A sole proprietor and his wife own and operate a business that sponsors a profit sharing plan. In the past there have been employees who shared in contributions, but the business no longer has employees. All participants except the business owner and his wife have taken their distributions from the plan. The business owner isn't sure at this point if he will hire employees in the future, but wants to continue making contributions for himself and his wife. Since, at this point, a fidelity bond is in effect primarily protecting the owner from himself, is he required to continue purchasing the bond?

When a business changes from a sole proprietor to a corporation, exactly what needs to happen in terms of the profit sharing plan?

I have a client that has changed to a corporation effective 1/01/05. They have a new employer id number. Everything else is the same (profit sharing plan with no 401(k) provision).

Do we need to terminate and file the final 5500 for the sole proprietor plan, then establish a new plan under the corporation? Must we physically transfer funds to a new account registerred under the corporation? Are there any forms we must submit with the DOL or IRS?

Guidance on this matter would really be appreciated.

Thanks!

I have a DOL Audit correction that requires us to calculate a weighted average rate of return for Deferral deposits made on a weekly basis. Does anyone have a spreadsheet set up for this or know how I would create the formula in Excel?

A non-standard prototype provides for discretionary profit sharing contributions by the Plan Sponsor without providing any specific formula. The Plan Sponsor wishes to make a contribution based on a special formula just to be used for 2004, involving an end-of-year requrement.

Can this be done via board resolution? What is the take out there?

Can anyone suggest a simple "permitted" way to calculate the gain on excess contributions.

We have a client that sponsors a DB plan. The DB plan excluded service prior to the effective date of the plan.

It is my understanding that service prior to the effective date of the plan may be excluded as long as the sponsor does not have a predecessor plan. A qualified plan becomes a predecessor plan if it is "Terminated" within a 5 year period of the effective date of the new plan.

The client also sponsored a PS plan and a MP plan. The MP plan was merged into the PS plan. The PS plan has not been terminated.

Upon the merger of the MP plan into the PS plan, does the MP plan become a predecessor plan for vesting purposes?

Can anyone explain how to determine the income limit used in the income test for a qualifying relative? All the articles I have read refer to the 2005 limit being $3200 but I do not see where that dollar amount is determined. §151(d) is referenced but I am missing the connection. Is the exemption amount of $2000 in §151(d)(1) an indexed amount? Any assistance that can be provided would be much appreciated. Thanks!

Imagine a company that was newly formed in 2004 and began operation of a cafeteria plan in Nov., 2004. How does one determine the number of HCEs for (1) the short first year, and (2) the 2nd year?

Wouldn't all employees be NHCEs since the previous year's salary is either not applicable (no 2003 salary for look back) or less than the threshold amount (in 2004)?

It seems to me that the first nondiscrimination test that would produce a valid result will not be performed until after open enrollment for the 2006 plan year.

Document has three options: 1-Eligible Participants pro rata compensation. 2-Eligible Participants flat dollar amount. 3-under reverse allocation or similar method. it goes on describing the mechanism of bottom-up QNECs (max permissible contribution to lowest paid participant.

My question has to do with the "similar method", as this term is not defined in the document. Here is what I am trying to do:

401(k) is failing ADP and is Top Heavy. Employer does not want to contribute any more than he has to. There were no contributions other that the deferrals this year (and TH minimum obvioulsy.) 2 out of 5 HCEs are non-key EEs (doc excludes HCEs from QNEC allocation.)

If I provide a 3% QNEC to all NHCEs, then I have problems with my Top Heavy minimum as on HCEs get it.

Would it be acceptable under "similar method" to provide 3% QNEC to 3 lowest paid NHCEs and regular nonelective TH minimum to all other non-key EEs?

Does anyone have any thoughts on the following:

In August 2004, expecting again to be eligible to make Roth elections (two Roth accounts were established in 1998 with two separate brokerage firms, Firm A and Firm B), taxpayer went ahead and made Roth elections for two new rollover IRAs (funded from 401(k) distributions) held at different brokerage firms, Firm A, which also is custodian for one of the original good Roth IRAs, and Firm C).

In December, taxpayer established another Roth account with yet another brokerage firm (Firm D). Purpose of the Firm D Roth account was to hold stocks in Canadian listed companies whose shares ("F shares") also trade OTC in the U.S. To consolidate the "F" shares in the various Roth accounts in the Firm D Roth account, Taxpayer instructed Firm A to move the F shares in the 1998 and 2004 Firm A Roth accounts to the Firm D Roth account, instructed Firm B to move the F shares in the 1998 Firm B Roth account to the Firm D Roth account, and instructed Firm C to move the F shares in the 2004 Firm C Roth account to the Firm D Roth account. The transfers all took place as trustee to trustee transfers.

[Clarification: the instructions went to Firm D to initiate the transfers to it from Firms A, B and C. Sorry]

In the meantime, taxpayer discovered that his joint income with spouse would exceed the MAGI level and he therefore was not eligible to make the two Roth conversions. No trades occurred in the Firm D Roth account. One security distributed a royalty payment.

After briefly discussing with Firm A what to do, taxpayer determined that to fully undo the Roth election, it would be necessary to return the F share stocks from the Firm D Roth account to their respective 2004 Firm A and Firm C Roth accounts, and then to make an election to recharacterize the Roth conversion.

The F shares returned first to Firm C and taxpayer made a recharacterization election. Firm C indicated that because the F shares had gone out and come back in, it was necessary for it to perform an earnings calculation. That calculation resulted in less than all of the Roth coversion account being returned to the rollover IRA. About $1300 remains in the 2004 Firm C Roth account.

