A 2/3 owner in a Salon also has a Sole-Proprietorship, in which she pays herself for services performed in the Salon.  She maintains a Solo-401(k) for her Sole-P, which she maxes out.

Is this an Affiliated Service Group, or does a Salon not qualify under the definition of a Service Organization?  

Thank you

Can a refund resulting from a failed ADP test be used to satisfy RMD requirements for Key Employee in a 401k Plan?  

Thanks.

A shareholder is creasing to be a 5% as of 12/31/2017 and will continue to work at the company.    He turns 70 1/2 in 2018.   

Since he is not a 5% owner in 2018, is it correct that he does NOT have to start taking RMD's from the plan until he retires?  

A plan uses the alternate safe harbor for 414 comp, excluding fringe benefits, deferred comp, welfare benefits, etc., for purposes of allocating their nonelective contribution.

Additionally, now the client would like to exclude overtime and bonuses.

Question, for purposes of the compensation ratio test, am I starting with my alternate 414 comp as my base for the test, and using only the excluded overtime and bonuses in the ratio.  Or am I starting with all compensation, and excluding all of the excluded comp in the ratio.

For example, assume total comp of $50,000, including $1000 in fringe benefits and a $5000 bonus.

Is the compensation ratio 88% ($44000/$50000), in other words, starting at $50k and reducing comp by all of the excluded comp?

Or is the compensation ratio 89.8% ($44000/$49000), in other words, first reducing the $50 by the $1000 fringe to arrive at a "base" 414 comp, then excluding the bonus?

Hopefully I've phrased that correctly, and appreciate any insights.

Thanks.

Hi All:  Appreciate comments on the following question:

If a calendar year 401k plan changes it's eligibility computation period from anniversary year to plan year - the amendment is effective 5/1 - rather than 1/1 - how does that affect a participant that was hired on 9/10/2015?  One year of service for eligibility (1000 hours).  1 YOS would be 9/9/2016.  If not 1000 hours during this period - we look at 9/10/2016 - 9/9/2017.  But the amendment was effective 5/1/2017 - so do we look now at plan year 1/1/2017 - 12/31/2017 or does it switch to plan year for the 2018 plan year (prospective from the date of the amendment)?  If this is not clear enough or if more facts are required, let me know and I'll try to elaborate.  Thanks!

Facts

Owner - O owns 100% of Company A

In October 2017 - O sells 60% of Company A to unrelated 3rd Party

Owner - O starts Company B which he owns 100%

Company A is an on going concern with employee staff

Company B is new company that employs 2 employees, both of whom will be  highly compensated plus the Owner.

Owner O wants to set up a plan that excludes owner O but covers the 2 employees of Company B.

Company A and Company B are both calendar year tax payers.

For Calendar Year 2017 Company A and Company B are a controlled group.

For Calendar Year 2018 Company A and Company B will not be a controlled group assuming there is no change in ownership.

There are no affiliated service group issues to consider with Company A and B

Questions

1. Can company B establish a profit sharing plan for calendar year 2017 covering only the new hired non-owner employees of B with out covering any employees of A? I believe this is yes because the newly hired employees would both be non-highly compensated employees as they had no pay from Company B in 2016.

2. Does this change if the are being hired from A where they earned over the dollar limit in 2016 to make them an HCE is company A in 2017?

3. Can they start a DB plan for calendar year 2017 for company B not covering A? I believe this is a big no as 401(a)(26) would be problematic.

4. Can Company B start a DB plan effective November 1, 2017. Have a non-fiscal year plan running 11/01/17 - 10/31/18 and ignore Company A altogether as the transaction was completed in October 2017.

A NHCE participant was proactive for 2017 and realized his deferrals into two unrelated plans were over the 402g limit and requested a distribution of the excess.  The distribution was done from the currently employed plan that we administrate.

From the 401k Plan Fix It Guide:  Excess deferrals distributed to highly compensated employees are included in the Actual Deferral Percentage (ADP) test in the year the amounts were deferred. Excess deferrals distributed to nonhighly compensated employees aren't included in the ADP test if all deferrals were made with one employer.  (Emphasis mine)

Just so I am doing this correctly, the overage stays in the ADP total for the year because of the unrelated plans?  I guess that makes sense... the employee could manipulate the two unrelated plans if they were devious.

Hi, 

Probably a very simple question, but I couldn't find any guidance.   If the plan was closed and distribution was done early in the year, say March 2018, and you need to file 5500 for the short plan year of 2018, which year 5500 form should you use? I asked this because it seems you should use the year 2018 form 5500, but the year 2018 form 5500 will not be available until the early months of 2019.   Can you just use the year 2017 form 5500 for the short 2018 plan year? 

During 2016,  a  $4000 deferral by the  owner of a company was incorrectly put into an old IRA rather than into his 401k account. This error was discovered during year end reconciliation and preparation of the 5500 in early 2017.  The error was made by the asset platform/broker's office.  However, now to transfer the funds, they want us as the TPA to write a letter saying something like "the plan accepts this rollover".  There should not be a rollover, since it never should have been put into the IRA.  Has this happened with any of your clients, and how was it resolved?  .  The asset provider is wanting to prepare a 2017 1099R.   Again, they made the initial mistake of putting it into the IRA.   Now we are supposed to jump through hoops to cover them.  Thoughts?  

