Bird

Well, I've never heard of defaulting on half of a loan, nor have I heard of a participant loan being a liability of a plan, and I don't like to speculate on things I've never heard of so I can't help. Sorry.

As mming notes, when a loan defaults, we are supposed to continue to accrue interest, but that just disappears when the loan is offset at time of distribution. But honestly, several things confuse me - how does a participant take a distribution of 50% of a loan? And how is a loan a liability of the plan? And what do you mean by the recordkeeper "charged" interest on the entire loan - you mean that's included in the taxable amount?

I agree. That is, I think the trust should get a 1099-R.

I agree; I would include everything in the 05 reports. You didn't say what you're going to do with the dividends - if they're self-directed accounts, I guess they go to the participants (then there's the question of who's doing the 1099s and whether they will show 2006 distributions). If it's a pooled account, you can take the dividends as fees and accrue the fee expense in 2005.

Sorry, my earlier answer was irrelevant, or I should say that I agree the non-involvement rule is irrelevant. Let's just say I don't look down on anyone who wants to ignore it.

This thread should start over with dmwe's reply. There is indeed a noninvolvement exception; as noted it is in Sal's book, and if you have Who's the Employer it's in there too: 7-13 of the third edition. Among other things, there can be no ownership whatsoever by the non-owner spouse, and the non-owner spouse can't be a director, employee, or participate in management. It should be noted that in community property states, you would need a special agreement to treat the business as separate property, so in most cases the "non-owner" spouse does in fact have ownership and then you have the potential problem of a controlled group.

Good point, but...financial institutions may have that same confusion. I've had them refuse to open an accont because they didn't have the paperwork in their hands, proving the plan was established, "shortly" after Oct 1. (Actually, my memory is a little fuzzy...I may have just called and asked this as a general question and then learned to be careful, but the point is that it's a potential problem.)

I'd say yes, that's OK.

A SIMPLE has to be started by Oct 1, unless it's a new employer coming into existence after Oct 1. A salary deferral election has to be in place before the money is earned - for a sole proprietor, that's Dec 31. The mere existence of a SEP isn't a problem, IMO, but making contributions to it for a given year will invalidate the SIMPLE for that year.

Thanks, WDIK, for the effort. I did some research (not nearly as much) and found similar results.

Sorry, I didn't realize this was still alive... when the speculative issue of it being a pass-through entity was raised, and the question that followed was "...if this is the case..." I didn't think it necessary to do more than say it's not. Still don't. Thanks for pointing out potential problems. They're not actual problems.

the IRS rules etc which are very very clear I checked the links and found they are third party recommendations that you pay your spouse what you would pay someone else in a similar position.

Sorry, I must have missed something. What were those cites again?

I don't know what that means, but... I don't have a problem with giving an SMM to existing participants at the time of the change and rewriting the SPD and giving it to new participants as they enter. I do it all the time.

It's not a pass-through entity and not an S corp.

Don't apply to spouses. Might be a problem, but it's not a pension problem. Something tells me that if they look at this at all, they look at the whole package of husband and wife comp vs. production - I could be wrong, but I seem to remember that from somewhere.

Thanks. Just to be clear- they do have other HCEs (non-owners), but the benefits are identical so there can't be discrimination. But the utilization test (25%), if I can call it that, is Keys vs. non-Keys, and there are no Keys in the POP so it shouldn't be a problem. Right?

I barely know enough about this to be dangerous, but I'm trying to help out a CPA. If a kind soul can help out a newbie I'd appreciate it... Medical group pays 100% of medical premiums for owners. My understanding is that this is OK, since there is essentially no non-discrimination testing of health plans themselves - if that's wrong please advise. The practice pays some portion of premiums for everyone else. They have a POP plan to let the employees pay their portion on a before-tax basis. A quick look at the non-discrimination requirements under 125(b)(1) appears to indicate that as long as everyone is getting the same portion paid by the employer, this shouldn't be a problem. And the requirements of 125(b)(2) can't become a problem because there are no Key employees in the POP plan, since their premiums are paid by the company. Thanks for any feedback.

The two actions are unrelated but in effect one will offset the other (partially, I assume), so yes. 2 quick comments - you can't convert to a Roth if your AGI is greater than $100,000. the 25% limit is on net earned income - i.e. after you take the SEP deduction. That's roughly* 20% of gross before making the SEP contribution. So if you have self-employment income of $100,000 before taking the SEP deduction, the maximum SEP deduction is around $20,000 (25% of your net taxable income of $80,000 after taking the deduction). *There's also an adjustment for self-employment taxes.

The safe harbor plans that effectively use the "wait and see" provisions should have the safe harbor language, with something that says "this language is effective in years in which a notice is given" or something like that. That doesn't sound like what you described; you may very well have a "permanent" safe harbor. Your document provider says otherwise; I think I'd challenge them to tell you where that language is. IMO using the "wait and see" or "maybe" approach is not the same as "We are currently a safe harbor plan, but we may amend back to ADP testing before the 2006 year is over" (which is not allowed under the final regs, if I'm not mistaken).

Think of the SARSEP as a vehicle for getting money into IRAs - that's all these accounts really are now, IRA accounts. So the participants can do whatever they want with them - cash them in, roll them to another IRA, roll them into your 401(k) plan if that plan permits, which it probably does. The employer doesn't have to do anything about those accounts...and can't...because they are under participant control.

Yes, the 1.401(k) reference is the applicable section for Roths. Here is the 1.402(g) reference: (6) Pension Coordination with distribution or recharacterization of excess contributions. The amount of excess deferrals that may be distributed under this paragraph (e) with respect to an employee for a taxable year is reduced by any excess contributions previously distributed or recharacterized with respect to the employee for the plan year beginning with or within the taxable year. In the event of a reduction under this paragraph (e)(6), the amount of excess contributions includible in the gross income of the employee and reported by the employer as a distribution of excess contributions is reduced by the amount of the reduction under this paragraph (e)(6). See §1.401(k)-2(b)(4)(i). In no case may an individual receive from a plan as a corrective distribution for a taxable year under paragraph (e)(2) or (e)(3) of this section an amount in excess of the individual's total elective deferrals under the plan for the taxable year. That sure seems to say that if you have refunds under an ADP failure (excess contributions), that they reduce the 402(g) excess (excess deferrals). It wouldn't be the first time I looked at the Code and/or Regs and didn't understand it, but if it doesn't say that, I'd appreciate a translation. FWIW.

I think this thread says yes you can: http://benefitslink.com/boards/index.php?showtopic=30365 (Sorry I don't know how to make a clickable link.) It was last posted Oct 16 2005 if it's easier to find that way.

The $14,000 limit is a limit that applies to the individual, so he can't defer any more in another plan. However, he can set up a SEP for his consulting income (as long as that business is unrelated to the other company - it's not that simple but let's assume that's the case) and make an EMPLOYER contribution of 25% of his earned income (that's roughly 20% of net earnings before the contribution), but not more than $42,000. Maybe that's what you meant but he's not "defer"ing income; the employer (in this case, it's himself) is making a contribution.

That's it. We have our notices set up with set up with the "maybe" language and the other yada yada at the top for the following year, and a "Supplemental Notice" at the bottom saying "We WILL make a SH contribution for the current year." For the very first notice, we just don't print the bottom with the supplemental notice.