Once the 2004 Firm A Roth's F shares (including the royalty payment) returned to the 2004 Firm A Roth account, Firm A has taken a different approach, of treating the improper Roth conversion as an excess contribution, which will be withdrawn in time (it is to be hoped) to avoid excess contribution penalty.

Taxpayer is confused. Are both approaches correct? Can taxpayer withdraw the residual amount in the 2004 Firm C Roth IRA by having it returned to the Firm C rollover IRA as an excess contribution? If not, what does taxpayer do with the residual?

Many thanks for you time and patience.

Best regards,

I know this has been discussed before and I have read some past discussions on this.

Assuming the employer already has losses and does not want the deduction, when must the top heavy minimum contribution be funded?

Apparently there is no deadline other than 30 days following the extented corporate tax filing deadline if the contribution is to be allocated for the prior plan year.

Is anyone aware of any recent clarification on this issue?

Thanks much.

If you have a partnership and the partners exceed the plan imposed limit, are the deferrals which excee the plan limit left in for ADP testing like you would for HCE who exceed the 402(g) limits?

Any thoughts would be appreciated.

We are considering reducing our Automatic Rollover Benefits limit from $5000 down to $1000 per the new regulations. If we later decide to amend the plan back because it makes more sense for some of our plans to utilize the $5000 benefits limit and applicable IRPs for automatic cashouts, would it be a 411(d)(6) violation. Provided all parties are made aware of the limits (SMM) and all notices to terminated employees are adjusted to reflect the limits accordingly.

Can I buy Stock and sell it for a profit in my roth and then use the profit to buy more stock in my roth account? I don't want to distribute any many just buy and sell.

The early version of the PWBA (now EBSA) forms prohibit use of an Adobe pdf format file in creating the form sent as the official filing. The EBSA web site stated that the postscript language did not produce a proper 2-dimensional scan.

Now I see some mail that TPAs can create their 5500 forms in PDF format and send it to the client for signature. I don't remember the source of this advice.

Either the rules have changed, the Adobe programs have been adapted, the EBSA software has changed, or maybe some practitioners are wrong.

What did I miss?

an HCE received a corrective distribution prior to 3/15/05 and wants to put this in an IRA. i beleive this is a no no. she is single and her income from this employer was 100,000 for 2004.

first she would have to pay taxes on the distro via 1099r. couldnt she possibly make a nondeductible contribution to it, better yet establish a ROTH IRA and deposit into it?

thanks.

In early February Corbel realeased sample amendments/SMMs etc for the auto rollover issue and then they disappeared from the website. The packet for volume submitters is out there. Any ideas?

Thanks

Top-heavy 401(k) cross-tested plan PYE 6/30/04 has no age or service requirements and dual entry dates: first of the month following date of hire for salary deferrals; and January 1 or July 1st following date of hire for profit sharing.

The plan's definition of compensation excludes compensation prior to a participant's entry date.

Employee A was hired 10/1/03, enters the plan for salary deferral purposes on 10/1/03, and enters the plan for profit sharing purposes on 1/1/04.

Employee B was hired on 5/28/04, enters the plan for salary deferral purposes on 6/1/04, and does not enter the plan for profit sharing purposes until 7/1/04, the first day of the following plan year.

Assume that trying to treat the excludables as being in a separate plan does not work, because we need these short-service employees to pass cross-testing.

Both Employee A and Employee B need to be given a top-heavy minimum contribution of 3%, and since we can't pass testing on a separate plans basis, we also need to give A and B the gateway minimum 5% contribution.

5% of what? What plan compensation are we allowed to use? For Employee B there is only one choice: 6/1/04 to 6/30/04, the period during which B participates for salary deferral puposes.

Employee A is the question: Must we use 10/1/03 to 6/30/04, or can we use 1/1/04 to 6/30/04 as the period of plan participation?

Existing plan has its first restricted distribution for an HCE. Given this is the first restriction in the history of the plan obviously no prior method or pattern for determining current liabilities and assets have been established pursuant to Treas. Reg. 1.401(a)(4)-5(b)(3).

Is there a "consistent and reasonable" approach that would allow for this calculation to be performed ONLY annually (e.g., Jan. 1st of each year) that would apply to all subsequent HCE terminations for that plan year ? Or am I stuck re-doing this calculation multiple times during a given year at different dates if more than one HCE terminates and requests a distribution ? Thanks in advance for any opinions/thoughts.

Maybe my brain isn't working too well today, but I'm having a hard time figuring out exactly what is meant by one part of the IRS' Februrary 16 News Flash on the IRA rollover provisions.

The News Flash says:

"Many plan sponsors have indicated a wish to comply with section 401(a)(31)(B) by reducing the mandatory cash-out amount to $1,000 (or $200) or by completely eliminating mandatory distribution provisions. . . . Plan sponsors are reminded that, under Notice 2005-5, amounts attributable to rollover contributions are included in determining whether a participant's accrued benefit is less than $1,000 for purposes of the automatic rollover requirement of section 401(a)(31) even though those amounts are not taken into account under section 411(a)(11) in determining whether mandatory distributions ar permitted."

As an example, let's say an employer amends its plan to reduce the cash-out amount to $1,000, and the plan provides that rollover contributions are not taken into account in determining whether a cash-out will be made. Assume a participant terminates employment with a balance of $4,000, $3,500 of which is attributable to rollovers. Under the plan, he can be cashed out without consent. Is the News Flash saying that if the participant doesn't make a rollover election and doesn't elect to receive it directly, it must be rolled into an IRA? Would it make any difference if the account balance was $10,000, and $9,500 of it was attributable to rollovers?