This issue started in 2022 (before my time at my company and is still lingering through 2023) and I just wanted to get some opinions on how to correct:

Employer deducted several participants Roth as pretax (2022 W-2s reported as pretax) but deposited as Roth with recordkeeper. 

We discovered while working on 2022. On annual admin report, we reported as all Roth (tying to RK, but differing from W-2s).  

We gave them these options to correct 2022: 

·  Employees can choose to maintain their Roth election. The employer has two options to report the mistake:

o Issue corrected W-2s and the amount will be considered taxable to the employees for year 2022.

o Include the amount that was incorrectly designated as a Pre-Tax deferral in each employee’s compensation in year 2023. Given it was an employer mistake, you may elect as the employer to compensate these employees for the additional amount owed in income tax (treated as current year income). This would be a complicated process, requiring an estimate of how much each employee would owe in taxes. You would need to reach out to your accountant for this.

They have not amended the W-2s and do not intend to at this point, nor have they made up the taxable amount.  

This lingered into 2023, so they first few payrolls were also incorrect.  The employer does not intend to amend the 2023 W-2s either and had indicated to use what was reported on the W-2s and make adjustments at the RK to match the W-2s (i.e. move money between sources).  When we sent a correction to the RK to make these adjustments, they indicated since 2022 was not done this way, they didn't think 2023 should be either.  

We aren't sure how to handle - the IRS would surely be upset they are missing out on the taxes and the DOL would surely be upset the deferral elections were not processed correctly.   

Any insights on how you would handle?

I have a husband wife CPA firm.  The plan is designed with a 59-1/2 normal retirement age.  They ask if they can take partial distributions from their accounts and roll the money into their IRAs.  Neither are RMD age.  Anything wrong with that?  

Had a participant in RMD status die in 2023, and her account was to be split amongst her five daughter beneficiaries (which, ugh, but at least there was a valid beneficiary form!).  Three of the beneficiaries took their distribution in 2023.  Each share of the account is <$3K, and the plan has a $5,000 (I guess $7K now) forceout limit.

Presuming the remaining two don't elect to take their distribution in 2024, do we have any options?  Of course, we need an RMD based on the 12/31/23 balance, fine.  But can we force these amounts out of the plan?  The recordkeeper is ready to do so - they don't have any problem sending it to an IRA custodian.  Just not sure that I'm 100% comfortable going along with that.

Thanks!

I am a CPA preparing tax returns.   The client has a Schedule C with $475,000 net income.  He is contributing $55,000 to a 401K and almost all of his QBID is phased out.   He also has $140,000 pension income plus some investment income.   Charitable contributions are approximately $75,000.   MFJ, 69 years old.

I would like for him to adopt a DB pension plan and defer a large portion of his net profits.   My questions are as follows:

1.  Should he elect c-corp tax status?   If so, does he need to pay himself a salary?   I am thinking of a $200,000 DB contribution and a $200,000 salary, leaving some cash in the c-corp to be taken as dividends in later years (once fully retired).   Is there a minimum salary that he must pay himself?

2.  If c-corp status is not elected, can he still set up a DB plan for himself even though he is not an employee?   Does he pay SE tax on profits before the contribution, or on profits net of the contribution?

3.  He has not yet filed his 2023 returns.  Is it too late to set up and fund a DB plan for 2023?

I would appreciate any feedback on this.   New territory for me.

Regards,

Brad

Is a free-standing HRA that only provides benefits to retirees subject to PCORI?   

sole-prop, activity commenced late in 2021, 2021 Schedule C is negative, 2022 sch C is 150K, 2023 Sch C is 150K.  What is my 3 year average comp for 415 limit purposes?  Is it 150K or is it 100K?  Is there any specifc guidance on that type of situation?

We have always been a Volume Submitter and now a pre-approved individually designed plan office. Sorry if they are not the exact terms. In other words no prototypes and have never had opinion letters in our name. Hope that makes sense.

I feel like we're not the norm, and most providers use non standardized prototypes but maybe I'm wrong.

