Bird

It's not taxable at time of offset. Which means your second sentence is accurate; it is only used for applying limits (and in fact the loan exists so if the limit is one per participant it counts as a loan and another one can't be taken).

To make a commission

No

A minor nit here - I think there could be a (theoretical) scenario where an employer makes an amendment to a pre-approved document that was sponsored by firm X, using pre-approved language, but if X no longer sponsors the document, the document could be disqualified. The scenario is that there is something wrong with the document that was missed in the approval process. If it is not sponsored by firm X, then you can no longer rely on the opinion letter. (Actually this applies whether it is amended or not, which is the main point...once it is no longer sponsored, you technically have an individually designed plan without a favorable determination letter.) It's probably going to take about as long to prepare the amendment as it would to restate the plan, at least in our world. If you (TPApril) are reluctant to restate it because the fees are higher and you don't want to have to charge for something that is "unnecessary," that is a fee schedule issue. I was pretty hung up on this for years but then realized that the distinction between "amendment" and "restatement" was blurry, at least as far as time involved. The collective time spent debating this is probably more than the time it would take to restate it. Not complaining; just pointing out that sometimes we get hung up on things when we just need to act and move on.

Re my wording - I mean that the prior TPA has a Determination Letter for their plan document. I've always been fuzzy on the extent a new TPA can make amendments on existing Plan Docs where the prior TPA basically considers the Plan Doc valid only while Plan Sponsor is a client of said TPA. I have to admit you wrote "amend" but I read "restate" so it was my misunderstanding; now I get it. I would generally not amend someone else's pre-approved document. It may be a bit silly because I seriously doubt the IRS would DQ a plan because it was no longer sponsored by "prior TPA" and "successor TPA" amended that same document, but it's a bright line that they could use as a hammer, especially if other things are fishy. It's so easy to restate; just do that.

Not a big deal but part of my thinking is with the knowledge that Form 5500 asks about transfers between plans, including details on plan name, tax id, and amount, I assume or at least think that their computers cross-check. I'm sure it could be explained without any problems but to my way of thinking, having to explain is a loss.

A new plan(s) will be needed, presumably for Joe's company. A spin-off, as suggested by Peter Gulia, feels better to me, although I'm not sure if there is any significant difference between that and treating the employees as terminated and then letting them roll over. Well, having said that, there are two issues that come to mind - vesting, and retention of assets. A spin-off keeps the assets under Joe's control; a termination of employment and distribution of assets means the employees can take the money and run. A SH plan generally needs 3 months but I think there is an exception for a new company just started. I agree that an end-of-year spinoff is the way to go, with a minor quibble; I don't think one plan can release assets on Dec 31 and the other receive them on Jan 1. It should be simultaneous. Depending on the assets, it might be wise to liquidate in December in preparation.

I believe that nothing has changed since the attached ASPPA ASAP was written. The short answer is "before the end of the year in which it is effective" with a caveat that you should consider anti-cutback possibilities. There are also limitations on how frequently you can go back and forth (I think) which are not discussed. 06-07 When Do You Have to Amend to Change 401(k) Testing Methods.pdf

I have to say that I don't understand this, sorry. But yes you can restate it in either scenario. My initial thought was that maybe it didn't have to be restated at all (if prior TPA did not sponsor it) but if you need to correct some errors then sure. I'm not sure of the significance of the prior doc being from the same vendor; it's a red herring.

In accounting terms, assets are a balance sheet item and compensation is an income statement item. So the phrase "personal assets are not eligible compensation" is frankly nonsensical. If the business is a sole proprietorship, then "personal assets" are indistinguishable from "business assets" and could be used to make contributions. Whether there is business income to support the contributions is an entirely different question. If the business is a corporation, then there is absolutely no way that a participant can make a "personal contribution" (other than as an after-tax contribution and there is no way that will work here). If the business is a sole proprietorship, then if the income warrants it, a contribution might be able to be made from just about any assets under the owner's conrol; whether it is an individual 401(k) contribution or a "company" contribution would have to be determined under the facts and circumstances present, including income. But income for a sole prop is generally determined on the last day of the year, and for whatever reason it is being term'd before that, so arguably there is no income from which to make any type of contribution. Given the post-termination date nature of the discussion, I'd suggest you say "no" and move on.

This is totally fair. I tend to the DIY side myself and kind of feel sorry for these folks who get themselves in trouble (with Schwab and their ilk of course providing the rope with which to hang themselves) but your advice is sound.

Not! Those of us on the admin side have learned to take what advisors say with a grain of salt, or many grains. Often wrong but never in doubt. You can (should) terminate the SIMPLE but it's ok to leave it alone. Those accounts are essentially just IRA accounts with special funding rules. They are controlled by the employees and you can't force them to "merge" anyway.

