c)(1)(A) or transfer under (c)(1)(D), which you might at least indirectly, I think arguably you run into a problem under (c)(1)(E) prohibiting a fiduciary from dealing with plan assets directly or indirectly in his own interest. The DOL's interpretation is fairly broad: "Whether the proposed transaction would violate sections 4975(c)(1)(D) and (E) of the Code raises questions of a factual nature upon which the Department will not issue an opinion. A violation of section 4975(c)(1)(D) and (E) would occur if the transaction was part of an agreement, arrangement or understanding in which the fiduciary caused plan assets to be used in a manner designed to benefit such fiduciary (or any person which such fiduciary had an interest which would affect the exercise of his best judgment as a fiduciary).... [T]he Department further notes that if an IRA fiduciary causes the IRA to enter into a transaction where, by the terms or nature of that transaction, a conflict of interest between the IRA and the fiduciary (or persons in which the fiduciary has an interest) exists or will arise in the future, that transaction would violate either 4975(c)(1)(D) or (E) of the Code." I guess you could argue the transaction is not intended to "benefit" the soon-to-be spouse as fair value would be paid. And that there is no conflict of interest, but it seems to me that argument would be more difficult when the IRA owner and fiance(e) (a person in whom the IRA owner clearly has "an interest") are on opposite sides of a real estate transaction. The excerpt is from DOL Adv. Op. 2000-10A, which, interestingly, involved an IRA owner attempting to meet the minimum investment threshold to invest with one Bernard L. Madoff Investment Securities. ("You further represent that Mr. Adler believes that Madoff would effectively manage assets for the IRA....")

I'm not a lawyer nor an accountant, but here is my layman's take. Paraphrasing the facts as I understand them: an IRA purchased a home/real estate as an investment, the IRA owner did not use such property (either rented or maybe planned to flip), but the now engaged IRA owner plans to live in the property at some future point (after marriage) and so the IRA needs to divest/sell this property. The contemplated buyer is not currently related to the IRA owner, so I see no issue with the transaction provided any other rules for such are satisfied. If this was a friend, a cousin, a stranger, would there be any issue? I don't think so. An engagement for marriage is not a legal status as far as I know - it does not guarantee that a marriage actually occurs, and some engagements last years while others dissolve. What if he/she was just a boy/girlfriend, they did the transaction and then decided to live together without getting married. Something of this magnitude should be steered to a qualified tax attorney, but this was my not legal opinion.

Yes that makes sense. Just be careful if some of those are HCEs (like owner's family just hired).

kmhaab, when you asked about a plan that has no participants, I guessed you used the word participant not for a technical or legal meaning under ERISA or the Internal Revenue Code, but the way many people use it, especially about § 401(k) arrangements, to refer to those who make an elective-deferral contribution. ERISA § 3(7) defines participant to include an employee “who is or may become eligible to receive a benefit[.]” The Form 5500 Instructions (hyperlink above) include in a count of a retirement plan’s participants “individuals who are eligible to elect to have the employer make payments [elective-deferral contributions] under a Code section 401(k) qualified cash or deferred arrangement.”

No, the FSA cannot reimburse expenses incurred prior to the employee's period of coverage. In your example, that period of coverage does not begin until 11/1 when the employee becomes a participant. So only expenses incurred 11/1/22 - 12/31/22 are reimbursable in that example. Full details: https://www.newfront.com/blog/when-fsa-expenses-are-incurred General Rule: Expenses Must be Incurred in the Period of Coverage An FSA can reimburse only expenses incurred during the participant’s period of coverage. The period of coverage is the period of the FSA plan year in which the employee is enrolled (including any grace period for such plan year). This means that any expenses incurred before or after the employee’s FSA period of coverage are not reimbursable. Allowing an expense incurred outside the period of coverage to be reimbursed by the FSA would be a plan operational failure. The Section 125 regulations provide that operational failures can result in the entire Section 125 cafeteria plan being disqualified if discovered by the IRS—which would result in all cafeteria plan elections becoming taxable for all employees. Example 1: Tim incurs $240 in glasses expenses in March 2020. Tim changes jobs and is a new hire with a new employer in May 2020. The new employer maintains a calendar plan year health FSA. Tim enrolls in the health FSA, making a $1,000 election for coverage beginning June 2020 through the end of the plan year. Result 1: Tim’s March 2020 glasses expenses are not reimbursable under the FSA because the expenses were incurred prior to his period of coverage. Only health expenses incurred from June through December 2020 (plus any associated grace period) are within his period of coverage for the 2020 plan year. ... Regulations Prop. Treas. Reg. §1.125-5(a)(1): (a) Definition of flexible spending arrangement. (1) In general. In general. An FSA generally is a benefit program that provides employees with coverage which reimburses specified, incurred expenses (subject to reimbursement maximums and any other reasonable conditions). An expense for qualified benefits must not be reimbursed from the FSA unless it is incurred during a period of coverage. See paragraph (e) of this section. After an expense for a qualified benefit has been incurred, the expense must first be substantiated before the expense is reimbursed. See paragraphs (a) through (f) in §1.125-6. Prop. Treas. Reg. §1.125-6(a)(2): (2) Expenses incurred. (i) Employees’ medical expenses must be incurred during the period of coverage. In order for reimbursements to be excludible from gross income under section 105(b), the medical expenses reimbursed by an accident and health plan elected through a cafeteria plan must be incurred during the period when the participant is covered by the accident and health plan. A participant’s period of coverage includes COBRA coverage. See §54.4980B-2 of this chapter. Medical expenses incurred before the later of the effective date of the plan and the date the employee is enrolled in the plan are not incurred during the period for which the employee is covered by the plan. However, the actual reimbursement of covered medical care expenses may be made after the applicable period of coverage. (ii) When medical expenses are incurred. For purposes of this rule, medical expenses are incurred when the employee (or the employee’s spouse or dependents) is provided with the medical care that gives rise to the medical expenses, and not when the employee is formally billed, charged for, or pays for the medical care.

Do you really have no participants or do you have participants with a $0 balance?

Lou, Here is one word of caution. Although the Alternative Method might yield a lower premium for 2022 you will lock yourself into using the Alternative Method for 2022 and 4 following years. Which means your plan is going to miss on the recent rates increases (which are quite material) for 2023 and beyond. I would not do it a change to Alternative Method unless your plan is terminating soon.