the article seemed to imply that one could work for one's own business, because " . . .

My question is, can one set up a sole proprietorship consulting/investment management business this way?

i.e LLC is owned by my IRA and has two lines of business:

1) consulting on managing energy risk [oil, Nat gas futures & swaps, Physical electricity]

2) running a hedge fund, initially seeded at $3 million of my own funds, (funds NOT derived from my IRAs) with an eye towards establishing a track record to attract more hedge fund investors . . . [i.e. I would provide seed money in exactly the same fashion that a hedge fund incubator would]

While I know can't set my own salary, can I establish my salary according to a "rule", i.e. substantially all the billings/revenues go to me as an employee [and are thus taxable as my income], up to a cap of say, $500k, the rest are distributed to the LLC shareholders [which happens to be my IRA]?

While I would have thought that my providing services to the LLC [its my hours that the LLC is billing the client for] might have been a seeprate kind of prohibited transaction [seperate from the conflict of setting my own salary], the Forbes article would seem to indicate that as long as I'm not the CEO, and someone else is making the decisions, it is not a problem.

relevant quote from Forbes "IRA Adventures" [Oct/4/2004] below:

"Investing in your own (or a close relative's) venture can get tricky. While the law doesn't ban investments in a private company, it does prohibit certain self-dealing transactions between an IRA and a "disqualified person" (the IRAowner, his parents, his child or even a descendant's spouse). Penalties for self-dealing are onerous--for example, all the money in a traditional IRA becomes taxable as of the start of the year of the violation. In the case of a Roth, all the earnings become taxable.

The basic rule is this: An IRA can only be invested directly in a business if the owner of the IRAand his direct relatives own less than 50% of that business. But there's a de facto exception for new ventures. At the point you are about to start a business, you don't yet own any of it. So you can use IRA funds, in unlimited amounts, for the startup financing. This sounds like hairsplitting. But Ft. Worth, Tex. estate lawyer Noel Ice--who is no fan of this gimmick--says it works, based on the 1996 Swanson Tax Court case.

The self-dealing rules create additional complications if you're planning to work for your business, since you can't set your own pay. Patrick Rice, a real estate broker who runs www.iraresource.com, recently helped two couples use their IRA money to buy businesses--one a bed-and-breakfast, the other a convenience store. The couples each set up a limited liability company, owned 90% by the IRA, to acquire the property. An unrelated outsider bought the other 10% of the LLC and became its manager. That person then hired the couple to run the business and set their compensation--a key to making this kosher."

It is my understanding that you can freeze a 401(k) and start a Simple. If we freeze as of 12/31/05, can the SIMPLE be started 1/1/06? What about notice requirements?

What if the 401(k) is terminated effective 12/31/05, but assets aren't distributed until 2006. Can we have a SIMPLE for 2006 in that case?

Thanks.

Employer sponsors a safe harbor 401(k) plan, and is currently making the 3% SHNEC.

Is there any problem with:

1. Increasing the SHNEC to 10%, or

2. Making an additional 7% NEC?

If he makes the additional 7%, can there be allocation restrictions (1000/last day) on the additional, and would it need to be 100% vested? There is no match in the plan.

Maybe I'm not looking in the right place, but I can't seem to find anything about this. It seems like you only run into problems if you are making a safe harbor match and want to make an additional NEC. In this case, you would no longer be exempt from top heavy I think?

Thanks for the help.

I have a client with 3 plans. Plan 1 is a DB plan and covers most employees. Plan 2 is a PSP that covers many HCEs and other staff employees. No one benefits from both Plan 1 and Plan 2. Plan 3 is a 401(k) salary deferral only plan and covers all employees. The plans are top Heavy.

Employee A is a participant in Plan 1 (the DB Plan). He no longer completes 1,000 hours of service. Plan 1 would provide the minimum top Heavy benefit accrual, except however, Employee A doesn't accrue this benefit because he has less than 1,000 hours of service.

Employee A is a participant in Plan 3 (the 401(k) plan).

What Top Heavy minimum benefit does Employee A receive and from which plan. He doesn't satisfy the requirements for the DB minimum benefit, but does satisfy the requirements for the DC minimum contribution.

Any thoughts - please help.

Is there any problem with an employer making the safe harbor match on catch-up contributions?

I have a client in great need of a wrap document. I've received conflicting answers from Corbel in regards to their cafeteria document - one associate said it met the wrap requirements,another did not.

For those who are familiar with the Corbel documents - what is your opinion - do you use the cafeteria document as a wrap document?

Thanks in advance for your replies.

