Leaderboard

You also need to consider the nature of the income. Earnout payments from the sale should be capital gain, not compensation. Consulting or receivables would be a different story. Obviously, there needs to be a W-2 or K-1 to the individual for 415 purposes.

Yes this. Depends on whether you are doing cash or accrued accounting on the contributions, and if cash, the timing. You are basically skipping the 2021 reporting so you can have a 2022 beginning balance even though it is the first return filed.

I think you are correct as long as service is not measured using anniversary years solely. I also think rehires are going to be even more painful.

The tax-qualification condition for some nongovernmental and nonchurch § 401(k) or § 403(b) elective-deferral arrangements to include an automatic-contribution arrangement if the elective-deferral arrangement was not established before December 29, 2022 begins with a plan year that begins on or after January 1, 2025. Perhaps in the last few months of 2024 the Internal Revenue Service might announce a nonenforcement delay of Internal Revenue Code § 414A? If PredictIt [https://www.predictit.org/] were to offer a yes-or-no future on whether the IRS announces a nonenforcement by December 31, 2024, how much would you pay for each $1.00 yes future?

There are two sides to the discussion you can see in the two attached commentaries - one authored by Ilene Ferenczy and the other by Derrin Watson. Also note the following guidance appears in IRS training material: "Chapter 9 Verifying 404 Deductions for Defined Contribution Plans Who is Benefiting under the Plan? Since the IRC 404 regulations do not define who is “benefiting”, the IRC 410 regulations governing coverage and how to determine which participant is considered benefiting should be used to make this determination. In general, in order to be considered benefiting an employee must share in the employer contribution. This would include Participants that received only a top heavy minimum allocation under 416 and those that only received a forfeiture allocation (if it was allocated in the same manner as contributions). With a 401(k) plan, participants only have to be eligible to defer to be considered benefiting. Therefore participants who are eligible to make salary deferrals during the tax year (whether or not deferrals are actually made) are considered to be benefiting and their compensation is included in determining the limits under IRC 404(a)(3). See T.R. 1.410(b)-3(a)(2)." As the commentaries note, the PLR does not establish a precedent upon which others can rely. The technical analysis and training materials also carry very little if any weight in a discussion with the IRS. Pick your story and stick to it. ASPPA ASAP PLR201229012.pdf FIS Technical Update PLR 201229012.pdf

IRC 414A as added by SECURE 2.0 sec. 101 applies to any cash or deferred arrangement established on or after 12/29/2022. While a profit sharing plan could have a retroactive effective date, a CODA which is part of a profit sharing plan can not. In other words, the effective date of the 401(k) feature can't be earlier than the date on which the plan document was signed, and the effective date of the 401(k) feature is what controls whether mandatory auto-enrollment applies (with the caveat that this is my best reading of the law as written, since IRS has published no guidance on this yet). Does that answer your question?

I think this blurb from the 1.401(k)(3) regs has it spelled out as plan year quarters: (ii) Periodic matching contributions. The safe harbor matching contribution requirement of this paragraph (c) will not fail to be satisfied merely because the plan provides that safe harbor matching contributions will be made separately with respect to each payroll period (or with respect to all payroll periods ending with or within each month or quarter of a plan year) taken into account under the plan for the plan year, provided that safe harbor matching contributions with respect to any elective contributions made during a plan year quarter are contributed to the plan by the last day of the immediately following plan year quarter.

Jakyasar, I agree with you. I believe you get to use the full $200,000 or $12,000 PS.

I do not think 404n states that, it simply say, deferrals are not part deductions (n) Elective deferrals not taken into account for purposes of deduction limits Elective deferrals (as defined in section 402(g)(3)) shall not be subject to any limitation contained in paragraph (3), (7), or (9) of subsection (a) or paragraph (1)(C) of subsection (h) and such elective deferrals shall not be taken into account in applying any such limitation to any other contributions.

To clarify, you are using a single LLC which covers different business activities? I am guessing it is taxed as a partnership. How much each of you can contribute depends on how the income flows through the entity. In theory that is governed by some kind of agreement; in reality I'm guessing you haven't thought about it. If the agreement, formal or not, means that your wife shows $1000 of income, then that is all she can contribute as a deferral (401(k)). If you can direct some of your own income to her, then she could contribute more. I'm not saying that is ok to do if she has no involvement in your side of the business. Partnership accounting can be horribly complicated. Do you have an accountant?

