masteff

I'd agree too but add the caution to double check your plan text (definitions of service, employment, hours of service, earnings, etc). Just be sure it's truly severance and not paid leave of absence. The termination date you record in your HR/payroll system will be important.

For now, I would take the position that you relied on the W-2 your employer sent you earlier this year. Your employer will have to tell you if this causes a change to what they previous reported for box 13 (i.e., the checkbox for "retirement plan").

Yes. See IRS Publication 560 which explicity confirms that you combine the amount put into the SIMPLE with any amounts deferred in any other employer plan during the year. I'd suggest asking the company (w/ the 401(k)) if they are able to input your other plan deferrals into their system so it will automatically cap your deductions and prevent you going over the limit (some payroll systems can do this, don't be put out if they can't). You'll have to complete Form 5304-SIMPLE (which you don't file w/ the IRS, just put in your records). Per Publication 560, you'll report the SIMPLE contributions on Schedule C of your personal 1040. As of the mechanics, in general, yes, you just send Vanguard a check or possibly even have them draft your account. Here's their page on SIMPLEs for more: https://flagship.vanguard.com/VGApp/hnw/acc...viewContent.jsp

Actually, no, not for a former employee. (This is from experience, I worked in a large corporation with four 401(k) plans w/ assets over $800 million.) The standard loan doc typically covers that repayment will be by payroll deduct, else EE must make payments according to terms of loan, if payments are missed then loan will be defaulted. No collection procedure, no burden on plan to attempt to collect. Only real barrier to EE is having to payoff defaulted loan if wants to take a new one.

Correct. As an aside, I'd have to look at whether the annual additions limit is applied by plan or by person (meaning I think he can get more than $49K, just not all from the same plan/employer). (The combined $15K+$5K pre-tax and catch-up limit is definitely applied by person across all plans and employers.)

It depends on how the plan is administered as to whether it's a separate election or not. However, catch-up contributions are only permissible to the extent the employee will exceed the lesser of the plan's limit or the 402(g) limit on contributions (ie maxed out their normal pre-tax contributions). If the EE does not exceed the lesser of the two limits just noted, then any catch-up contributions are recharacterized as regular pre-tax contributions after year end. So the question is... which way do you want the answer to be? Answer 1 - yes, the EE should get some extra for catch-up The offering by the plan of making catch-up contributions is a separate right or feature with respect to the correction, in which case I would look into using 50% of the average catch-up made to the plan. (I'm going off the top of my head on this, but it seems consistent and objective.) It would have to be done for anyone age 50 or over and not just this one person. Answer 2 - no, the EE does not get anything extra Catch-up is merely an extension of the limit on maximum pre-tax contributions. Catch-up merely means the EE is allowed to contribute more, it does not create an extra burden on the plan to provide additional correction. Code Section 414(v) says the individual's 402(g) limit is increased by the amount in 414(v)(B)(i). This increase applies outside of the plan (for example for employees who participate in more than one plan during the year and must combine their contributions for purposes 402(g)). When a plan provides a catch-up feature, they are merely agreeing to monitor and limit employees' overall pre-tax contributions to the higher limit and recordkeep them accordingly. Catch-up is not a separate type or form of pre-tax contributions, just a higher allowed amount. (I'd look closely at the plan's wording with respect to catch-up.)

There are two separate limits. The first is the 402(g) limit on pretax deferrals. The second is generally called the annual additions limit, which applies to pre-tax, after-tax and employer contributions. So yes, if he has another 401(k) available, he could contribute enough pre-tax money to it to max out his combined pre-tax plus catch-up limit.

Question one: do you actually have the employee's deferral election and it simply wasn't entered properly in the payroll system or is it only the employee's word or copy of an election that you have to go on? Part of this leads to my next question and part of it goes back to your plan documents and whether they explicity state that enrollments/changes are effective when properly submitted to and received by the benefits department. Question two: did the employee lose out on any match? If so, I'd certainly review making up for lost match using either the employee's election (if you had it in your records and it just wasn't entered) or fully matched rate (if you can prove the employee tried to enroll but can't document his election). As to how to make the correction from the position that the EE had responsiblity, my last company would have allowed him to write a check and make a one-time after-tax contribution for an amount up to the missed contributions and would then have given him earnings based on a reasonable interest rate (typically our fixed income fund). By giving him earnings, you make him whole on his loss without unjustly enriching him by the company making the contribution on his behalf (he has the money in his pocket so he can either contribute it now or forever hold his peace). The absolute most I'd give him is earnings on the missed contribs w/out requiring him to actually make-up those missed contributions. Since it's a prior year correction, it would typically fall outside of testing.