If you do use IDP documents how difficult is it to amend your plan (discretionary amendments)? We use relius IDP documents and up until PPA(i believe) we were able to use their short amendment module to amend the VS documents. It was super easy it created the language for the amendment and SMM etc. However, since then it's become a very manual process. The module just provides a blank Amendment, SMM etc. and i have to add the modified language. 

If you use preapproved IDP do you agree or if you use another doc provider, are you able to amend easier.... maybe it just me, I'll should say I'm not an attorney 

Hi,

I'm trying to request a 401k hardship withdrawl which states I can use medical bills from the last 3 months. However, I need to know what counts as proof of medical expenses.  I have a medical bill from end of 2023 (which would not be within the required 3months) that has now gone to collections. I have a collections bill that shows May of 2024. Which would be within the 3 months. 

I'm trying to find out if I need to have the actual hospital bill to be approved for the 401 k hardship withdrawl or Will the medical debt collections bill suffice?

This is a bit of a weird question, but would anyone be able to cite IRS code that dictates the 20% mandatory withholding policy?  There is a participant that has immense medical expenses that are itemized on their return and will not owe any taxes.  The CPA wants to know why I can't waive the mandatory withholding.  They've sent over a W-4R and explained that according to the IRS, this form will allow the election of 0% withheld.

I'm certain that this does not allow the withholding to be lower than 20%, but I can't find a good citation to express this.  I am aware of topic No. 412, but they are caught up on the 'lump sum' 'entire account balance' language.  The plan allows the participant to take a partial distribution, but I'm pretty sure this mandatory withholding rule would still apply.

The company I was working for was acquired back in March.  The health and welfare benefit plan runs on a calendar year.

Acquiring company is moving all employees to the new company's benefit plan effective 7/1 (also calendar year).  We are shutting down all existing benefit plans on 6/30.

For HCFSA contribution limits, would we treat these 2 plans as affiliated/same control group plans...meaning that between the 2 plans, participants could not elect more than the annual 2024 annual limit of $3200?  How do we treat employees who may have overspent their accounts?  (Employee elected $3200, only contributed $1600, but already received $3200 in reimbursements?) Can they make an election with the acquiring company, if so, how much? 

TIA

Is there a listing place of potential books of business for sale or a specific person that I should reach out to? 
 

I am looking to purchase a book- does not matter the size- to start as a base for my potential firm. 
 

Any and all recommendations welcomed. 

An employer’s § 401(a)-(k) plan would have these provisions:

Elective deferrals, up to § 402(g) and § 414(v) limits

Safe-harbor matching contribution—100% on first 3% and 50% on next 2%

Safe-harbor notices; no restraint on opportunity to elect a deferral from pay not yet available

No participant loan; no hardship or other early-out distribution

No small-balance ($7,000) involuntary distribution.

No distribution until end of service and normal retirement age (65 or the latest permitted).

Considering those plan-design elements:

Does anything about the absence of ways to get money before normal retirement result in the plan losing a safe-harbor treatment for excuses from ADP and ACP tests?

For States’ laws that call an employer to maintain a retirement plan or facilitate payroll contributions to Individual Retirement Accounts, is the plan described above sufficient to avoid the State’s arrangement?

Good morning!  I just wanted to confirm what, if any, non-discrimination testing is necessary for a 403(b) Plan?

Thanks in advance!

Haven't come across this one before but just trying to get the timing right with the PBGC and required participant notification-

Small Cash Balance Plan fewer than 10 current and former participants with balance, owner died last year, his widow inherited the shares (she is now the 100% owner and the Plan Trustee she also has a pending death benefit as beneficiary) and the business has been running under a prior contract but that contact is running out so all employees remaining employees were given notice and end of June will be the last payroll.

The company is staying in business through the end of the year at least to wrap any loose ends and such and for compliance reasons terminating effective December 31 might make the most sense from a compliance and testing standpoint. The plan allows for distributions upon termination of employment so what happens if we pay out all the participants before we go through a formal PBGC termination?

The plan is well funded all PBGC premiums are up to date and there is a small surplus that will be allocated to participants per the document. I've never done a PBGC termination after all participants are paid out, assuming they can get all terminated employees paid out relatively quickly. Is that going to be a problem with the PBGC?

