401(k) plan was terminated in 2018. Due to a recordkeeping error, assets were incorrectly distributed to Employee A instead of Employee B.  Plan sponsor needs to correct the overpayment to Employee A and the incorrect distribution (i.e. underpayment) to Employee B.  

How is this done if the 401(k) plan and trust have been terminated?  They can recover the overpayment from Employee A, but how is it formally returned to the plan and distributed to Employee B if the plan has been terminated? Do they need to rescind the termination?  

Employer currently has a Model 5305-SEP and wants to add a CB plan - they cannot use a 5305-SEP with a CB plan, so they will need to establish a new SEP. 

Once they are able to find a provider to prepare the new SEP, will the new SEP be an amendment to the original 5305-SEP or a brand new employer plan? 

If it is a new employer plan, will the current participants in the Model 5305-SEP be allowed to roll their money into the new employer SEP plan?

We have an existing SEP (20 HCEs and 1 NHCEs) with 25% employer contribution each year for each participant.  Employer wants to add a Cash Balance plan but does not want to leave the SEP arrangement and go with a PS/401(k) plan.  So we will have a SEP (not a 5305-SEP) with each participant continuing to receive 25% each year and then certain of the HCEs receiving some amount of allocation/funding into the CB plan.  The NHCE will be allocated whatever is necessary.

Is this a viable arrangement?  What is the tax deduction limits for a set up like this?  Can we allocate 25% in the SEP and also what is necessary in the CB and not exceed the tax deduction limits?

Are we allowed to consider what is allocated in the SEP for the NHCE when determining what the NHCE must receive in the CB plan just like we normally do when we have a PS/401(k) arrangement alongside a CB plan?

A terminated participant has a vested account balance of less than $1,000.

Per the terms of the plan will make a mandatory distribution of account balances that are $1,000 or less. The distribution will be made as soon as administratively feasible.

The vested amount is >$200, must the participant sign an election form?

Cross-posting from 457 plans:

Quick question on reporting 457(f) distributions. Say you have a 457(f) plan that vests in a fixed amount (say $500,000) in one year but is paid in installments (say 5 years at $100,000 starting the year after vesting).

Setting aside for the moment the issue of present value, the employer would report all $500,000 as taxable wages on a W-2 in the first year. Later distributions would be subject to tax under section 72, which would require no further taxation upon distribution.

In the installment years, do the $100,000 non-taxable distributions get reported anywhere?

Section 4.72.19.27 of the IRM says the following, but it's not clear what the employer reporting requirements are (if any):

For any amounts previously taxed, but not distributed from a 457(b) or 457(f) plan, the participant will have "basis" on that amount and is not required to pay tax again at the time of distribution. It is the individual’s responsibility to report this on Form 1040 for the year distributed. See IRC 72 for additional guidance on basis. 

Thanks in advance.

Quick question on reporting 457(f) distributions. Say you have a 457(f) plan that vests in a fixed amount (say $500,000) in one year but is paid in installments (say 5 years at $100,000 starting the year after vesting).

Setting aside for the moment the issue of present value, the employer would report all $500,000 as taxable wages on a W-2 in the first year. Later distributions would be subject to tax under section 72, which would require no further taxation upon distribution.

In the installment years, do the $100,000 non-taxable distributions get reported anywhere?

Section 4.72.19.27 of the IRM says the following, but it's not clear what the employer reporting requirements are (if any):

For any amounts previously taxed, but not distributed from a 457(b) or 457(f) plan, the participant will have "basis" on that amount and is not required to pay tax again at the time of distribution. It is the individual’s responsibility to report this on Form 1040 for the year distributed. See IRC 72 for additional guidance on basis. 

Thanks in advance.

Hypothetical planning scenario:  SEP IRA, Simple IRA, and a potential 401(k) plan…?  Lions, tigers, and bears… Oh, my!

A financial advisor who I work with quite a bit called looking for some help.  He indicated that his clients [Drs. Husband & Wife] are trying to maximize their pre-tax retirement savings due to the fact that their combined income is in excess of $1M annually.  The advisor has asked for some informal input.  I disclaimed this one is beyond my scope.  Since he understands not to rely on hypothetical musings, he is still grateful for any input.  We’re trying to jump-start our brains to think this through.  As such, crowd-sourcing this could help us think outside the box.  J  Here are the facts, as we know them:

Husband

• Physician – ER

• Paid as 1099 independent contractor (no employees)

• SEP IRA in place, currently registered under Husabnd’s name (Sole Prop) and maxed to IRS limit annually.