So is it just box 12 that's wrong on W-2 or is box 1 wrong as well? Because the employer is contributing the money rather than actually deducting it from pay, it sounds more like a profit sharing contribution (which can be made by certain deadlines after the end of the year) (provided the plan allows for discretionary profit share contributions). So not necessarily a late contribution and no operation failure for not following deferral agreements. I like Belgarath's answer of putting in writing to client to talk to tax counsel. However were I the employer, I'd also be tempted to read through EPCRS and see if a reasonably similar situation is provided in the voluntary self-correction procedures. My concern is that an employer contribution does not automatically, by itself, fix a W-2 box 12 error (because box 12 is for deferrals and an employer contribution is not a deferral). However it might be a valid self-correction since the deferral amounts reported to the Service do not match actual contributions.

The loan is taxable income in the year it's defaulted. So while you'd be over 59 1/2 so no early withdrawal penalty and no withholding at the time that the money comes out of the plan, you would still need money to pay income tax on the defaulted amount when you file your taxes April 15th. Ask your plan for a copy of the "special tax notice" which contains some useful info. Also IRS publication 575 has some additional info.

As noted above, you can put a lot into a 401(k). I'd start by finding out what the rules are for the 401(k) you'll be in, specfically, what is their maximum contribution percentage rate. Then ask yourself what % you'd likely put in on a normal basis. Figure out how much money you expect to earn at the 401(k) job in 2007 and figure how much you could put into the 401(k) if you did the maximum contribution rate. If the difference between your normal % and the max % is enough for you to put away most or all your freelance income, then just wait and max out your 401(k). The same goes for future years if you have recurring income; if you wouldn't reach the 401(k) max at your normal %, then consider maxing out to defer that income.

You will get a 1099-R, even if you do a rollover w/ the same company. The first step is to confirm if the new account is an IRA or not. Second, what you need to look at is the distribution code on the 1099-R. If your 1099-R shows it was a rollover, then follow the instructions for line 15 on Form 1040. If the 1099-R shows it was a distribution, then all you have to do is file Form 5329 (with your 1040) to show that you rolled the money over.

Assuming you amended the plan to allow only this EE to get match, then since EE is an HCE, it goes back to nondiscrimination testing (ACP test under 401(m)). Since NHCE's have an average rate of zero, then to best of my understanding, HCE's are limited to zero ("basic test" is 125% of NHCE rate, "alternative test" is lesser of plus-2 or 2-times over the NHCE rate, all of which start from zero). So yes, giving match to this EE alone would violate nondiscrimination. Two possible fixes require giving contributions to other employees. 1) If you did as commented above and make a special amendment to allow this EE to have a special match rate, the company could give 1-2% match to other employees. Then under the alternative test, the HCE rate would be equal or less than 2-times the NHCE rate. (Exact amount of match required would depend on number and participation rate of HCE's vs NHCE's.) 2) Start out as in 1, but instead of giving match to the other employees during the year, wait until during discrimination testing to determine the minimum amount of match give to NHCE's. (I'd discuss w/ your TPA or whomever would do the testing to determine how much extra administrative burden this would create.) Another possible fix would be to start a non-qualified plan to allow this EE to receive match based on his contributions to the qualified plan. (But a non-qual plan can be relatively expensive to set up and maintain, especially for one EE.) One other thing to look into... allowing NHCE's to make after-tax contributions, since those fall into the ACP test as well.

IRS Publication 560, page 4, provides a general (and broad) definition of compensation. One key word is that the employer "can" define it to include their entire list of items (wages, fees, and other). "Can" means there is a choice available to exclude items as long as it's not discriminatory. So I would say yes, you can exclude fringe benefits. Probably go with "wages and salary".

Thanks for the response Bird! And yes, on #3, it's due to the 25 ee limit, and that's what I was leaning towards (versus #2, trying to put them into the 401(k)) as long I felt I could stand by it.

You might try Sungard/Relius: http://www.relius.net/Products/ptp_whatitis.asp

Due to growth (ie now over 25 employees), the client is no longer able to allow contributions to their SARSEP. They are working towards establishing a 401(k). Q1 - Can deferral elections for the SARSEP be automatically carried over to the 401(k) or must the client get each employee to make a new election? Q2 - If the 401(k) is retroactively established (say in April) back to January 1st, can amounts already withheld from 2007 payrolls (ie Jan & Feb) be treated as contributions to the 401(k)? Does the answer change if Jan contribs have been funded to the SARSEP but Feb contribs have not? Q3 - Can amounts already withheld (and funded) from 2007 payrolls be treated by the employees as contributions to a traditional IRA (treating them similar to "disallowed deferrals" (see form 5305A-SEP pg 4)), subject to the limits on traditional IRA contributions?

This question is skirted around in a few older threads. Thanks in advance for any opinions. A new LLC w/ 4 partners is looking at adopting an SEP. Longest service w/ company is one year (prior plus current year), shortest is zero (current year only). Is there any mechanism (such as a prototype plan?) than can effectively establish different eligility requirements for current versus future employees? The intent would be for any and all employees on date of adoption to be immediately eligible but going forward require 2 or 3 years of service. If no mechanism to accomplish this, what is legal exposure if adopt SEP w/ zero service requirement this year and change to one year on next January 1st (assume no employees other than partners until after January 1st)?