I know you are not suppose to payout active employees during the PBGC review and termination process but these will all be terminated vested as of 6/30/24. So it seems we could pay them all out.

Dentist Sue owns 100% of LLC(1) and dentist Bill works PT for this LLC.  14 eligible covered employees in Sue's LLC(1) plan.

Dentist Sue and Bill purchase a practice about 10 miles away, they form LLC(2) with Sue owning 80% and Bill 19%.  I assume they will both see patients at both locations.  LLC(2) will co-sponsor Sue's LLC(1) existing 401(k) plan.  This will add 8 covered employees for then a total of 22. 

Dentist Bill also owns 100% of dental practice LLC(3) 15-20 miles away.  Sue has no ownership, nor does she work there.  LLC(3) has no 401(k) plan.  They are asking if they must cover these employees in the plan shared by LLC(1) and (2).  The easy answer is 22/30 covered = 73%.  Assuming my estimated coverage is correct, LLC(3) need not be covered.  I realiz this will have to be carefully reviewed every year.  

But, does anyone see an ASG here?  I don't believe there will be any association of patients between LLC(2) and (3) for dentist Bill.  The practices are distant enough, patients won't associate one with the other.  

Does that seem reasonable?  Thank you!

Automatic Enrollment question:  Plan is starting ACA at 3% for all new EEs plus anyone who is currently deferring less than 3% of pay.  How do you treat those who have chosen a dollar amount instead of a percentage?

I recently took a class where we were told repeatedly, "if you sell your family farm, you can put that money in a trust or self-directed IRA and Roth IRA to avoid paying capital gains tax. Today I started calling around and was told we would have to pay capital gains taxes unless we do a 1031 exchange.  We can't buy a like property and live in it if we do a 1031 exchange.  So that's out.  We were told to let the trust own the house and pay for everything out of the trust.  So, what IS a way we can avoid paying so much in capital gains?  The farm's been in the family over 200 years, the tax base is only $1000 but we should profit about $3M on the sale.  It's now in an S-Corp and will be divided between all the siblings.

It's so frustrating trying to get the same answer twice.

Our employer offers early retirement packages to qualified employees.  One of the benefits is a substantial medical waiver payment in lieu of retiree health insurance.  The employee gets the waiver for three years and then is offered the option to join the health insurance at the same benefit they would have had at retirement.

Medical waiver while employed is fully taxable to the employee.  Is it still so taxed as a non-employee benefit.  There is a Cafeteria 125 plan in effect but it doesn't address this issue.

A company has several ex-employees who were promised they could stay on the employer's group health plan until death or, in the alternative, be reimbursed for cost of substantially similar coverage until death. The insurer finally caught on and kicked these people off the group health plan. Company does not want to reimburse these people every year for the next 20+ years and wants to buy out this privilege in a lump sum. They used actuarial calculations for various people's expected demise, and also certain assumptions about how insurance costs will increase over the next 20 years, to come up with rather significant lump sum payouts ranging from $50,000 to $500,000. They want to make these payments to non-employees without paying any tax on them. They asked me to structure it as a legal settlement, and I declined to do so.

I advised this lifetime payment stream was deferred comp and absolutely subject to taxation (after the first 18 months of COBRA, which I understand can be provided tax free). I also advised that by paying a lump sum, they are accelerating the benefits in violation of Section 409A so these people getting a $500,000 check are going to owe self-employment tax, income tax, and an additional 20% excise tax.  Does anybody disagree with this assessment?

So then the employer said they'd bump up the lump sum to cover all the taxes, so that one individual (who is in a 35% tax bracket and a 10% state bracket) would get a 35% fed + 10% state + 20% excise + 15% FICA bump for a cool buy out of $900,000. 

I've been trying to figure out how the employer should report this? I've seen that deferred comp is reported on Box 1 of 1099-NEC. But I've also seen that Section 409A failures and penalty are to be reported on Box 15 of 1099-MISC. Are these people going to get 2 different 1099s? And in my example, would the 1099-NEC show the full $900,000 but the 1099-MISC only report the $500,000 (prior to the bump up for taxes)?