Bird

fwiw, I'm not sure I agree with the concept that because the loan policy calls for payroll deduction repayments, a loan can't be made to someone who isn't on the payroll. I'm not a lawyer but I don't think that's a legal basis for denying a loan; it's just a procedural requirement to be followed once the loan is issued. I would not deny a loan to a member/partner of an LLC who is not a payroll employee. You might want to double/triple check the loan policy. Ours say "If you are an active Participant in the XYZ Plan..." (My emphasis on active.)

By now, you should have 100% confidence that you are right and the attorney is wrong. Just be firm and keep repeating "that's not how it's done." (FWIW, if it helps, I would use the phrase "not applicable" rather than "not needed" when you're talking about the TPG election.)

It's hard to believe your document isn't clear on this. Note the word "and" below. You must have something similar; maybe it's in the basic plan document. Is the attorney billing by the hour for you to explain this to him? "Highly Compensated Employee" means, effective for Plan Years beginning after December 31, 1996, any Employee who during the Plan Year performs services for the Employer and who: (a) was a More Than 5% Owner at any time during the Plan Year or the preceding Plan Year; or (b) during the preceding Plan Year (the Adoption Agreement may provide that the foregoing determination may be made with respect to the calendar year beginning with or within the preceding Plan Year) received Testing Compensation in excess of the Code section 414(q)(1) amount ($80,000 as adjusted) and unless otherwise provided in the Adoption Agreement was a member of the top paid group of Employees within the meaning of Code section 414(q)(3).

OK, but I'm not suggesting a cover-up. Just report everything as it actually happened. No withholding on the 1099-R. Sign the forms now.

Sorry, I don't think it's that big of a deal. The correction for not withholding is what, to get the money back and submit it, right? If he just pays the tax everybody, especially the IRS, winds up in the same place. The IRS doesn't care as long as they get their money.

I think if you're going to report it you should deposit the earnings. There seems to be a pretty good chance that they are going to at least send a letter inquiring about it, and you want to be able to say "yes we fixed it." If you've done the calcs the worst part is over, right?

If you put in an "extra" amount on Sep 10 2012, then just count it as a 2012 contribution. Your election can be whatever you want it to be, as long as it is determinable. I have some clients that want a total contribution of, say, $20,000, and they make their salary deferral election "$25,000 minus whatever my required 3% safe harbor (employer) contribution is."

For tax purposes, I think there is no doubt that they are due for deposit by the due date of the business tax return. There are other rules, enforced by the Dept of Labor, that say they are plan assets as soon as they are withheld, and must be deposited more-or-less right away; let's say 7 business days. If you are a sole proprietor, your self employment income is determined as of Dec 31. To be on the safe side, you would make the deposit within 7 business days of Dec 31. There's a school of thought that you can't make the deposit until you know your income (if a % of pay is used) and therefore can put it off until you do your Schedule C; i.e. much later. In any event, the DOL doesn't have jurisdiction over one-man (non-ERISA) plans, so not much will happen in any event. BUT, it is important that you have an election in place by Dec 31. You really can't say after the end of the year, "mmm, it looks like I had a really good year and now I want to max out." And be careful with your elections; if you sign a form saying something to the effect of "I want to contribute the maximum" it would probably mean "...each and every year" so if you don't want to contribute next year you should sign another form saying so. We just had a thread about how investment companies make it easy to set up plans but that's giving you just enough rope to hang yourself. If you really want to make sure things are done right, you should consult a plan professional (not necessarily an accountant) to oversee things for you. e.g. if you are doing Roth contributions, Vanguard will probably mush them all up with your other money, and someone should mathematically be keeping track of that source.

Absolutely.

I agree w/ETK, I think. FWIW, in my world, the terminology is different... a loan "offset" is what happens when a participant receives a distribution and has a loan that reduces the amount otherwise payable. when a loan is deemed but stays on the books because there is not a distributable event, we call it a "prior deemed loan" or something like that (not an "offset")

I was thinking that too. Bells and whistles are going off.

Like I said, the ready availability of such "free" documents just gets people into trouble. It may never matter that sources weren't tracked separately...but it might. Fidelity and their ilk don't do squat in terms of admin or compliance, yet there's obviously an assumption that they are in fact doing something, since they are providing a document. Well, at least you'll have the Roth stuff carved out.

I think the correction is to get the forms signed now, including spousal consent if required. Just report it as it actually happened on the 1099-R; no withholding. I believe that is a mostly toothless requirement (not that I advocate ignoring it). The fix is for him to pay the tax.

Agreed. Just getting a little tired of having that conversation; terminating the plan was actually the easiest way out.

What is that idea, that it's ok not to pay because you can't find the bene? I don't think so; I mean, of course you can't make a payment if you can't find the person, but that doesn't mean it's ok. And I'm not sure how you're going to find an 8 year old and presumably communicate without finding a guardian or custodian.

Corp Smith is owned by Dr. Smith. Eff Jan 1, Smith is bringing in Jones as a 50/50 owner. Corp will keep tax ID number, but change its name to Smith and Jones. For a lot of reasons (the primary one being getting rid of self-directed brokerage accounts), we'd like to terminate the old Smith (401(k) plan and start fresh with a new Smith and Jones plan. Smith and Jones Corp uses the same tax id number, but if you look at ownership, there wouldn't be a controlled group. I'm thinking it is the same company and therefore we are stuck (can't terminate the old plan and start a new one) but thought I would throw it out there for comments.

Generally speaking, what you describe is ok. Personally, I'd rather not be using investment-company sponsored documents that force you to adopt a new document just because you want to change investments, and the ready availability of such "free" documents just gets people into trouble.

Technically, it would be rolled over to a separate Rollover IRA. Most, maybe all, investment/insurance companies keep SEP-IRA accounts separate from other IRAs. (Good luck getting the insurance company to process it correctly!)

I don't think so. Have done it a few times, and believe me, it's not an original thought of mine. I never thought of it as aggressive, just inefficient and moderately expensive. FWIW we typically merge the plans as of the first day of the following year.

It's beyond my pay grade, sorry. You are effectively excluding a large group of NHCEs from the extra match, but I don't know if the extra match is in fact a separate BRF.

OK, I apologize for questioning the accuracy of your statements. I just think it's odd that the plan would be written that way instead of simply having the match be annual, 100% up to 4%. You might be right about the BRF issue.

I don't know that that was confirmed. And it's strange enough, IMO, that I would want to read the exact language before making any more comments.

I don't mean to challenge you but does the document actually say "The match is 100% on the first 4% per pay period" and "we will perform a true up each year to those who contribute the 402(g) limit and have an average rate of 4% or more?" If so, that is pretty convoluted. Or are you saying, "the document says match is based on annual pay but we fund it each payroll and this is how we calculate the true up amount?" If someone earned $40,000, but did 50% of the first $20,000 for a total of $10,000 ($400 match), then stopped deferring, would they not get a true-up because they weren't over the 402(g) limit?

What I remember is that if it ever goes over $5,000, then it can't be forced out, even if it decreases simply through investment losses. Amount at time of termination of employment doesn't matter.

I guess I'm just an old cynic but I see no good coming from this.