Santo Gold

Thanks for the caution Tom. Do you normally see non-qualfied deferred compensation added back in? I checked the document and for compensation, treatment of elective deferrals. It talks about including elective deferrals as compensation pursuant to 125 - cafeteria plan, 402(e)(3) -qualified plan CODA, 402(h)(1)(B) - SEP, and 403(b), as well as 132(f)(4) - taxable transportation fringe. Nothing about about adding back in NQDC. Also, would agree that when asking for W-2 wages, that means box 1 of the W-2 (wages, tips, and other compensation), rather than box 3 (Social Security wages) or box 5 (Medicare wages)? I looked at 6051 definition seems to say that, without exactly saying that. Thanks

Got the answer to Question 1: Deferred Comp contributions are not included for W-2 wages. I am still struggling with Question 2. Thanks.

The 401(k) plan document defines compensation as W-2 wages. Question 1: On line 1 of the W-2, should this figure inlcude or exclude deferred compensation amounts? Question 2: This is an S-Corp, so the owners health insurance gets added back into to the Box 1 figure, but is excluded for FICA wages. Should these amounts be added back into Box 1 for plan compensation? Thanks for any help.

The sponsor of a small non-standardized MP plan is having financial woes and is looking for ways to save $$$. They currently sponsor a 5% MP plan. The owner wants to maintain that plan, at that funding level, but would like to discontinue accrueing benefits for himself. Since roughly 70% of the annual contribution goes to him, this would be a significant savings. Assuming the document language allows for it, can he waive participation in the plan, even though he has previously met the eligibility requirements? Thanks

Company has a calendar year MP and SEP plan and they want to get rid of both. I'm told that the 2004 MP contribution has not yet been made (neither has the 2005, but there is still time for that). They will obviously have to fund the MP plan before terminating. Does this late deposit (for 2004 plan year) get reported on Form 5330 and is there estimated lost earnings that have to be calculated on it as well? Is this a plan defect that has to be reported via EPCRS? Thanks for your help.

I was hoping someone could help me with a calculation for maximizing a a contribution for a sole prop in 2005. I have a 1 life (owner) sole prop 401k plan. Owner is under age 50, so maximimum accumulation is $42,000 for 2005. Accountant says that before any 401k or employer contributions, wages are $148,000. To determine maximum, do I subtract the 401k portion from this figure ($148,000 minus $14,000 = $134,000) and then from there, perform the loop calculation on the $134,000 to see if she can get to $28,000? Or is the $148,000 first lowered further based on FICA because of the $14,000 401k contribution? Thanks for any help.

Glad to take credit for starting a good topic GBurns. If I can't provide insightful answers, I'll at least take a bow for thought-provoking questions.

Great replies, thanks to all. I am suggesting to them that they cannot proceed unless they each adopt individual plans for themselves. Next year (2006) they can look into the corp's plan. Thanks again.

rcline46: I like your first recommendation. A little digging via EOB mentions a court case involving a similar situation - Van Roekel Farms vs. Commissioner. In this case, 1099 payments were made to a president of a corporation, who was the sole participant in the company's ESOP. Since the payments to the president were not reported as compensation from the corp (no W-2), the company could not treat those payments as compensation for 415 purposes. Thus there were $0 415 comp and no contributions could be made. This sounds similar to my situation. If the above holds for my situation, could the 3 HCEs, all of whom have 1099 income only, have 1 life plans for themselves in 2005?

A small business wants to start a Profit sharing plan for 2005. The company began in May, 2005. The only employees are the two 50% owners and the spouse of 1 of the owners, so we have only HCEs for 2005. I'm told however that (for whatever reason) all 3 individuals received no W-2 income at all for the year. Instead, they are being 1099d for all compensation paid to them for 2005. They will go to W-2 starting in 2006. It's likely that more information is needed, but based on the above, do you think we can set something up for them for 2005? Does 1099 income prevent them from having any plan wages in 2005? Thanks for you advice.

four01kman: I would proceed as you mentioned, but I thought you could not retroactively defer 401k money? If the owner wants to defer $14,000 in 2005, he will need comp of $14,000 or more from 12/__/2005 - 12/31/2005. Given that, is there something else to be gained by making the non-401k components effective 1/1/2005?

Very small employer wants to look into setting up a 401k for 2005, here in the last week of December!!! There's only about 5 employees (3 of which are HCEs) and the objective is for the owner to take a big bonus and defer some/most/all out of it. Lots of mechanical problems obviously, but lets assume that the plan can be adopted as soon as today, and that investments are chosen and ready to go. If only the HCE chooses to defer, then this won't work (failed ADP test). Could a massive QNEC to NHCEs only solve this problem? Alternatively, let's assume 1 or both of the NHCEs agree to have some of their bonuses deferred and there is room for the HCE(s) to contribute. Would this be acceptable? Would 401(k) comp. have to be limited to earnings paid on or after 12/19/2005? This is pushing the envelope but is their anything inherently wrong here? Thanks

The tax credit for emloyers who start new retirement plans (less of $500 or 50% of start-up costs for the first 3 years), is that tied to EGTRRA and still available for 2005 and 2006?