I think you stated accurately what happens, so I'm not sure why language would be needed, other than as clarification; i.e. it's not changing anything. Although, I believe if this is done 100% correctly, the partnership would pay for the employer contributions covering the period of time that the new partner was an employee and not a partner. And slicing it finer, it seems that such cost would be assessed to the partners who were partners at that time (i.e. the new partner would not share in its own contribution cost for the time s/he was an employee)...because it is really a new and different partnership every time a new partner comes on board (or leaves). But that's just my understanding; I'm not an accountant and over my skis a bit on this. I'm not sure the accountants want to be bothered with those different calcs either. So maybe that's the point of the language change; to clarify and simplify.

If the name of the partnership is "XYZ" and you established the plan under something else, such as your own name, and you have no business activity in your own name, then, as noted above, you don't have a qualified plan and should be able to un-do this. The trick will be to get Schwab to recognize this and not send the money to you as a taxable distribution. 99% of the problem will be figuring out how to deal with the Schwab bureaucracy. If you set up the plan in the name of the partnership, that might be trickier, as there is no basis to say the plan is not qualified (other than perhaps to argue that you had no authority to establish it, acting on your own). And finally, if you have business activity in your own name and set it up in your own name, I'm not sure you could say the plan is not qualified, and you might have an overcontribution problem, which is different, and not easily resolved. Let's hope that's not the case. Circling back, my take on it is that this is mostly a problem of getting Schwab to return the funds without reporting it. You'll have to spend some time on the phone (most of it on hold) and then some more time saying "no no no you don't understand" and wrangling and arguing until finally you get to someone who hasn't been trained for 30 days and who can actually help you. Good luck.

Well that changes everything. Forget about the fact that the plan has terminated, and consider what type of contribution this could be, and what kind of testing would have to apply and how it would have to be shared, if necessary, and then consider un-terminating the plan.

Are you a partner in a partnership getting a K-1 and set up a plan just for yourself? I think we need to back up and make sure we understand the problem.

A. It's after the termination date so no new contributions should be allowed. B. As Bri notes, the only "personal contribution" (huh?) in this scenario would be an after-tax contribution, which apparently is not permitted and often problematic. C. I doubt the participant asking has a clue about it and are likely asking about a tax-deductible contribution of some sort. This should be squashed. Caveat: A self-employed person (sole prop or partner) can make contributions from his or her own funds. If it is the/an owner asking, then it might warrant more thought, although the term date has passed.

These are good points. I didn't mean to be too cavalier about the approach; it does require a caveat. And we would typically take the approach of limiting the deduction to 31% and catching up in future years.

I don't think so, since retirement plan contributions can be accrued even if using cash basis accounting.

I don't think there is any doubt, nor need for IRS clarification. I read "incurred" as "accrued" (not just because of the similarity in letters!) so it would generally be considered a 2023 contribution. Interestingly though, I guess it could be used for 2024 if desired, as long as that does not mess with 2024 limitations (e.g. 415).

You can (generally) retroactively add provisions to a document after they are used but before the end of the year. We did exactly (or close to it) this for someone a couple of years ago. There might be a bit of an issue of them being "designated" as employer when they were contributed (and that was obviously the intent, but with a sole proprietor, there is never (?) any paperwork to codify this) but...yeah, I say go for it; good thinking.

I wonder if the document drafter(s) actually contemplated that a loan might be paid back in those circumstances and set out deadlines for such repayment. If not (and I doubt it) I think it then goes to the end of the next quarter, so you can reinstate the loan as if it never defaulted. (And frankly, even if there was supposed to technically be an immediate default upon termination of employment, I would let this slide as long as the wheels on the recordkeeper's end have not started in motion. Plus the point about the rest of the account not being paid out is a good one; I think you'd almost have to have an offset at that point, if for no reason other than the hassle of dealing with the recordkeeper's computer system.)

Actually that is more specific to contributions being made or accrued in the same year; see below. So the mere existence of another plan is not prohibitive. (D)Arrangement may be only plan of employer (i)In general An arrangement shall not be treated as a qualified salary reduction arrangement for any year if the employer (or any predecessor employer) maintained a qualified plan with respect to which contributions were made, or benefits were accrued, for service in any year in the period beginning with the year such arrangement became effective and ending with the year for which the determination is being made. If only individuals other than employees described in subparagraph (A) of section 410(b)(3) are eligible to participate in such arrangement, then the preceding sentence shall be applied without regard to any qualified plan in which only employees so described are eligible to participate.

C B Zeller's excellent post brings this to the forefront. Someone's gotta figure out the numbers before he can do anything. It's an opportunity...

Thanks all. This is something that would never come up in actual practice but arises when someone thinks that buying software is a replacement for knowledge. And the proposal software isn't doing the same testing as the compliance software so it's all a bit wacky.