robbie

My wife's Roth IRA at Schwab was escheated to the NYS Controllers office 2 weeks ago. We can get the money from the state with no problem, I think. QUESTION? Since the account still seems to be open, can we put the cash back in as a "60 day rollover"?

Mike, Thanks for this prompt, clear, and helpful response

I have a solo 401k with >$250k, so have to file. I have received contradictory advice on how to report contributions for, say, 2014, that are actually made in 2015. Some say that they should be included in calculating the end-of-year plan assets, rather than the actual balance on December 31. Others (including Fidelity) say to follow a cash balance rather than an accrual method and not include the deposits made in 2015 on the 2014 form. Another source said one follows a "modified" cash balance and therefor should include these contributions. Is there any consensus on this. Which advice should I follow? Thanks

Thanks Bird, Pax, and Mbozek. Bird, I am glad that you see no problem with using the MRD's this way. I know one isn't allowed to 'rollover' an MRD but I didn't think this was the case here. As far as timing goes, these are indeed 2004 contributions and I was advised that I could make them as late as Oct. 15th. Pax, thanks for calling my attention to the MRD required from the 401k. Mbozek, you're pinpointing a very important issue. I do not anticipate being in the same cash crunch when the time comes for the 2005 contributions. I've discovered an amazing new secret technique called 'saving"!! <g>

I am a 72yo, self-employed sole proprietor, still working (hopefully 3 more years or so). I have some large IRA's and a Solo 401(k) which covers only me and my wife. I wish to a) reduce current taxes from MRD's; b) avoid reducing my pension savings till I stop working, and c) continue to grow them tax deferred. My tentative plan is to take my IRA MRD's, with no tax withheld, and to use that cash to fund my 401(k) contribution (within the limits allowed by my compensation). Otherwise I do not have enough available cash flow to fund the maximum contribution by Oct. 15th (my tax filing date with extensions). It seems to me that this would essentially allow me to defer tax on the MRD's till they are later withdrawn from the 401(k). Is this a feasible plan? Some have said since I am using "post tax dollars" to fund the 401(k) they would be subject to double taxation. I need some expert feedback, which would be much appreciated.

Thanks for the help, Barry. Robbie

On Dec. 28, 2004, having previously taken my 2004 MRD, I did a direct trustee-to-trustee rollover from my Keogh account at a bank to a rollover IRA at an investment firm, which at the time had only a small prior balance. The Keogh now shows a 12/31/04 balance of zero. However the investment house did not receive the funds and credit them till the first week of Jan, 2005. Therefore the IRA also only shows a very small 12/31/04 balance, which does not reflect the larger amount transferred in. How do I calculate the 2005 MRD due from this IRA? Do I add the transferred amount back to the bank Keogh, or do I take a MRD from the IRA as if the total had in fact been present on 12/31/04? Thanks for your help.

Right. Its exactly because of the elective deferrals. I already have a Keogh plan which allows the ps contributions. With the 401k I can still make the same total ps contributions plus $16k for my wife and I. AND...I see I was dreaming. If it seems to good to be true it probably is, and all that. I thought I could do the matching contributions AND still do the full ps in order to max out. If the total of the ps and match have to fall within the 25%, there's no point to doing the match. Another question. Since I'm a sole proprietor I understand that I can only do a 20% ps contribution for myself, but 25% for employees. Now, this is a "solo 401k" because my wife and I are both considered owner employees. Nevertheless I have to pay her a salary of at least $17.5k (as per Bird) to allow her to defer the $16K. I presume that is done on a W2 basis. So do I then make a 20% or a 25% ps contribution for her?

So, Austin, If our total compensation isn't enough to generate the max through the profit sharing contribution, why not use a matching contribution of $16K each and then the smaller sized profit sharing would get us up there?

Thanks guys for straightening me out re: the matches. But just out of curiosity what is the reason that it makes no sense with no employees except me and my wife?

Austin, Thanks for the advice. My adoption agreement does allow that choice and I have selected it. Now, I also have the discretionary ability to make matching contributions equal to a discretionary percentage of a participant's compensation. So, suppose my wife and I (both over 50) each electively defer $16,000. Does this mean as an employer I can then make two matching contributions of $16,000 also? And then top it off with a $12,000 profit sharing contribution to get 2X$44,000 ($41K + $3K catch-up) in total contributions. And is it all deductible? OR AM I JUST DREAMING???

Thanks everyone for your help. My ERISA attorney still assures me that the plan is in effect for 2004 as soon as I sign the Adoption Agreement, even if the custodial account is not yet opened, especially since as a sch. C sole proprietor I don't have to contribute either the elective deferrals or the employer contributions till my extended tax filing date in Oct. 2005. The posts by Archimage, Tom and Austin seem to agree with that. Forohek, I was in fact considering doing just what you suggested. However, the fund company I intend to use as custodian actually has an arrangement for people bringing their own plans and acting solely as custodian. They do have to review the plan first, but it is a plan which has already received an opinion letter from the IRS. The only question is the timing at this late date. Do you have good reason for thinking that I couldn't take 2004 deductions just on the basis of the plan being signed in 2004?

I am attempting to start a solo K plan using a third party prototype plan with effective date 1/1/2004. We are in the last throes of making changes to the adoption agreement and then I will create a custodial account at a brokerage house. The sponsor, and my ERISA lawyer tell me that the plan is in effect as soon as the Adoption agreement is signed on or before 12/31/04. However, given the late date I am concerned about the consequences if the actual account at the broker is not established and funded by 12/31/04. The brokerage house has to review my plan before accepting it so I am not sure it will be in place by year-end. I want to be able to make contributions for 2004. I've been advised that the contributions do not have to be made till tax filing date with extensions, and I need not be concerned. But does the custodial account itself have to be opened in 2004, or is the signed adoption plan enough. If not, should I quickly open a standard solo k program with one of the online-vendors, partially fund that before 12/31, and then subsequently transfer the assets to my original custodian with my original plan in 2005? Or can I keep two plans if I stay within the maximum combined limits? Thank you for any advice regarding these questions. Obviously, I am not a professional in this field.