A related question regarding terminating a SARSEP. I understand the need for an amendment to terminate the SARSEP and an employee notice about the termination. Is there any advance notice needed for either of these? Can the employer take action on 12/31/2005 to terminate the SARSEP, notify the employees on that day, and start a 401(k) on 1/1/2006?

Upon termination of employment, can a plan be written to prohibit rollovers out of the plan? Allow just for lump sum (cash) distributions?

If a 401(k) plan is 100% self directed, and all monies go into individual brokerage accounts for each participant, is a fidelity bond still required? I think the answer is yes, since the bond is needed to insure against mishandling by the person(s) who is responsible for getting the money to the brokerage accounts. However, I noticed on my 5500/SAR software that when I indicate that all money is 100% self-directed and participants receive statements directly from the investments, that I am not prompted for bond information. This leads me to wonder if the bond requirement is N/A for such accounts. Does anyone have a comment or 2 regarding this? Thanks

Small 401(k) plan operates on a 7/1 - 6/30 plan year. if the plan is safe harbor (3%) for 04/05 plan year, can the owners (they are the only hce's) make 401k contributions of $13,000 in 2nd half of 2004, and then $14,000 in first half of 05? Then, skip the safe harbor for the 05/06 plan year, in which the owners make $0 401(k) contributions. For 06/07, back to safe harbor, with the owners again doing double 401k? Do you see any problems in doing this? Thanks

We may try for a safe harbor or 1/1/06, but they may want to sneak in the 401k for 12/05 given their bonus situation. Thanks for the replies

A company wants to start a 401(k) plan effective 12/1/2005, with a 1 month SPY, before operating on a calendar year starting in 2006. It is a doctors office, with about 17 employees. The 2 owner docs will receive very large bonuses in December, from which they will make 401k contributions. ADP testing is always a concern, but other than that, is there anything else to worry about with this situation? For example, if the docs get bonused (and do 401k from the bonus) and no on else does, is that a problem? ADP may not be too bad, since although there will be a small dollar amount of 401k for the NHCE's, we would use only 1 month of comp which would drive up the ADRs. Thanks

Thanks to all for the help.

The financial advisor is giving investment advice to the participants. I do not know how specific or tailored it is to each participants. The trustees have picked the investment choices available to the participants, based in part on the FA's advice. Commissions are paid; this is not a fee for service arrangement. The FA is saying that their is an indemnication agreement with the trustees that will hold harmless the FA for any investment performances, and that therefore he is not a trustee. Can this be true? FYI, based on the link the EAIE provided, there are instances where FA's will not be considered fiduciaries. I need to research further to see if that applies here.

If an employer uses a cash basis for company accounting purposes, does that mean that the company's 401k plan must also use a cash basis? For example, if the company decides to make a $20,000 profit sharing contribution in Feb. 2006, because it is using cash accounting, it would show the $20,000 on the 2006 tax return. Would that mean the employer could only allocate the $20,000 based on 2006 wages (pro-rata allocation). And since the 2006 wages will not be known until 12/31/2006, they could not be allocated until probably 2007?

Thanks for the great link. Financial advisors can limit their services to avoid fiduciary responsibility, per page 3. Very informative.

Is a financial advisor automatically a fiduciary for a plan? I looked up the definition of fiduciary and read that "...a person who renders investment advice for a fee or other compensation, direct or indirect, with respect to any assets of the plan, or has the authority to render such advice (even if not actually rendered), is a fiduciary". In my specific situation, the financial advisor will receive commissions on the assets, but I take this to mean something different than receiving a fee or compensation. Also, all assets are self-directed. Thanks for your help.

My wife's grandmother passed away in 2004. Aside from a few thousand dollars in her bank account, her estate consisted only of her house. Back in 1999, she had a will made, in which she named my mother-in-law and her sister as her beneciaries, 50/50 split. At that time, the house was put into all three of their names, with each owning a third of the house. So the house is now about to be sold, with the sale price around $130,000. The 2 sisters will split it 50/50. But is their any type of inheritance tax or income tax in this situation? Someone from the closing company called and stated that since the grandmother owned 1/3 of the house at the time of her death, that taxes will have to be taken out of her share of the sale price. But if the will states that only the 2 sisters are getting the proceeds, does this make sense? An attorney will be brought in to sort this out, but I was hoping to hear from others what they would expect in this situation. Thanks.