If a company wants to convert from an S to a C so that the owner/seller can make a 1042 election, will the owner have to then wait three years to meet that holding requirement of 1042? Or does their ownership of the S stock (assuming for three years) tack over?

I could have sworn that the ownership "tacks" but I can't find much support out there. If anyone has some support, I would appreciate it.

Thanks!

Another oddball. Dr. has a practice. A clinic purchases his practice, and hires him or her as an employee. Clinic pays the Dr. large quarterly payments for a year, based on large revenue from Dr.'s former clients. Apparently, this is "run through" payroll, but I have no details of what that means yet.

First, it seems odd that these would go through payroll under any circumstances - seems like they would normally have been 1099 payments to the prior entity. But what I think doesn't matter. Since being "run through" payroll, and plan defines compensation as W-2 wages, wouldn't these be considered for purposes of employer contributions?

So, suppose someone has a split dollar insurance arrangement with their employer. Reaches normal retirement age, and is eligible to have the life insurance policy distributed.

Is this treated as "wages" for purposes of contributions to a qualified plan? While distributions from non-qualified deferred compensation plans are generally considered includible for W-2 purposes, if it is a distribution of a life insurance policy, I don't see how any withholding could be done from payroll. I suppose it could count for purposes of an employer PS or SH non-elective.

Anyone dealt with this before?

P.S. - if instead, the policy is surrendered and the cash value, or a portion thereof, is distributed to the employee instead of the policy, then I assume it would be treated as wages.

But in either scenario above, if the only way the employee can receive the benefit (policy or cash) is to terminate employment, then this would be ineligible "post severance" compensation, and not included for plan purposes?

I am looking for some guidance on how to address the calculation of earnings on a QNEC, specifically how to handle the calculation of earnings for the lag time between the funding of the QNEC and when it actually hits a participant's account.  I am being told by the record keeper that there may be as much as a 3-5 day lag between the time the employer's bank account is debited for the QNEC (plus earnings thru that date) and when it actually is deposited in the participant accounts.  They propose calculating earnings up to the day the money leaves the employer's account.  I read EPCRS to require earnings up to the date the "contribution is made" to the participant account.  For some reason they are balking at carrying the earnings calculation forward to account for this possible lag time.  It would be helpful to provide them with some official guidance, etc. addressing this.  Any help would be appreciated!

Client wants to use the following formula for allocating the match to participants.

0-2 Years of Service - 0% match

3 or more Years of Service - 100% match up to 5% deferrals.

Eligibility conditions for match are 1 YOS (1000 hours) semi-annual entry dates.

I know that eligibility and allocation are not the same thing, but is this allocation formula an allowable one?  In essence they are keeping a participant out of the match for an additional 2  years.

Participant dies with no beneficiary form on file. The document establishes payment of benefit to:

1. Spouse (no spouse in this case) 2. per stirpes (4 children) 3. surviving parents 4. estate

An attorney for the estate is trying to tell the plan sponsor they must distribute benefits directly to the estate due to the estate documents. My response is "no" we must follow the plan document. Is there an instance where the attorney could do something to override the form of payment in the plan document? 

One thought is all four children and parents disclaim their benefits under IRC 2518. The funds then are paid to the estate.

Thank you

Participant passes away and does not cash a few months of pension checks received before his death.  He was receiving a single life annuity.  Under the terms of the plan, the amount of the un-cashed checks is payable to the participant's beneficiary in a single, lump sum.  Is this one-time payment part of a series of periodic payments not eligible to be rolled over?  Or, could it be characterized as a non-periodic payment because it is being paid in a lump sum?  Not sure how to handle this.

Am I crazy, or will a Schedule C Taxpayer pay less in Medicare Taxes than a corporation?

$200,000 of profits bonused to a W-2 owner = payroll taxes of: 10,100.54

Gross: 200,000

SS Tax: (7,347) (118,500 x 6.2%)

MC Tax: (2,753.54)*

*200,000 - 7,347 - 2,753.54 = 189,899.46

189,899.46 x .0145 = 2,753.54 (circular calc)

A Schedule C pays Medicare Taxes of 2,678.15 ($200,000 x .9235 x .0145)

Correct??  I guess the IRS's point is don't overcomplicate for such a small disparity?

Suppose you have a client that has a few leased employees and you determined that they are substantially full time, at the direction of the recipient etc. In other words they will need to be covered under the employers (recipients) plan.

If the plan sponsor pays $50k per year to the leasing company, it is likely the employee only earns about $40k per year. How does the employer report this to the administrator? Do they need to obtain something from the leasing company showing the real wages of the leased employee (maybe a W-2)?

Thanks.

