David D

@Artie M Thanks for the additional research. I am still wondering though if the $10,000 excess that can exceed the 415 limit now would mean $10,000 plus the regular 415 limit of$2,633 for a total allowable amount of $12,633. Then the amounts contributed would be below that.

@KaJay Sorry, I missed that on your update. @Artie M Has been years for me as well. I don't believe it is ever a 402g failure, but a 415 failure. As to whether the special $10,000 can be a combination of EE deferral and ER contributions I do not know. If it can, then there is no 415 violation. If it cannot, then the excess 415 limit is the roth deferral over $2,633 as the tax person suggested. I believe 415 limit excess must be refunded by the December 31 following the plan year, so you would have until December 31, 2025.

@KaJay Thanks for the clarification. So it sounds like the tax professional has determined this individual is an an employee and not a self employed individual. Again, for 415 purposes the plan limit is 100% of plan compensation. If there was no other income other than the housing allowance, this is a 415 violation of 100% of compensation. IRC Section 402(g) limits the amount of retirement plan elective deferrals you may exclude from taxable income in your taxable year, which is generally the calendar year. Your 402(g) limit for 2024 is $23,000 (2023 is $22,500; 2022 is $20,500; etc.). If the only compensation for plan purposes is zero, then there is no compensation to defer any money into roth or pre tax Since they are allowing up to an additional $10,000 in EMPLOYER contributions, the employer contribution can stay, but the entire deferral and earnings are disallowed. This remains roth as you cannot change roth contributions to pre-tax contributions after the fact. It's been a while since I encountered this, but I think the $10,000 amount you are referring to is a lifetime limit, not a per plan year limit.

My first question would be were not the Roth Deferrals withheld from the wages? How would they withhold more than wages paid? Secondly, IF those deferrals exceeded 100% of compensation, then it would be a 415 violation, not a 402g unless the person had large deferrals elsewhere in 2024.

FWIW, I have heard some actuaries argue that if you are bringing someone in early that has not met the age/service requirements for 401a26 purposes, you need to expand the number in your 401a26 count to include those similarly situated ees you are not bringing in. Also, if top heavy you would want to bring them into both plans unless you want to give the TH Minimum in the DB, which is probably not want you would want to do.

Doesn't the SEP say everyone gets the same percentage of compensation?