Can someone direct me to the actual regulation PTE 77-4. I've tried searching every site I can think of, and I know there is a site somewhere that gives you all of the Prohibited Transaction Exemptions, but I'm looking for the original regulation. Thanks for your help.

Hey Everyone,

I'm 22 and about to open a ROTH IRA. I've decided on Vanguard as my broker, but I am uncertain which mutual funds to run with. I noticed one fund named "MA Tax-Exempt" which caught my eye since I am from MA. Beyond on that, do I want small cap, mid, or large? I am starting with $1000 now and plan on contributing the maximum until I retire.

Also, is it possible to open more than one IRA?

Thanks everyone!

- Justin

Say a participant rolls $150,000 from a 401(k) plan into a DBPP and the present value of his pension plan (excluding rollover) accrued benefit is $50,000.

What are the loan limits in this case?

Is it the maximum plan limit of $50,000 in total?

Or is it $25,000 (50% of pension value) plus the entire $150,000 rollover?

Or something else?

Thanks.

Say there is a plan for 6 partners/doctors and their employees.

Presumably the partnership makes the defined contribution plan contributions (as a company expense) along with other expenses to arrive at net income for the partnership and such net income is allocated on a Schedule K-1 for each partner.

In looking at a client's (one of the partners) 1040 return, it has generated some questions.

One expectation is that the pension contributions are deductible to the entire partnership and not shown or don't appear on the individual return.

However, this client/partner showed $110,000 of income from the K-1 passed to the 1040 and a qualified contribution of $41,000 for 2004.

The impression is that the $41,000 does not exceed 100% of the partner's compensation and in the aggregate, based on the entire plan, the $41,000 plus all other contributions did not exceed the aggregate limit of 25%.

Question is: Is this a correct way of handling this from a tax return perspective or should no contribution show up on the 1040?

Thanks

I am so new to this area that I am not even sure how to pose the question...but here goes: Can a person have an IRA and invest that IRA in an LLC. The LLC will be a new company owned by two entities: 1) The IRA will own 40% of the LLC and 2) a Limited Partnership will own the remaining 60%.

As if that wasn't complicated enough, here is the kicker -- the IRA owner's spouse has a small ownership percentage (less than 50%) in that Limited Partnership.

Is this scenario possible?

If you are easily frightened or easily offended, do not access the following link.

http://www.ucomics.com/nonsequitur/2005/10/31/

Contributions after retirement.  Nonelective contributions may be made for an employee for up to five years after retirement. These contributions would be based on includible compensation for the last year of service before retirement.

Is there any circumstances where this can be extended to 10 -years?

Plan document says effective date must be January 1.

Business established October.

Can we still use January 1 as effective date?

I have a plan sponsor that allowed an employee to participate one year too early (1/1/2004). The employee left in 2/05 and requested a direct rollover to new employer's plan. EPCRS sanctioned correction method is to do a retroactive amendment. I am not clear whethera short-form application for determination (Form 6406) has to be filed for the retroactive amendment of an insignificant operational error, any thoughts? Also, the Plan is a nonstandardized prototype, am I missing any issues with doing a retroactive amendment in the first place?

Any thoughts are greatly appreciated!

I'm currently working on plan compliance for a document that has not been updated since 1984 (gasp!).....Being somewhat new to the qualified plan arena (around GUST), I'm not sure what amendments are needed to bring this plan into full compliance. Does anyone know a website/reference that lists the required amendments in chronological order?

I've seen the VCP checklist but not all legislation has the dates on them!

Many thanks!

A company has a discretionary match formula that it makes by the contribution due date (with extension)each year - no payroll to payroll match.

This year, they made a verbal comittment at an employee meeting (all employees) that they would be making a match based on the profitabilty of the company, but never put anything in writing. Are they committed to that contribution and is there a specific code that addresses this. They are on the verge of bankruptcy? No corporate taxes have been filed.

Company A purchases Company B. Company B has a plan with a 3/31 PYE. Company B's plan is merged into Company A's plan in July 2004. There has yet to be a 5500 filed for Company B's 3/31/05 PYE. From what I've read and know since all of the assets were transferred from Co. B's plan in July 2004, then the final 5500 would be due 7 months from then, correct? I'm having a brain freeze and looking for affirmation.

An employee (not an HCE) was out on disability, so the employer decided to cover the employee's portion of his medical premiums for a few months. I asked if the employer has a policy of doing this for every employee in similar circumstances and the answer was no. The employer decides on a case by case basis whether to cover the employee's payments.

If the the employee was an HCE there would be no question about the answer. But can an employer discriminate among NHCEs?

No ducks were hurt in the filming of this picture