Lori H

MJB You are correct, the schedule C DOES report the correct staff reduction of 14365. Line 31 on the Sched C reflects "Net Profit" of 337975, but when the calc of the SE Tax they reduce Line 31 by 91501 in a "Nonpassive Loss" from his K-1 and calc the SE tax on 246474. I'll refer to Pub 560 to see what I might be doing wrong, but I have an illustration of a 25% money purchase pension plan. In it it shows gross income of $250,000 various expenses totaling $157,500 of which $75,000 is staff salaries and $18750 as staff contribution or TWENTY FIVE%. Therefore the earned income before SE contribution is $92500, one half of SET is 7076 which leaves 85,424 and the illustration calculates the SE contribution as (.25/(1.25)x85424 or 17084 which is 20% of 85,424. So the staff got 25% and the SE got 20%. I understand that this is a MPP example, but what am I missing???? everything???

What if the prototype document does NOT address this. I.E. corbel. Is there a citation that states an unmarried deceased participant that did not designate a beneficiary, their plan assets will go to their estate?

Q1 Why do now believe that the contribution for staff was only 16.67% instead of 20%? I did not state that, the STAFF received 20% and the TEFRA equivalent to self employed is 16.67%. After obtaining his 2005 1040, line 22 TOTAL INCOME was 270,548 from that he deductions of 8881 self employment tax, $42K his p.s. allocation, and $1220 self employed health ins. total AGI of 218447. Incidentally, they deducted 18,792 as pension and annuites line 16a which is 4428 higher than what was actually allocated. The accountant takes the numbers used in allocation illustrations and uses them in the return. Why there is a 4428 discrepancy, I am about to find out.

I'm obtaining the 2005 return for this doctor from their cpa. I am of the opinion the staff did not receive their fair share of contribution for "x" amount of years. a 20% allocation to the staff would equate 16.67% to the SE under TEFRA, so as a possible solution, how about allocating a portion of the SE account balance to the staffs and go back as far as the Statute of Limitations allows?

I'm thinking no

he could pay any loans back from his practices plans with money he makes at his current employer, true?

I'm aware that he maintained 2 plans in order to max out, but you can accomplish that with PSP only now effective what? 2002? I'll bring up the contractor option to his advisor. As for his plan under his new employer, I don't think he's too keen on the investments they offer.

Well what raised my eyebrows is that he even has two plans. He actually told the advisor that "what does it matter what my practice does, if I wanted to raise cucumbers, why can't I continue the plans". All his employees have been paid out.

Thanks for the replies and sorry if my posts are lacking. The staffs salaries for 2005 py were 71,823. They received a total allocation of 14364.60 or 20%. The census info for 2005, keep in mind we were under the assumption it was an LLC taxed as a corp, stated the doctors comp at "over 210,000". Now that we know that he is actually self employed and let's say his net income AFTER self employment taxes just happened to be 210,000 or higher, then the formula for his contribution in order to max out would have been (.25)/(1.25) X 210,000 or 42,000 and the staff should have received 25% of pay or 17955. Yes?

a stubborn doctor who lost his self employed practice to Katrina currently works for another doctors group. His practice, not his new employer, has a profit sharing and a money purchase plan. His new financial advisor is trying to get him to term the plans and rollover the assets into a IRA. The doctor contends that he wants to maintain the plans in the case he wants to take out a loan and invest in some real estate. When coaxed to move the funds to an IRA, he states the funds would be subject to creditors. Outside the fact of annual admin fees associated with maintaining the plans, making loan payments, having annual appraisals on land, what other reasons are there that he should really consider terminating these plans? His practice does not exist, so I would think the plans are frozen.

mjb: 20% is non-discriminatory for common employees, but as a sole proprietorship and with the TEFRA factored in, the doctor received 20% or $42K and the NHCE's received 20%. TEFRA states the max that can be contributed to self employed is 20% not 25% and if 20% is allocated to the sole proprietor, 25% must go to NHCE's. correct?

Just discovered that a company that sponsors a 401(k) actually has a wholly owned subsidiary company that has no employees and is just a pass through shell that does have its own tax ID# but no employees. The original plan doc lists no affiliated employers. Should it amend to incorporate this company or could it wait until it has employees assuming it ever does?

Anyone else having issues with this? Seems as if they have issued revised Schedule A's with new figures. Amended returns=pain in the butt!!!

A 4 participant PSP historically has been allocating contributions as a Corporation. 2005 plan year each participant received 20% of their comp as a contribution. The doctor and sole HCE, received the$42K max. We just discovered through their CPA that this company is a sole proprietor. Therefore, it appears as if the plans PS contributions have been erroneously calculated, possibly since plan inception. The Doctor comp on census has always been reported in excess of 401(a)17, with the exception of this year when their CPA advised his comp to be $212,671 as his "net self-employment earnings from the clinic before any deduction for contributions to the plan or half of his self-employement tax". This is where we discovered the sole proprietor status!!! I'm thinking that due to TEFRA, the doctor received the max contribution in previous years(20%) and that his employees should have received 25% rather than 20%. Anyone else run into a similar situation? Is this heading to a VCP filing? Amended returns, etc.???? The plans 2006 restated plan doc. as well as past docs have always reflected the business entity as an LLC taxed as a corporation.

thanks. it IS years of service, not elapsed time.

Example: Plan is calendar year. Employee hired 7/28/04. First year of service is 7/28/05 and while hours worked from 7/28/04 - 12/31/04 on the year end census show 980, we assume the participant is full time and by 7/28/05 will have worked 1000 hours and is credited with 1 year of service. Now for the second year of service, is it ok to switch to the plan year, meaning 1/1/05 - 12/31/05, to determine the second year of service, basically using nearly 8 months(1/1-7/28) of service twice, OR should the second year just be determined from 7/28 - 12/31/05 and years of service thereafter follows calendar year

A sponsor maintains a pension plan(plan number 001), several years later they are sold a 401(k). The seller, fully knowing the existence of the pension plan, assigns plan number 001 to the 401(k). Any suggestions on changing the pn for the 401(k)?

so he could do the additional 6K pre tax to his own plan as long as total 415 annual additions do not exceed $49K with catch up?

an adviser(age 59) deferred appx 19,000 in his financial company's 401. $14K was pre tax and $5k was pure after tax dollars, not Roth. could he defer the additional $6k pre tax into his own companies plan?

In which year does the company report the contribution? The corporate tax year is a calendar year and the plan year is 10/1 through 9/30. For example, the 2005 py is 10/1/05 through 9/30/06. The corporation will pay the contribution before filing the corporate return (I assume by April 15, 2007). Would they include the contribution on the 2006 tax return? Thank you.

I believe the default NHCE ADP is 3% where you do not have any NHCE's eligible, therefore, 5% would be the maximum HCE ADP to avoid excess deferrals.

I'm thinking a 401(k) has to be in effect for at least 90 days, but can't be certain. Can the first plan year be a short plan year of let's say 60 days?

Our government in action. Thanks a heap for the link WDIK

Has anyone ever had the problem where a Trust EIN is rejected on a 1099-R? This does not make one bit of sense. The employer gets a qualified plan, a ein is issued for the trust, a participant terminates and is paid out, the trust issues a 1099-R, the participant files his/her tax return and the 1099-R gets rejected. Is this due to inactivity with trust. This seems to happen from time to time especially with small employers who have few and far between distributions. Makes absolutely no sense :angry: What next? Apply for a new EIN? Use employer EIN on 1099R?

so reissue w-2's? and austin what exactly to you mean by elections? thanks.