Bird

To expand on and emphasize what Mike said... If this is a sole proprietor, or effectively a one-man partnership of some sort, you (someone) needs to subtract the contributions from the net income before contributions to determine compensation for plan purposes. I'd say it is very likely that that is closer to $100,000 for the owner than the $146K shown (unless the $146K has already been reduced by the assumed contribution...I'm skeptical about that and in any event it's not that simple or direct). setting aside that issue, the math/formulas in the 4 tier spreadsheet are ok up to the point of the subtotal. After that, things break down, to be polite. Actually the comp to comp allocation following the subtotal is accurate, but based on a number that appears to be random, and the "TOTAL CONT" is accurate as far as the math goes, although it is not in fact the max nor the total desired. Going from that number (4600 for the employee) to "Amount allocated" (2080 for the employee) is...well, it's just wrong. I take some pride in figuring out why people do things wrong so I can explain it and help them understand, but I'd need some of what they are smoking to have a chance of doing so.

It doesn't matter until it matters. If you are 100% certain that the vesting and distribution options are identical and that there is in fact no reason to keep them separate, then go for it. But then there is the question of what to call it. Any one of the three former sources would be wrong, and might create confusion. It also might depend on who "we" represents. If you're not the TPA, then that's who you need to consult with. If you are the TPA, consider whether it isn't easier to just leave it alone.

To me, that sounds like a contradiction. Per stirpes is one thing, and it would call for a direct payment to the children or their heirs with no conditions. We don't know what the trust says but if it is a per stirpes distribution with conditions (e.g. paid out over a period of years) then that's a different thing. If they want to specify the conditions they ought to just name the trust. (Although naming a trust with long payouts has its own set of concerns, like what happens if the plan terminates.)

Looking at it more carefully (actually looking at it at all) I tend to agree. The proposed correction is simply to stop making contributions.

The Q is, how did Empower get from the PLR to using QNECs? I think they just figured, probably correctly, that with more liberal eligibility and vesting, that it should be ok. I hesitate to comment with any authority or conviction because I couldn't care one tiny bit about these dumb programs and am not really paying attention.

Just a guess but I'd think the excess amounts are all the contributions that shouldn't have been made due to being an ineligible employer.

Also consider the practical matter that JH will only: 1) deem it using current values, or 2) write it off completely with no reporting. At least that's what I was told late in 2018. I can rationalize the additional earnings with the fact that it is being reporting a year late. Not necessarily the "right" way to handle it...

Sounds like no harm/no foul on the reporting end and trying to fix that reporting would cause a whole 'nother set of problems worse than the first one, which is being corrected.

I'm not sure that's evidence of a position one way or the other, but I say give them credit for not checking it. In any event they'd flag a lot of DB plans unnecessarily. (But I have to believe there is a mother lode of bad deductions for partners taking SEP deductions as if they were the only person in the plan, etc. Or maybe it's chicken feed, I don't know.) Sorry for extending this thread any longer!

I agree; these would appear to be prepayments based on the loan policy. We are probably way too generous with our time in this area and would typically plug the new payments into a spreadsheet, effectively re-amortizing the loan.

I've been starting to wonder if contributions for the partners aren't due on April 15, the due date of their own returns where the deductions are actually taken. Contributions for the employees, taken on the 1065, would be due March 15. I'm not sure why not... I've also heard that filing a return on time invalidates an extension. And I've said that so it must be true. Being in a wondering mood...who is checking that?

Yeah, I see but I guess I'm just gonna say that I think they either tried to simplify it or didn't understand themselves that it is an overall 25% limit.

We do. A long time ago, when I was smarter, I developed a Lotus spreadsheet that literally guessed at the earned income numbers, and then compared those to the calc'd numbers, and zeroed in on the final accurate number, using a macro. So there were no circular references in the calcs. Someone smarter than me has converted that to Excel. I'm told that if you do it in Excel using circular references and just keep hitting F9 it will zero in on the right number(s) but I've never tried that.

So...who prepared the first 1099-R? I can see how the financial and participant screwed this up, but not quite sure how the $100K was unreported in the first place.

