Santo Gold

I guess I'm a little confused then. I thought one of the benefits to both an individual and an employer of an individual making 401(k) contributiions was to avoid certain tax consequences. Can I assume that means the individual avoids federal income taxes but the employer does not avoid FICA/FUTA taxes? Thanks

This is probably too easy, but for payroll purposes, when an individual makes a 401(k) contribution, is that 401(k) amount subject to FICA? Does it make a difference if the 401(k) amount is made from a company bonus as opposed to regular payroll?

Gary - Regarding Leased ee's in point #4, I thought if the defined benefit was tested and determined to be of greater value than a 10% MP, then no benefit would be needed for the leased ees in the ER's plan. Am I incorrect? Thanks

I need the SEP/SIMPLE Answer Book!!!! I'll be ordering next week. In the meantime, maybe someone can help me with a few SEP questions, ranging from easiest to hardest: S-Corp started in June, 2002 with 2 equal (50/50) owners. No other ee's in 2002, just them, but they take no comp. In 2003, both take a salary. They also hire 2 p/t people. In 2004, they are again taking salary and expect to make a lot of money. They 2 p/t people leave in 2004, and are replaced in July, 2004 with 4 new p/t people. Owners objective is to start a SEP in 2004 that will include them (owners only) and not the others. 1. Would the eligibility have to be set at "having performed services in 2 of the previous 5 years" to get the 2 owners in (3 out of 5 would keep them out for 2004, correct)? Would the minumum wages have to be $0 since they were not paid in 2002? Also, if 2 out of 5 is correct, would that mean the 4 new p/t people will not enter until 1/1/2006? 2. Assume all of the p/t people work less than 1000 hours. Can the employer terminate the SEP after 2005, start a PS or 401k in 2006 with a 1 Year of Service/1000 hour eligibility requirement, and have everyone excluded other than the 2 owners? 3. I believe 415 applies to SEP's so if they contribute $3,000 each to the IRA, they can receive up to a $38,000 employer allocation each in the SEP? Is this correct? 4. Employer also uses around 20 leased employees from a hospital. These employees are covered under the hospitals DB plan. I think the ER reimburses the hospital for all wages and benefits including the DB plan. Do these leased employees have to be covered in the SEP? 5. Finally, can the company borrow from the 2 owners to fund the SEP? This is quite a laundry list so thanks for any comments. I'd rather stick to 401ks.

I'm not real familiar with SIMPLE's but an employer has maintained one for 5 years, and has gone over 100 employees in 2004. They will use a 401(k) in 2005. Can the employer continue to actively fund the SIMPLE through the end of 2004, or does the employer have to stop in the month the company exceeded 100 employees?

I talked with a doc's office who just recently discovered that their 401(k) plan has been top heavy since inception (mid 90's) and they have not been making the required 3% contribution for all non-key's (the 3 keys have 401(k) contributions well over 3% of pay). They are in the process of determining the liability for all of those years and turning themselves into the IRS. In the meantime, they's like to start a second 401(k) plan with the goal of eventually terminating plan #1. I assume they want to "freeze" if you will 401k #1, with no new money coming into it. Keep it around until they resolve matters with the IRS. Starting in 2005, they want to start 401(k) #2, for the same group of ee's (all employees) with probably the same or similar plan specs. Other than plan #2 not really being necessary, is there anything wrong with this scenario? Am I correct that they should not terminate #1 until after the problems are resolved?

This probably has an obvious answer, but I had to ask: Client wants to have a loan feature in his 401k plan. He understands that there will be a small fee that the loan participant will incur and must pay, to the TPA. Client's question is, can he (the owner/employer) also charge a nominal fee for his aggravation involved in approving the loan? He is talking in the $30 - $40 range, not much at all. Also, could this be paid to the employer?