David D

For tax deduction purposes, contributions to the Sole Proprietor account must be made by 10-15 assuming an extension was filed for the personal taxes. That goes for both employee and employer contributions. He cannot deduct anything for 2024 unless other money was timely deposited.

The employee can still contribute to the 403(b) plan, they just don't get the immediate tax benefit. For those of us in the business a long time, there was a time when 401(k) pre tax deferrals were not recognized for state tax purposes. I live in CA and they still don't recognize HSA contributions for income tax purposes.

You would also want to review the plan loan policy in place. Most loan policies that i see say that if a participant defaults on a loan, that participant cannot take another loan.

In that case it does not, but unfortunately many accountants are against paying Self Employment Tax or payroll taxes on wages, so we often see a client incorporate as an S Corp and pay little to no wages and seriously reduce or eliminate their ability to make pension contributions.

RMD's are on the total account balance of the pre-tax assets, so $620,000

I would test the plans together again, but now rather than using the credits in your val you use the credits plus the excess you are allocating to see that it passes. It seems to me that you would need to give something to the other in the CB plan as you will be amending after the plan term date and the amended credit would not pass on it's own as only the owner would get anything.

I have only set up a QRP when the owner is limited by 415 on plan termination and cannot be allocated the excess. Most plan documents allow for the allocation of assets in a non discriminatory manner on plan termination. Whether you need an amendment to allow for the maximum deductible contribution made prior to December 31, 2025 depends on whether the amount contributed during the year is less than the allowable maximum or not.

Are you actually trying to exclude existing participants from participating in the plan, or just excluding them from being eligible for a Safe Harbor Contribution?

Yes,. if you have determined they are still a controlled group after the Family Attribution Rule changes of SECURE 2.0 they can have one plan. If not, as CUSEFAN suggested, they could have a MEP.

One additional step the client may want to do is immediately on making the After Tax Contribution, convert it to Roth so that there is no tax on the earnings. It also might be good reinforcement to tell the client although you contributed $180,000 in this example, only report and deduct $100,000 on the 1040.

One issue might be passing 410b coverage on it's own. Often an advantage when adding a second plan of an employer is to have different testing methods or allocations, which you most likely would not be able to do with this plan. They would simply be paying for administration of two plans rather than one.

What you stated in your original question is why typically when you have a 401k plan with a cash balance not subject to PBGC, it is better to have a Safe Harbor Non Elective plan than a Safe Harbor Match plan in regards to staying within the deduction limits when trying to pass 401a4 testing.

I think clarification is needed on this. If the owners of the company are sponsoring a 401k plan, it's either an incorporated business for which they are not being paid wages, therefore cannot defer, or it's unincorporated in which their income should pass through to their Schedule C or K-1 as self employment income. Typically the business would pay independent contractors via 1099, but it doesn't seem right that the owners of the business would qualify as independent contractors. It seems to me they are already eligible for the plan they sponsor unless specifically excluded. The only potential qualification issue is if they sponsor a Safe Harbor Non Elective 401k plan and were entitled to Safe Harbor Contributions based on their SE income and did not make that contribution.

You need to check the document. The old Keogh Plans did not offer Salary Deferrals, only ER Money, so it may be a solo K plan that is being called a Keogh because the owner is Self Employed.

5500 EZ's must always be filed in the year the plan is terminated and distributed, so you would be filing both a first return and a final return in one filing

I believe the issue here is the limitation year. You cannot have a limitation year that precedes the date of incorporation, so that first year would be pro rated.

Absolutely. My guess is that somewhere in the doc it would address self employed individuals, but not certain

You also need to check how the plan document defines After Tax Contributions. Many I have seen say that After Tax Contributions are made from Gross Wages paid to the employee during that tax year and withheld from pay, not submitted from other funds the participant may have access to.

I have found it most practical to create the document closer to the time the client is ready to fund. I can't tell you how many plans were created in December when the client had tons of money, only to find out later when it was time to fund in September that circumstances had changed, and they did not have the needed funds.

Keep in mind with FICA taxes, Gross Wages of $23,000 will result in a deferral amount less than that, so that is where there is a little room for a PS allocation.

The extension applies for the deduction and the PBGC premium payment deadlines, but does not apply to the minimum funding deadline.

This would definitely be the employers decision. And it would seem you would need to have the 2023 Form 5500 amended if you want to reflect participants with account balances to be less than 120 at the end of the year.

The Discretionary Match notice requirement was part of the Cycle 3 Pre-Approved language. IRS originally wanted to eliminate the discretionary match altogether as they felt it did not satisfy the definitely determinable requirement under Treasury Regulation §1.401-1(b)(1)(ii). They compromised and allowed it with two parts 1) The Plan Sponsor communicate in writing to the Plan Administrator/Trustee, and 2) The Plan Sponsor/Plan Administrator communicate the match to the participants so that the match is definitely determinable to participants. I believe that language is in all Cycle 3 documents.

A word of caution, only because I have seen this misunderstanding before (more than once) - just because a person takes a hardship that does not mean they stop making loan payments.

I seem to remember that if a participant has 402g excess from 2 unrelated employers, once the April 15 deadline is missed the money cannot be returned. That's the double taxation of being taxed in the year it was made, then taxed again when it it ultimately distributed once a distributable event occurs. I am not aware if that rule was recently changed. I am not clear if the medical K plan and the hospital 403b plan represent unrelated employers from the original post.