I followed your cites and have to admit I am not the best at reading/interpreting the code and regs, but I don't see contributions limited to 25% for each partner. And Pub 560 specifically says 25% of all participants' compensation. Hope to get some other opinions on this.

Here's how I see un-doing a termination in relation to your 3 steps: resolution to terminate is executed. No problem at all to un-do this, either by just losing the resolution (not "right") or drafting another ("right"). funds are rolled out to an IRA. I'd have a hard time justifying an un-do after this point. I mean, sure you can tell the IRA custodian to roll money out and into a plan, but then what was the justification for the initial rollover from plan to IRA if not termination of the plan? It's likely you could "get away" with this part from a strict reporting standpoint, as long as everything is done by direct rollover, but I think the initial rollover is invalidated by voiding the termination. Final 5500EZ is already filed. I suspect that all 5500-EZs go into a black hole, except for purposes of checking and following up to assure that future years are filed. IOW I don't think the IRS is going to come back and say "oh no, you can't amend a final return and un-do a termination" and somehow drop the hammer. But I wouldn't do it based on my answer to step 2 above.

Often, simpler is better. This is probably the best solution. I think we're all wasting a lot of time on an issue that arises, as I noted earlier, because the owner sees the company as a a pocketbook and doesn't understand the ramifications of doing what was suggested.

It sounds like the accountant is conflating different rules that might apply to a one person plan but not even getting that part right. The overall deduction limit for profit sharing is 25% of total compensation (for all covered employees, not for each partner - Section 404). If you had a one man plan for a self employed individual, yes, the maximum profit sharing contribution would be (roughly) 20% of net self employment income since that is equivalent to 25% after contributions. But each individual is limited to the lesser of $55K or 100% of pay (Section 415). The accountant is applying 25% to the wrong limitation. Let's take a scenario similar to yours, but for a one-man plan and a partner or sole prop with $250K of net self employment income (let's assume it has been reduced by the deduction for 1/2 of SE taxes and any other necessary but unlikely adjustments). The maximum profit sharing is 20% of that or $50,000, but the maximum total contribution is $55K (plus catchup if applicable) so there is room for some 401(k) contributions to max out. Accountants don't tell us how to allocate contributions, we tell them.

I hope the image comes through below. We usually write in "402(g) limit plus catchups" or something similar for owners.

Yes. I'm not saying they (IRS) will definitely disallow deductions based on lack of an election, but having one erases all doubt, I think. We get all of our self-employeds, whether partnerships or sole props, to sign an election. (Well, we try...we provide forms and even typically fill them out for the owner but whether we get a copy or not is another thing.) As far as Vanguard not wanting election forms, I'm not surprised at all. They are neither the PA nor the TPA and don't want to be seen as fulfilling either role by even accepting such documents. But that doesn't mean they're not required.

Not persuasive to me; we all know how easy it is to get away with stuff. The front side is if there is an audit and the agent wants to see the election form validating a self-employed's contribution. I know from experience with a partnership that they will ask, and imagine they would for a Schedule C as well.

Agree with everything said so far, but there could be other ways to do it; e.g. extra pay to the owner and then use that for the loan payments; then it is a gift. Probably a case of someone who doesn't understand double-entry accounting and sees "the company" as a pocketbook. She might change her mind after understanding the ramifications.

I don't think the titling itself is going to blow anything up, as long as it is coded properly in their system and you maintain the RMDs. The wording you describe is perhaps a bit awkward but I think it gets the message across ok. Nothing official/just my two cents.

I think they do - make an election but not a deposit.

WCC explained it well. I would add - download a prospectus and look at the breakdown of fees for different classes; it will become clearer. You'll see that all have (or should have) the same % for "management." 12b-1 fees are described as "distribution and/or service" but really mean "commissions." (Although sometimes the recordkeeper keeps some of that, e.g. they might use R-3 shares that have 50 bps 12b-1 fees but only pay 25 bps to the broker; that means they are keeping 25 bps. I'm not saying it's bad; that could still be a well-priced product.) There is probably also an "other" category which includes but is not limited to revenue sharing.