Andy, Thanks for the heads-up. I don't think they're in the 412(i) business, but I'll be alert for this. Robbie

Larry, Reminds me of the one about the rabbi, the priest and the minister...except I forgot the punch-line! I'm sure I would prefer your mother's strudel also. I do know about the MRD issue which was one of the advantages of having a DB with cliff vesting. The catch 22 is I might need the MRD's to have enough cash flow to make the big contributions! Anyway, I am meeting next week with the actuary and a financial planner who works with him to play out the different scenarios..and we're all keeping in communication with thw ERISA attorney, so some decision is imminent. I'm sure you're all waiting with bated breath to hear the outcome <g>. Robbie

Larry, Thanks for the sound advice..I definitely am going to consult with an actuary and an ERISA attorney. I know this isn't a do-it-yourself project. But the information on this board has at least equipped me with good questions to ask and more ability to evaluate what I hear. I am a physician and know well that patients often get conflicting recommendations from different, well trained and well meaning, doctors. There's usually more than one reasonable approach to any given situation and the patient's values need to be factored into the risk-benefit analysis in the decision process. So, I wouldn't take any one doctor's opinion as 'gospel'. Similarly, here too I want to be 'an informed consumer' with at least enough understanding of the situation to participate meaningfully in evaluating my choices. So, I thank you all again. Bottom line, since I now know that a self-employed person's contributions are only deductible to the extent of earned income, and that there are adverse consequences possible from having accumulated non-deductible contributions, combined with the significantly greater expenses associated with a DB, I am leaning more to the idea of a 'solo 401(k)'. Any thoughts? Robbie

I'm back...Thanks everyone for all the helpful input. SoCalActuary...that's the clearest explanation anyone has given me of the "cash-balance" plan. It doesn't seem appropriate for me unless...wishful thinking here...it yields deductions in excess of my schedule C...??? As far as vesting I was going to only ask for a 3 yr cliff anyway. AndyH..that bears on the issue of Permanency...Couldn't I make a plausible, reasonable, and true case that because of the bloodbath since 2000, I have had to catch up a lot, but since I am already 71, working for 3 more years is not an unduly short proposal. Also, AndyH...I take your last point seriously. There is obviously a cost-benefit analysis I have to do before getting too fancy. And I certainly appreciate the high-power information I'm getting from folks like you all who I couldn't afford to engage privately!

Wow, You guys are really helpful and smart. mbozek, thanks for the clear and concise tutorial on the mrd's, and especially for clarifying how accrued benefits work. I didn't understand that at all. jay21, thanks for the compliment. From lurking on the board I found myself actually quite intellectually fascinated by the problems you guys discuss and the logical quality of the thinking. You're right about my disappointment that I can't find a way to offset other than schedule C income. Even if my 415 limit is actuarially adjusted above the 16.5K that still doesn't solve the deductibility limit, am I right about that? Doug, you're really a good teacher. Now I understand more clearly how the term 'earned income' is being used differently for the plan purposes. Everybody...what is a cash balance plan and would that offer any better solution for me...or any other suggestions? Thanks again for all your help. I will be meeting with an actuary and a pension lawyer and financial planner, but I find that doing my homework like this, and being as fully informed as I can be, helps me to know what questions to ask, and to better evaluate the opinions rendered. So, thanks again.

Doug, If I understand it right, (a big if!<g>), the schedule C would still show my earnings on the bottom line, which is then transposed to page one of the 1040 as "earnings from business." Then, lower down on the page, under "adjustments to income", would be my DB deduction. Therefore I would still have earned income on which to base elective deferrals. Is this cockeyed??? As for the second point, yes the pay to my wife would reduce my earned income but hers would be all wiped out by her elective deferral. As I think about this I might prefer a smaller DB deduction which seems fixed and immutable and supplement that with the elective deferrals which by definition are elective, giving me more flexibility. I realize I am a rank amateur mucking around in these arcane matters and I really appreciate your taking the time to help me clarify my ideas. Thanks, Robbie

Doug, Thanks for the quick reply...though it isn't what I was hoping for. Would this work? Set up the plan as you describe to use up the max deduction available based on my present rate of earnings. Then set up a no-cost solo 401(k) at Fidelity. Can my wife and I then make deductible elective deferrals of $32000 (including catchups) but no profit sharing contributions...in addition to the max DB contribution?

Hi, I'm neither a lawyer, an accountant, nor an actuary...so please excuse me if I mangle the terminology. I am 71 and my wife is 73 and we are considering opening a "solo-DB" plan for the next three to five years that I plan to continue working. One of my goals is to alleviate the tax impact of being forced to start receiving rather large MRD's this year. The value of the DB depends on the deductions I could receive. I have several questions after having 'lurked' on this board the last few days. 1)Is it true that an owner-only plan is considered to have no employees, so is not an ERISA plan and not covered by the PBGC? If so does that fact influence the answer to the next questions? 2) Can I base the defined benefit on the average of the 3 highest years Sch C earnings even though my earnings this year are considerably lower...and probably will continue to be? 3) Will the deductibility of the advertised large contributions be limited to my current Sch C earnings? I have seen statements to that effect, but others that extend the deductible limits to the "unfunded current liability" or to the "accrued liability". Would those likely be larger than my now reduced Sch C earnings, and which prevails. Any help will be appreciated. Thanks.