Employer was not updating participants deferral changes they made on the Recordkeeper website. The plan is 3% Safe harbor, so no matching to worry about.

So if a plan missed updating a deferral for all of 2016 and 2017, do they to do any corrective remedies?  Participant believed they were deferring 8% Roth, but the payroll was only deferring 7%.  Basically $15 per pay period difference. 

Is the link below relevant, or does it not apply because these are Roth contributions?

https://www.irs.gov/retirement-plans/fixing-common-plan-mistakes-correcting-a-failure-to-effect-employee-deferral-elections

If a QACA plan provides for permissible withdrawals. If the plan has a under saver sweep does permissible withdrawal apply to it? Meaning can a participant who opted out of a under saver sweep request a permissible withdrawal if they opted out within 90 days from the date of the sweep.

If a plan allows life annuity distributions, but requires the payment of a single lump sum to an insurance company to purchase a single premium annuity, do the QJSA rules apply?  

SCorp filing as LLC.

Only owners in business and each owner receives K1 and a W2.  Would I do the S/E Adjustment on the K1 income and then add full income on the W2 for total income for calculation purposes?

Thank you.

I am trying to get a definite answer on this question, any prior discussion seems to skate around the issue. Can a Plan Administrator use forfeiture assets to fund the lost opportunity cost portion of a missed discretionary contribution (i.e - Profit Sharing)?

I am certain that forfeiture assets cannot be used to fund the lost opportunity cost portion of "required contributions" (either employee or employer) because this is in direct violation of a fiduciary's "Prudence Standard" as well as a Prohibited Transaction, accordingly, when these types of contributions are delinquent the plan has a claim against the employer. However, Field Assistance Bulletin (FAB) 2008-01, specifically states that "employer contributions become an asset of the plan only when the contribution has been made". Under this definition because the contribution is not late it cannot be a PT; but does the fiduciary still have a duty to collect creating a claim against the employer for the lost opportunity portion.

I am inclined to say that forfeitures cannot be used to fund the lost opportunity cost portion of a missed discretionary contribution. I don't see any language that qualifies the lost opportunity cost as an expense eligible to be pulled from the forfeiture account, and transferring the lost opportunity cost from the forfeiture to the participant does not make the plan whole.

Are there any grounds to have a participant's deemed distribution within a 401(k) plan reversed? Are there any reg's that might list certain criteria that must be met? The loans deemed status occurred in 2017, if the record keeper already submitted the 1099-R is there a precedence for reversing it? Lastly, if there are grounds for reversal is it required that the process go through VCP?

Your help is appreciated. 

A owns 100% of the stock of corporation Z.   A, B and C are equal 1/3 partners in partnership X.  Under these attribution rules does partnership X indirectly own A'z stock in Z?

267(c)(1) and the regs thereunder  state that stock owned "directly or indirectly" by a partnership is deemed to be owned proportionately by the partners.    267(c)(3) says and individual who is a partner and who owns directly or indirectly through application of (c)(1) stock in a corporation is deemed to own any stock held by his partners.

In Who's the Employer 6th Edition, Q 17:7 Example 17.7.2 describes a case where Mike owns 100% of a corporation, Sam owns 100% of another corporation, Sam and Mike are partners in a separate partnership, so Sam is deemed to own Mike's stock in his corporation.    So in this example Sam has no direct ownership of Mike's stock, so he can't be deemed to own it under (c)(3) unless he is deemed to own it indirectly through the partnership.  But I don't see where 267 says that a partnership is deemed to own the stock owned by its partners.  It appears to be assumed in the example.

Appreciate any insight.

Plan with highly compensated employees only - can they max out on 401k deferral amount (no testing)

The client received a letter from the their record-keeper letting them know that Millenium Trust will handle the automatic rollovers effective next year and inquiring whether they want to reduce the automatic cash out threshold from $1,000 to $0.  If I understand correctly, this means that all terminated participants who did not make an election and have a balance below $5,000 will automatically be rolled over to Millenium, instead of processing a lump sum?   If the account is $200 and the distribution is $50, $150 will be rolled over instead of issuing a check to the participant.

Can that be done? Reduce the rollover threshold to $0? 

A 15-year old has a specific fishing license in Alaska that allows him to make earned income from fishing. They receive a Form 1099 as a sole proprietor. CPA confirmed they are not an employee.

Can a 15-year old obtain a business EIN and then set up a 401(k) plan based on their net earned income, or is there some minimum age needed to be able to do this?

Owner is the last one paid out.  He makes small contribution to hit his 415 limit for his rollover.  Subsequently a trailing dividend posts to the account.  Plan does not provide for reallocation of excess assets to participants.

Can you treat that as intrinsic to the assets transferred to his IRA and roll it over or do you have to/would you transfer it to the PS Plan and allocate there as excess DB assets?

Thank you