The employer contribution limit for a calendar year plan for 2023 for each individual is the lesser of: A) 100% of Compensation, or B) $66,000. The overall deduction limit for employer contributions is 25% of Compensation (exclude Compensation over $330,000 in 2023). Compensation is defined in your plan document, but if the business is taxed as a sole proprietorship, then the term Compensation is the net earned income from self-employment (NESE), which is a simple circular calculation. For example, if your spouse is self-employed and has $1,000 on line 31 of her Form 1040 Schedule C, then you subtract 1/2 of the 164(f) deduction (normally that would be a subtraction of $1,000 x .9235 x .0765), then you subtract your spouse’s employer contribution to the plan to get your spouse’s NESE. That NESE is the limit under section 415 for the total allocation your spouse can have under the plan, excluding any catchup deferrals. 401(k) salary deferrals, other than catch-ups, are also included as counting toward that limit. Keep in mind, deferrals can only be withheld from Compensation, so if your spouse only has $1,000 of income, then the 401(k) deferral and any catchup deferral for you spouse has to limited to fit under the Compensation limit. Just a reminder: once you have the NESE you yourself and your spouse, to multiply that by 25% since that gives you the maximum deductible contribution that the company can contribute for the year.

For LTPT it looks to me like entry date is always 1/1.

Certainly ERISA counsel input would be warranted. As others noted, any prior service component would create discrimination issues, in my opinion, and I think a 2023 short plan year may also be pushing the envelope. A totally prospective plan beginning 2024 would appear safer to me. This wasn't a "I fired everyone so I could start a plan" situation, there was a business transaction and such events regularly give rise to changes in retirement programs.

New name is Inspira Financial. Website as of now is still at mtrustcompany.com

It may be worth asking ERISA counsel before proceeding, but personally I would be comfortable with it assuming you accrue the benefits based on comp and service after the employees were gone. If you can have a conversation with the plan sponsor and explain the potential risk and they are willing to take on that risk then I would be comfortable administering it.

Even if a delay might be unstated in a Form 5500 and otherwise not a big deal, a fiduciary that can work to push itself and its recordkeeper to prompt processing of contributions and other payroll payments should try to do so, if it does not detract from higher-order fiduciary responsibilities.

Before sorting out whether a creation of a new pension plan might have a minimum participation, coverage, or nondiscrimination issue: Consider suggesting that the former business owner seek, if he hasn’t already done so, his lawyers’, accountants’, tax advisers’, investment managers’, and financial-planning advisers’ advice about whether creating a pension plan fits his interests and the considered integration of the whole of his planning. What to do after an operating business’s sale of its assets often calls for full-picture advice, involving everyone who might advise or handle useful information.

I would be OK starting the Plan in 2024 but no so wrt 2023.

Thanks. We have already reached out to Empower and stressed the importance of preserving the timing of the deposit. My feeling was the auditors may included the "late" payment in the management letter, but not make an issue of it for the 5500. Need to talk our client off the ledge this is not a big deal.

There is no grace period. There are a few thoughts: Try to work with Empower to preserve the next day timing. We have been successful doing this if the conversion manager is knowledgeable and cooperative. It works particularly well if the payroll file is transmitted the day before the payroll date so Empower can run their edits and validations overnight and you can fund the next day. If the conversion manager does not know how to make this happen, complain to the Empower sales executive that made all of those wonderful promises about reaching Nirvana. The auditor does not have the authority to say when a deposit is or is not late. The authority belongs to the IRS/DOL. The auditor can disagree, but the Plan Administrator is signing the Form 5500 and answering the compliance question about late deposits. The client should be able to show they are funding as quickly as they can within the constraints imposed on them by the recordkeeper. If there is a change in recordkeepers and as a result there is a change in the timing of deposits from next day to 2-3 days due to the new recordkeeper's procedures, there likely will be no push-back from the IRS/DOL. If there is, appeal it to the agents manager with a full explanation of the circumstances. If the manager in intransigent, you could even take it to Tim Hauser, the Deputy Assistant Secretary for Program Operations of the Employee Benefits Security Administration (EBSA). He says he wants to hear when the DOL is being unreasonable and his contact information is publicly available. If there is a late deferral as part of the transition process, the world will not end and any financial impact will be minimal. Good luck!