Leaderboard

Peter, this compliment is long overdue. You are without question one of the most objective and fair minded observers I've encountered, as well as being a great source of information. If you decide to run for higher office, I'll vote for you!

If you're asking about for the owner the answer is ZERO. Only W2 pay counts as compensation and qualifies the owner as also an employee. You also have an issue with requirement for S-corp owner/employees to take a reasonable salary.

We're currently on hold with our client and a platform that I'll call This Retirement Platform. The plan has a terminated participant who has a less than $5,000 vested balance. It's an ERISA plan (there are ER contributions). It has taken us several DAYS to get someone to accept that this is legal. I wish I was kidding. Currently, TRP (by which I mean This Retirement Platform, of course, not naming names) is telling us that such an transaction (a) has to be medallion guaranteed due to "some 2020 law", and (b) must have 20% withheld because it's leaving the 403b plan - yes, even if we're sending it to a rollover IRA. They can't cite the actual authority for either of these positions oddly enough. Has anyone dealt with a retirement platform that has tried these tactics before? Any success pathways (other than "no, give me your manager") or tips to share? Thank you for allowing me to spill the Tea; it's a hard Row here, but I guess the Price was good at some point. Thanks.

Agreed - he is the consummate professional when dealing with these Totally Ridiculous Propositions.

Announced this morning at EA Meeting that Joint Board will eliminate physical presence requirement for continuing education retro to beginning of this cycle. https://www.federalregister.gov/public-inspection/2024-05240/regulations-for-continuing-professional-education-requirements-of-the-joint-board-for-the-enrollment

You don't say what type of plan or if there are other employees involved, but if the owner does not have any W-2 compensation than their 415 compensation from the S-Corp is $0.

He can not defer more than 100% of compensation, you can't defer what you didn't make but an employer allocation can bring him over 100% but it being a sole prop... With such low comp the math gets circular if you are trying to do the absolute max. You'll need to do a PS contribution first which can't exceed the 25% deduction limit so using your $26,900 figure you get a $5,380 PS contribution which reduces his pay to $21,520 of which he can deffer 100% and the last $5,380 would be catch up. For a total of $26,630. Or he could do no PS and contribute the full $26,900 as deferral. It doesn't matter if the deferral is traditional, ROTH or a mix.

The webpage has an error in its citation of the ruling. IRS Letter Ruling 2001-10-005 (issued Nov. 14, 2000, released Mar. 9, 2001) http://www.legalbitstream.com/scripts/isyswebext.dll?op=get&uri=/isysquery/irl781f/1/doc. The pastor would have gross income when she receives the deferred compensation.

@CuseFan's comment about the requirement for S-corp owner/employees taking a reasonable salary trumps everything. Regardless of any considerations about a plan definition of compensation, the S-corp owner must have a reasonable W-2 salary. The answer to the question of how much an S-corp owner can contribute to a pension plan can vary widely. A fundamental question is for which employees (including the owners) does the owner wish to provide a retirement benefit? Another fundamental question is how much can the business afford to contribute to the plan year, and is this stable and sustainable over time? And, what are the owner's personal expectations for how the plan may benefit the owner? With the answers in hand, there will be a starting point for suggesting a plan design and presenting all of the pros and cons of the alternatives.

Are you sure the filing was not accepted? I believe a filing can still be "accepted with errors." If you're able to correct the errors, you can re-file until the error message is gone. Anyone else able to chime in?

Here are some random thoughts that may be relevant to assessing the status of accounts that hold unallocated amounts. If the account is included in the plan's trust account, it is an asset of the plan. All assets of the plan should be accounted for in the reporting on the From 5500 series, and any differences between the Form 5500 reporting and trust reports should be reconciled and the reconciling items should be legitimate receivables or payables. The IRS abhors unallocated amounts. They emphasized this a few years ago in their highlighting that plan's should not accumulate assets in forfeiture accounts, and that all forfeitures needed to be handled in a timely manner in accordance with the plan provisions. Grudgingly, they acknowledge that sometimes there are practical operational reasons where an unallocated amount may exist, but any such amounts also should be handled in a timely manner and in accordance with plan provisions. In effect, "timely manner" means no later than the end of the plan year following the year in which an amount was credited to an unallocated account. The DOL has its own rules about payment of plan expenses and they, too, frown on accumulations in unallocated accounts. The logic is along the lines of if amounts are not posted or are deducted from participant accounts but instead are moved to an unallocated account to pay expenses, and these amounts exceed what is needed to pay valid plan expenses, then the excess amounts belong to the participants and is should be credited to them. Otherwise, participants are being charged for that the amount of the valid expense. If the unallocated account is considered to be outside of the trust, then the source of the funds put into the account should be reviewed carefully. If the source of the funds was the plan's trust, then moving funds to an account unrelated to the plan smells like a prohibited transaction. If the trust and the unallocated accounts are both held by the same financial institution, then this raises potential questions about a plan fiduciary's responsibilities. Just some food for thought...