Wife

• Physician - General Surgery

• Owns practice (and has employees)

• Receives W-2 compensation from the practice (so, I am assuming tax entity is a form of corporation or files as one.)

• SIMPLE IRA in place for her & her employees with a 3% elective match.

LLC

• Financial advisor recently became aware that his clients established an LLC (no other employees, likely only the husband & wife);

• The clients’ tax advisor (an EA, not CPA – not that it matters, just more info) is suggesting the husband continues to fund his SEP IRA, BUT through this LLC.  (FYI: Per financial advisor, Husband’s SEP is currently registered under Husband’s name as a Sole Prop.) 

• Further, EA is suggesting Husband pays Wife a salary through the LLC so she may also fund SEP IRA contributions to herself… Again, her practice currently maintains a SIMPLE IRA for the benefit of her employees and herself with a 3% elective match.  This was the EA’s suggestion - NOT currently in practice. >> The advisor is concerned about the EA’s suggestion to do this.  He understands that any comp paid to Husband and/or Wife by LLC is a result of actual services performed for the LLC.  The advisor is committed to making sure everything is on the up and up here.

If the LLC were to sponsor a 401(k) plan (and we assume the LLC will have bona fide earnings/comp to Drs. Husband & Wife), then per this IRS FAQ about SEP plans, I believe Husband might be able to continue his SEP for self-employment income and also contribute as an employee to a 401(k).  However, I believe Wife cannot contribute to her SIMPLE IRA and to a 401(k) in the same year if the two plans’ sponsors are under common control, correct?  Regardless, I am sure there is a whole host of potential nondiscrimination concerns to navigate RE: shared ownership w/ the LLC and her practice.

The big question:  What are the optimal circumstances for his clients in order for both Husband & Wife to save the most advantageous IRS maximum permitted each year?  For this hypothetical, let us assume the clients are willing to make any necessary changes to meet the optimum. 

Plan Document says compensation used only when a participant.  For a calendar year plan, the participant enters plan on 7/1.  They are 3% non-elective safe harbor and profit sharing.  Do you use compensation from 7/1 to 12/31 for both sources to determine contribution? Thank you.

IRA owner dies at age 64, beneficiary is his older brother, age 69-70; brother dies at age 73 (presume he was taking RMDs), his beneficiary is his wife, age 67.  Does she treat the IRA the same as if it had originally belonged to her late husband or are there special rules because she is the second beneficiary of the same IRA?  What are her options?

Thanks!

Good morning, 

My wife has large percentage of her portfolio in her company/employer stock and we are trying to re-balance the portfolio. We are planning to sell a portion of company stock and transfer the cash to existing self-directed brokerage account within 401(k) and account is with Fidelity. 

The company’s share price is increasing, excellent management, and is a growth stock.  My question is, does 401(k) plans allow “Equity collars?” An equity collar consists of the simultaneous purchase of a "put option" and the writing of a "call option."

Most of the 401(k) administrators don’t know the nuts and bolts of finances. What is the best way to ask the administrator about “Equity Collars?” Could we transfer the shares to 401(k) self-directed brokerage account and use equity collar?

My wife doesn’t want to send a wrong signal to her employer by selling a large portion of company stock. Any suggestions and comments will be appreciated.  Thanks, Dabu.

if a business is an s-corp and the owner has 2% shareholder health insurance, is this part of their compensation that can be used for calculation purposes?  I don't think so since not subject to SS or Medicare?

Parties divorced and QDRO, prepared, qualified and signed by court. Sent to pension administrator. When distribution is made to Participant, nothing was sent to AP.

Who is wrong?

Company A and Company D are an Affiliated Service Group

Company B and Company D are an Affiliated Service Group

There is no common ownership between Company A and Company B

I understand Company D is included in the testing for Company A and also for Company B. Here is my question, does Company A and Company B need to be tested together? Does the ASG between D and these to entities require them to be tested together?

Is there an  issue if  eligibility/benefits under A and B are different?

If I read one more thing about ASGs I think I will scream. Having a root canal is better than figuring out ASG rules!!!

I am the CPA for a group of Doctor's who have a Cross Tested 401(k) & Profit Sharing Plan. In reviewing the Plan valuation report / Form 5500, I am not 100% sure that the TPA is doing this right, based on my limited understanding.