An employee is turning age 65 this summer and considering retirement. Our plan is frozen.  He says he'll choose a lump sum as his payment option. Now he sees something in the newspapers that his lump sum may be higher if he continues working into early 2018 and has asked me how much higher his lump sum will be. As a rough percentage what is the increase likely to be? The plan's actuary has told me what the 2017 lump sum will be but says he isn't ready to do 2018 calculations yet.  

If I wanted to read something in layman's language on this topic please direct me there.

I have read online that 401K plans can adopt provisions to enable after-tax contributions *beyond* the $18K/$24K limits of contribution into a Roth 401K.   Such a provision would enable an employee to contribute the amount to bring the total 401K annual contribution up to $53K/year.    Can anyone refer me to pages that describe these plan provisions in more detail?

Some gateway issues that I would appreciate feedback (and hopefully confirmation) on.

Easiest to put it in example form:

Two participants for 2016 in 401(k) plan with safe-harbor and new comparability profit sharing allocation.
HCE - age 60 - $265,000 salary, $24,000 401(k)
NHCE - age 30 - $50,000 salary, $5,000 401(k)

A) If the safe-harbor were the match and the HCE got $10,600 as SH and $24,400 PS to get to $59,000 maximum would the NHCE need to get $2,000 SH and $1,535 PS based on the gateway being 1/3 of 9.208% ($24,400/$265,000)?

B) If the safe-harbor were the non-discretionary 3% and the HCE got $7,950 as SH and $27,050 as PS to get to the $59,000 maximum would the NHCE need to get $1,500 SH and $701 PS based on the gateway being 1/3 of 13.208% ($35,000/$265,000) and the non-discretionary 3% SH considered as part of that minimum gateway for the NHCE?

C) If the NHCE above terminated employment during 2016 with over 500 hours would their PS allocation change under A or B above?

D) What if the NHCE terminated employment during 2016 with under 500 hours?
 

We just received W-2s for one of our plans.

The W-2 lists 401(k) contribution as well as Roth, the total of the 2 is over $18K.

The plan allows for participant voluntary contributions and the accountant is willing to redo the W-2s.

Any problems?

POP Plan, New employee elected to have his share of premiums withheld from his pay. Health coverage was provided, but payroll service never informed of the election, so no 125 Plan withholdings from pay. Error discovered several months later, after the end of the year.

What would most do in this case? Try to recover the missed amounts over the remainder of the current year on pre-tax basis; recover over the remainder of the year on after-tax basis, or the employer just absorbs the cost? Or something else?

How do you interpret 1.409A-1(h)(2)(ii)? Does it require that a distribution from a 409A plan to an independent contractor be delayed for 12 months from the date of the expiration of the contract(s)?

Plan wants to offer auto-enrollment.  Can I have a basic SH match with it, or does it have to satisfy the QACA match?

All,

Thanks in advance for your help. EPCRS has clear ordering rules for correcting excess allocations. See 6.06(2). When a 415 failure is attributable to both employer contributions and elective deferrals, unmatched after-tax employee contributions and unmatched elective deferrals are reduced first. However, these rules do not seem to apply to the correction of excess amounts. My question is does anyone know of any ordering rules when making corrective distributions of excess deferrals (i.e., Roth before Traditional or LIFO or unmatched before matched)> Neither EPCRS or Treas. Reg. 1.401(g)-1(e) seems to provide for anything other than making sure it is "reasonable."

Thanks again!

We have some unresponsive SIMPLE IRA participants who are terminated with their employer.  Is it possible to do some kind of "force-out" distribution similar to 401(k) accounts under $5000?  I am struggling to find specific information about this process.  Thanks!

Here is background:  client sold a portion of Company in May of 2016 and a large group of employees transferred to the new Company and were treated as termed under the old for payroll, benefits, etc.  The original plan remains in effect though much smaller.  (Partial termination rules applied)  Original plan has last day rule for profit share but does allow that termed participants who meet early (age 55 and 10 yrs) or normal (age 65) retirement will receive an allocation regardless of hours worked.    So....original Company intends to make a profit share for 2016.  Are those participants who went to the other Company that fall in to the "early" or "normal" retirement categories eligible to share in the profit share for the old Company?  I thought yes at first but then the question was asked because they did not actually "retire" but rather went to work for the other Company.    Thanks in advance.

I am not sure if I have an open MEP or a closed MEP.  We have an employer owned 100% by the wife, and her company A sponsors the plan.  The husband has a completely different company B where he owns 100%, but to save costs, he has adopted Company A's plan as a participating employer.  There is no crossing of employees, separate payrolls, and no direct ownership of the other's company.  The companies also do completely different things from each other and have no commonality in business dealings.  Is the family attribution between husband and wife enough to make this a closed MEP, or is it an open MEP? (it doesn't actually matter, we just want to report it correctly for this first year)