If the contract permits the insurer or custodian to require a medallion signature guarantee, it would be about a person who has authority to instruct the requested distribution. To help your client evaluate how to get what it seeks, consider at least a possibility that the annuity contract or custodial account might not provide the ERISA-governed plan’s administrator authority to instruct a distribution. Some § 403(b) contracts limit a payout right to the individual. Just as some BenefitsLink mavens like to remind one to Read The Fabulous (plan) Document, sometimes with a 403(b) it helps to Read The F****** Contract. And don’t assume that a plan overrides a contract; it might not.

A Court Order Acceptable for Processing (COAP) is a court order that us used to transfer retirement and survivor annuity benefit from a Government employee under FERS or CSRS or the FSPS to a former spouse. It serves the exact same purpose as a QDRO that is used to transfer pension and retirement benefits in private company plans under a number of Federal laws - ERISA, the IRC, the REA and the PPA of 2006. 99.9% of the time it is a stand alone order that can be 7 to 9 pages long if you address all of the possible issues. Most states regard a COAP or a QDRO as an enforcement tool, like a garnishment or an attachment, to enfore an obligation seet forth in the Judgment of Divorce. OPM will accept a Judgment of Divorce as a COAP if it has ALL of the information required by their Regulations. See attached. One problem is that in most states the COAP can be amended if there is a problem, whereas the ability to amend the Judgment of Divorce may expire after the 30 appeal time has run. The COAP needs to address, for example. (i) the formula for determining the amount of retirement benefit to be paid to the former spouse; (ii) the percentage of survivor annuity benefits to be paid to the former spouse if the employee predeceases; (iii) who will pay the cost of the survivor benefits (if the COAP is silent, the full cost is paid by the employee); (iv) the award of Basic Death Benefits; (v) disability retirement; (vi) what will happen to the former spouse's share if she predeceases the employee? (vii) and more. NOTE: If a Fedeal Employee has a CSRS or FERSf retirement annuity, he/she will also likely have a TSP account. DSG Handbook for Attorneys OPM.pdf

What does your loan program say? You can suspend for up to 12 months for approved leave of absence if loan program allows. You can take payments outside of payroll if loan program allows. You can reamortize when they return, see §72(p) for acceptable reamortization methods. You can take a payment for the missed payment when they return. Note the loan continues to accrue interest in while thy are on leave and payments are suspended. I've done #1 in the past of several plans when the participant returns from leave.

From what I've read in multiple places, IRC Section 457 does not apply to churches. Since it's 457(f) that makes amounts taxable upon vesting, I don't think you have that issue. This is a nice article albeit 20+ years old. https://www.churchlawandtax.com/stay-legal/clergy-law/nonqualified-church-retirement-plans-should-be-legally-reviewed/

https://www.irs.gov/businesses/small-businesses-self-employed/s-corporation-compensation-and-medical-insurance-issues If you share what kind of plan it is, pension, 401(k) etc, and if there are other employees, etc, and what kind of contribution they are wanting ( employer, deferral, etc.) I think folks can provide better insight.

I agree with CBZ that it is the Plan Administrator that ultimately has to make sure the 1099-R is sent to the participant, and that service agreements with the service providers should address who has that responsibility. The IRS has a process for situations where an individual does not receive the forms they need to file their personal tax return: https://www.irs.gov/taxtopics/tc154 The IRS not only will get involved in, shall we say, motivating the payer they also will provide the individual with a Form 4852 so the individual can file their return. (Given the information provided about the situation, I would suggest giving the IRS service provider 1's contact information.) Relevant to Bri's comment, I understand that no matter when the 1099-R is sent, the participant is on the hook for reporting the distribution as having occurred in 2023. The situation in the original post says the payment ultimately was made to an IRA so none of this should impact the individual's tax calculations.

So recordkeeper 1 decided that since the check went stale, they wouldn't do the 1099-R? If the check had been written in December would they still be waiting for it to clear before deciding to issue the 1099 for last year?

It is ultimately the Plan Administrator's responsibility to send a 1099-R to any participant who received a distribution during the year. If the Plan Administrator's agreements with their service providers don't cover providing a 1099-R under a specific set of circumstances, then they should make other arrangements to have the 1099-R sent to the participant. For example, maybe their TPA or tax preparer could prepare the form, given the necessary information.