3 Doctors, all are HCE with income in excess of $275,000

6 NHCEs (Ages anywhere from 20-70, but most younger)

All eligible employees are participating, and the doctor's are contributing the $18,500 plus catch up.

Everyone gets a basic Safe Harbor match - 100% up to first 3% of wages, 50% of the next 2% - for a 4% Safe Harbor Match.

The HCE are getting a profit sharing contribution of $25,500 (9.27%) to get them to the max total contribution of $61,000.00

The NHCE simply get an across the board 3.09% (1/3 of 9.27%) profit sharing contribution.

Is this how the Gateway Allocation test is supposed to work?

My information seems to suggest that the Safe Harbor match goes in to the Gateway Allocation %....so if the HCE's are getting 4.00% + 9.27% = 13.27%, than the NHCE should only get a total of 4.42%.

I have a client who terminated their existing plan and transferred to a PEO.  A final 5500 Form was completed with a short plan year from 1/1/2018 to 6/11/2018 (I'm assuming this is the date all assets were transferred to the PEO plan with the plan number as 001). 

The client now wants to move out of the PEO and start a new plan sponsored by his company (same EIN as the prior plan) under plan number 002.  Since the last distribution date of the  terminated plan of the Plan Sponsor is less than 12 months, is there a successor plan issue, if the effective date of the new plan is 1/1/2019?

FYI - This is not a safe harbor plan.

If this is a successor plan issue, is the resolution to have a short plan from 7/1/2019 to 12/31/2019?

Thank you for any input.

Under the revised rules for amending a safe harbor plan mid year, the plan may not reduce the number of employees eligible to receive safe harbor contributions.

What if the mid year amendment were to exclude only the owners from receiving the safe harbor match?

Would that be possible, and if so, I'm assuming this would need to be a prospective amendment (not eff 1/1/2019)?  Owners have not deferred yet in 2019 anyway.

Thanks.

Ok so we administer a SH 401(k) plan for a local dental practice.  The dentist was the sole trustee of the plan and did all the payroll information and submission of funds weekly as his employees were paid, unfortunately he recently passed and now the office staff is trying to figure out how to submit the money that was withheld in February on behalf of the employees as it has not been done and now a bigger problem has arisen in that no deductions were taken in March for any employees.  How can this be resolved?  There is a current dentist that is in the process of trying to acquire the assets of the practice.  Whew a mess for sure.

I'm a little dense today....

I need the following paragraph interpreted for me.  It's safe harbor correction methods for employee elective deferral failures.... page 78. 

For the "No QNEC" needed.

(i ) Correct deferrals begin no later than the earlier of the first payment of compensation made on or after the last day of the three-month period that begins when the failure first occurred for the affected eligible employee or, if the Plan Sponsor was notified of the failure by the affected eligible employee, the first payment of compensation made on or after the end of the month after the month of notification;

Participant notified Employer that contributions weren't right 3/27/2019.  The deferral failure started with the first payroll of 2019, 1/11/2019.  There was an error by the Employer.

There is two pieces to the above paragraph.  The EARLIER.....?

First piece throws me off on really what it means.  Does this mean that if the Employer noticed the error, they have until first payment in April 2019 to get the correct deferrals started?

The second piece I follow, the Employer can get the right percentages coded, send the notice, make sure the appropriate match is made and move on.  The fix needs to be done in April 2019.

It appears that the EARLIER date of correction needs to be implemented by first pay of April 2019. 

Am I interpreting correctly?

Hi, can some one suggest how the IRS realizes our tax status?

I opened simple IRA from Fidelity with no corporation or no LLC. My spouse worked as independent contractor last year and filing taxes now. Can I take benefit from simple IRA. Spouse got rollover IRA though..

Thanks in advance

A plan terminates in 2018 and all assets are paid by 9/30/2018.  In March 2019, residual dividends hit a few accounts and are paid out to the participants.  I was planning to file a final Form 5500-SF for 2018 with an ending balance of $0 (accurate).  Do I need to file the final for 2019, instead?  In this case, both the beginning and ending balances will be $0 with a small amount of earnings and distributions.

If you think I would need to file the final for 2019, then I assume I would have needed to amend the file Form 5500-SF for 2018 if I had already filed it. 

I am frustrated with the investment platform because I can't imagine why dividends posted so late, although I would guess this issue is common when plans pay out final assets in December.  I did not quote the plan sponsor a fee for a 2019 filing because 2018 was intended to be the final.  I realize it is not a ton of work, but still.